Short-Term & Vacation Rental Discussions

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Account Closed
  • Real Estate Agent
  • Sevierville TN
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STR Financing in Gatlinburg Pigeon Forge Smoky Mtns

Account Closed
  • Real Estate Agent
  • Sevierville TN
Posted Mar 22 2020, 11:10

My wife and I are thinking of doing things a bit different than most. We want to get into a str cabin in the smoky mtns, but don’t have the funds to come up with the downpayment at the moment. We’re thinking that this time next year we could sell our home and live in a camper for a year, that would give us the money we need to put down on a cabin and start working our way into financial freedom instead of depending on my 9-5 job. We have two kids under 3 so we know it’d be tough for a year, but we think we can make it work to get us to where we want to be financially in the future. So could we potentially do a primary mortgage on a cabin as if we were purchasing it to live in it to take advantage of a lower down payment, then rent it out through Airbnb etc.? Or would we still have to do a vacation home loan (10% down) or investment loan (15% down)? Our biggest concern is that if we absolutely hate living in a camper we want to have an exit strategy to be able to get a home loan again so we can get back into a house (without having to sell the cabin.) Trying to tag @parkerborofsky but it’s not letting me. Welcome input from anyone though!

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Avery Carl
  • Real Estate Agent
  • USA
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Avery Carl
  • Real Estate Agent
  • USA
Replied Mar 22 2020, 11:14

@Parker Borofsky you're being summoned. She can speak more to the financing part, but my parents raised me mostly in an RV until age 4 while my dad was playing professional golf. So that part, while it seems daunting, is totally doable with kids!

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Collin H.
  • Property Manager
  • Gatlinburg, TN
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Collin H.
  • Property Manager
  • Gatlinburg, TN
Replied Mar 22 2020, 11:28

I hope this doesn’t sound too harsh, but this current pandemic is laying bare the fact that if you do not have ample cash reserves, you’re finished, because you are over-extended and have a good bit of hiney showing.

You should not only be able to muster 20% down, but have $30K in dry powder.  This situation is not a once in a lifetime event:  Just three years ago, many folks in the smokies were financially devastated by the fires, including me.   In fact, many were RUINED financially and for things beyond their own control.

If you finance the home as a principal residence, you have to be prepared to commit fraud, as your lender is likely going to require a notarized and/or sworn statement that this is your principal residence.

Good luck to you and stay safe.

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Alan Ford
  • Rental Property Investor
  • Temecula, CA
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Alan Ford
  • Rental Property Investor
  • Temecula, CA
Replied Mar 22 2020, 11:40

@Collin H. I wasn’t around for the fires. Were the homes not insured? I don’t understand.

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Avery Carl
  • Real Estate Agent
  • USA
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Avery Carl
  • Real Estate Agent
  • USA
Replied Mar 22 2020, 11:52

@Alan Ford many were under-insured.

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Alan Ford
  • Rental Property Investor
  • Temecula, CA
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Alan Ford
  • Rental Property Investor
  • Temecula, CA
Replied Mar 22 2020, 11:53

@Avery Carl oof. Got it. Always better to over insure I say.

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John Underwood#4 All Forums Contributor
  • Investor
  • Greer, SC
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John Underwood#4 All Forums Contributor
  • Investor
  • Greer, SC
Replied Mar 22 2020, 12:06

You can make offers contingent on seller carrying back a 2nd mortgage for the downpayment.

All they can say is no.

This way they get 80% of their sell price at closing and receive payments from you on the remaining 20% which might just be equity. 

You can explain you will pay a higher interest rate that the money parked in a savings account.

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Parker Borofsky
  • Lender
  • Knoxville, TN
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Parker Borofsky
  • Lender
  • Knoxville, TN
Replied Mar 22 2020, 12:12

@Account Closed - weird it wouldn't let you tag me!  Thank you @Avery Carl!  Occupancy is definitely important and you never want to commit mortgage fraud - it's really not worth it.  If you are borderline on the occupancy, my advice would be to continue to save and also see if you have any family that would be willing to give you a gift since gift funds are allowed on second homes.  If you put 10% down on a second home, you would have to show that you have at least 5% of the purchase price of your own funds and the rest can be a gift.  You may also want to look into a home equity line of credit or a cash-out refi on your current residence.  Another idea is to sell your current home, purchase a less costly primary with a USDA loan (if you qualify) @ 100% financing and use the proceeds from the sale of your home as the down payment for a cabin. You could also sell your home, use the proceeds to purchase a cabin and actually live there as your primary home for at least a year.  After 12 months, if you decide you would like to purchase a home somewhere else and use the current home as investment, that should be fine.  Just remember- it will need to make sense to underwriting in terms of distance to work/if you can work remotely, etc... Hope that makes sense!

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Michael K Gallagher
  • Real Estate Agent
  • Columbus OH
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Michael K Gallagher
  • Real Estate Agent
  • Columbus OH
Replied Mar 22 2020, 12:12

@Account Closed it really depends on the loan and the terms I think. In my experience an Owner/occupied loan does have occupation requirements but they are only for a set time. For instance we financed our Duplex through an FHA owner occupied loan. That requirement was a year from closing we need to occupy it. If you want to move out and do it "by the book" before the year you can refinance into a conventional loan. There may be some small credit unions or community banks in the area you are looking to buy in that would do some kind of unconventional financing and work with you if the deal is a good deal. Also, if you find a property and can get the purchase price to be 70-80% of the value you may be able to get into that with a low down payment because of equity in the property, and not even need an owner occupied loan. Lastly, as I am currently house hacking I'd also say to take a strong look at that. I can't say enough good things about it, It has really opened up a lot of doors financially.

