Smokies STR - 2008-2010?

23 Replies

I know most people on this forum didn't have STRs in the Smokies back during the last real recession, but are there any folks on here who do have some insight? I think the Smokies is pretty recession proof but would like to see if I can confirm this with first hand knowledge. I also reached out to a few property managers who have been in the area for decades. So far all my cabins are booking well.

Originally posted by @Alan Ford :

I know most people on this forum didn’t have STRs in the Smokies back during the last real recession, but are there any folks on here who do have some insight? I think the Smokies is pretty recession proof but would like to see if I can confirm this with first hand knowledge. I also reached out to a few property managers who have been in the area for decades. So far all my cabins are booking well.

 @chuck Kramer is your guy. Also.... this is a national park. All of this info is googleable. 

Originally posted by @Alan Ford :

I know most people on this forum didn't have STRs in the Smokies back during the last real recession, but are there any folks on here who do have some insight? I think the Smokies is pretty recession proof but would like to see if I can confirm this with first hand knowledge. I also reached out to a few property managers who have been in the area for decades. So far all my cabins are booking well.

I don’t know about the smokies but I had a bunch of multi million dollar vacation rentals on the Outer Banks of NC and we only had about 10% dip in occupancy in summer of 2009. It’s been uphill ever since. I would imagine most areas that like the OBX that have always been seasonal vacation rental markets saw the same thing.

2008 effected real estate values due to all the foreclosures on loans that never should have been made and variable interest rates going up to make payments unaffordable for many people.

During recessions people tend to stay closer to home and not do as much international travel.

I would venture a guess that some place as popular as the smokies would be about as recession proof as you can get.

We've been in the Smokies since 2005. We didn't see a downturn in reservations. But what we did see is a change in our guest profile: Instead of folks coming in from the northeast as much, we saw a lot more guests from closer distances - Nashville, Atlanta, Charlotte.

I mentioned in my OP I would talk to local PMs etc. I’ve spoken to a few now that operated during the recession, and they basically said their rentals were down by about 25% or so on average. Picked back up in 2011 and then took off from there.

I would plan for at least that much of a reduction. Likely to be higher given the dynamic of business facing mandatory closures. The problem with that is some business can’t afford to be closed and may go under - then the chain reaction starts. Business close, can’t afford to reopen when things get better, employee loses job, employee can’t afford to travel etc.

@Vincent Chen I wouldn’t call anything “anything-proof,” however, true vacation rental markets are proving to be more insulated from the effects of recessions thus far.

@Collin H. it's still a little early to tell. I have had a few buyers cancel contracts out of fear, but I have had a just as steady as ever amount of buyers making offers on properties the past week as well. On the flip side, I've also had a few clients want to quickly list out of fear without time for professional photos etc. I can give you a better answer in about a week.

Here is the spreadsheet I put together last year when I was deciding whether to keep buying additional cabins. It makes a really good case for the area's resilience. The Lodging revenue is from the Pigeon Forge city website and encompasses ALL taxable lodging revenue, as such I think it's a pretty good indicator of overall rental income. A 14% drop in area income during the greatest recession this country has ever seen is getting off pretty damn lightly IMHO. Now, if your profit margin was 14% or less to begin with, then you would disagree with me, and the high number of foreclosures shows that many people were in that position. But I would argue you shouldn't be in vacation rentals with that little margin in the first place. Restaurant and National Park numbers with very modest drops shows that people still went to the Smokies, even during the recession. By comparison, a quick Google search told me that Hawaii lost 30% of visitor visits during the recession. So for me the takeaway is as long as your margin is comfortably high, the Smoky's can ride out any storm. And as a side note, if it's not higher than LTR, why are you doing it?

BP wouldn't let me post pics so here are links to the screenshots, and the underlying spreadsheet.

Link to Data      Link to Chart      Link to Spreadsheet

@Vincent Chen in a recession, there is no equity in any market. Sometimes negative equity. That's why I never recommend to invest for equity (whether an LTR or an STR), only for cash flow.

@Avery Carl This point make sense, but it really depends the level and quality of cash flow.

For standard LTR cash flow, they are normally not good enough to scale business, so we need to build equity (BRRR) to make ourself scale.The business model for STR might be different, but still, equity is the real wealth.

@Vincent Chen of course it depends on the level of cash flow! You have to buy wisely. Equity comes and goes, like value in the stock market.

I closed on my 28th door today. My equity did not scale my portfolio, my cash flow did.

My two cents are that 1-3 bedroom cabins will probably be the best buys at this specific time and suffer the least. They may even see a surge in bookings as people want a safe getaway in a remote location like the mountains. Demographics would include mostly small families and couples (maybe plus 1 of another couple) which will still travel driving distance during this pandemic. The bigger cabins that rely on bigger groups and numbers of people organizing and renting them such as church groups, multiple families in same cabin at one time, reunions, sporting and youth groups, along with work groups will take a hit at this time for the foreseeable future. I am unfortunately one who owns a larger 7 bedroom cabin and I have had a few cancellations already. Also, a lot more planning goes into the bigger ones being rented and during times of uncertainty and when people are not sure if they will have jobs or not, no big groups of people are wanting to book. Fortunately, I have enough emergency to cover 8-12 months of mortgage so will just need to ride this thing out. Once things get a little more normal hopefully in the coming months, I expect to crush it just as I was pre-Corona virus with domestic guests.

Originally posted by @Avery Carl :

@Collin H. it's still a little early to tell. I have had a few buyers cancel contracts out of fear, but I have had a just as steady as ever amount of buyers making offers on properties the past week as well. On the flip side, I've also had a few clients want to quickly list out of fear without time for professional photos etc. I can give you a better answer in about a week.

@Avery Carl - I am interested in hearing how things pan out in the next two months as well. Please keep us posted. I spoke with Lucas via phone last week about 2 I am closing on next week. I want to close on 5-6 more by year end in that area, but am a little on edge with all the attractions shutting down and the potential shelter in place orders dropping from state governors each day. On the other side of the coin, I am getting excited about potential deals that may become available if folks have to dump their properties to free up cash.