Real Estate Agent OHIO (#2021002058)

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Kerry Baird
  • Rental Property Investor
  • Melbourne, FL
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Kerry Baird
  • Rental Property Investor
  • Melbourne, FL
Replied Mar 22 2020, 12:24

I've gotten owner financing, similar to what @John Underwood is suggesting, for my STR. I pay 6% interest only to the seller, which has enabled me to have cash flow and build up reserves.

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Collin H.
  • Property Manager
  • Gatlinburg, TN
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Collin H.
  • Property Manager
  • Gatlinburg, TN
Replied Mar 22 2020, 12:26
Originally posted by @Alan Ford:

@Collin H. I wasn’t around for the fires. Were the homes not insured? I don’t understand.

 When 2000 homes burn in 10 mile radius, EVERYONE is underinsured.  

We had a 1100 square foot home insured for $210K, quite sufficient to rebuild before the fire.  In fact we felt it was probably over-insured.  

It took $330K plus to rebuild, plus 2 years of lost income. And the mortgage payments continued.  Probably a $230K hit for me.

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Collin H.
  • Property Manager
  • Gatlinburg, TN
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Collin H.
  • Property Manager
  • Gatlinburg, TN
Replied Mar 22 2020, 12:40

Another thing that wiped out homeowners from the fires is that there was no way financially that some could rebuild according to new codes.  I heard stories of compliant foundations alone were in the $150K range, for a 1000 square foot house not insured for much more than that.

Many people just walked away.  If you do a quick search for lots available in the Gatlinburg area, you’ll still find scores of these such lots for cheap:  They can no longer be feasibly built on.

As we are seeing with COVID, no one is really immune to anything like they might think. If you buy a STR you are going into business. If you are running on fumes financially, it could be a colossal disaster waiting to happen.

“You don’t know who’s got their swimsuits on until the tide goes out.”


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Avery Carl
  • Real Estate Agent
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Avery Carl
  • Real Estate Agent
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Replied Mar 22 2020, 13:02

@Collin H. I’m stealing that line!

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Alan Ford
  • Rental Property Investor
  • Temecula, CA
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Alan Ford
  • Rental Property Investor
  • Temecula, CA
Replied Mar 22 2020, 13:16

@Collin H. Makes me feel better about my insurance policies with loss of income coverage (looks like it may cover epidemic by the way) and an extended replacement cost option. Then again, I am in the insurance industry and I understand how that works. Most people think the limit you choose is based on what you paid for house. Not really true - as you pointed out.

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Collin H.
  • Property Manager
  • Gatlinburg, TN
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Collin H.
  • Property Manager
  • Gatlinburg, TN
Replied Mar 22 2020, 13:21
Originally posted by @Avery Carl:

@Collin H. I’m stealing that line!

 I stole it from Warren Buffett lol

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Brian G.
  • Rental Property Investor
  • Los Angeles, CA
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Brian G.
  • Rental Property Investor
  • Los Angeles, CA
Replied Mar 22 2020, 13:34

@Levi Trentham I applaud you for being open to a creative solution to reach your longterm goals. And as far as the kids, this is the easiest season in which to do something like this, while they are still young. Not sure if you will pursue this but wanted to say that a willingness to sacrifice is a huge component of longterm success!

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Jeff Summers
  • Rental Property Investor
  • Tennessee
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Jeff Summers
  • Rental Property Investor
  • Tennessee
Replied Mar 22 2020, 13:52

I owned a STR cabin in the Smokey Mountains that was a total loss in the 2016 fire. I had been there for 10 years. I took my insurance money, sold the lot and never went back.

I had an "A" class cabin and like you , I put very little money down. I had visions of really profiting on appreciation - having some cash flow. The Smokeys were never the panacea that I'd been told they would be. I have a primary gig - established insurance agency and also commercial real estate, residential LTR real estate and some STR real estate.
I believe there are better choices for cashflow than that area- particularly when you’re putting so little down- given the extreme competition there and also given the limitations/ control over you.  Ex  - if my STRs slow down or I need out , I can always go LTR.  That’s not the case in a resort area with covenants, rules etc.  

Again ,this is my experience.  Frankly,  I was far better off financially having lost that cabin to fire.   Just be careful.  Lots of sub markets out there. 
My best -

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Ken Latchers
  • Hatfield, PA
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Ken Latchers
  • Hatfield, PA
Replied Mar 22 2020, 16:05

This is why my philosophy is to buy and low and rent high. And have a solid backup plan.

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Account Closed
  • Real Estate Agent
  • Sevierville TN
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Account Closed
  • Real Estate Agent
  • Sevierville TN
Replied Mar 22 2020, 16:43

@Avery Carl Thanks for tagging, now it’s working!

@Parker Borofsky Definitely not trying to commit any fraud lol. I’ll have money to put down  from the sell of our home and another property I have inherited, I was just wondering what the best loan option would be in case living in an RV doesn’t go well and I need to get another primary mortgage loan while still having a cabin loan. Thank you for your help! 

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Luke Carl#4 Short-Term & Vacation Rental Discussions Contributor
  • Rental Property Investor
  • Tennessee Florida
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Luke Carl#4 Short-Term & Vacation Rental Discussions Contributor
  • Rental Property Investor
  • Tennessee Florida
Replied Mar 23 2020, 04:04

@Collin H. @Avery Carl

Warren Buffet and Lucas Carl. Omaha Nebraska’s pride and joy.