Nashville, TN · Member since 2017 · 28 posts · 14 votes
Hello BP Members,
I hope everyone is staying safe, healthy and sane in these crazy times. I am currently under contract on a vacation rental in the Smoky Mountains (approx. 10 min from Pigeon Forge), with a closing date set for the end of April.
My plan has been to move forward with the purchase despite the current environment. However, with Gov. Lee's decision this week to extend the 'safer at home' order through the end of April, I'm becoming hesitant to step in to a property that I can't use or rent when I take possession.
I have sufficient reserves set aside, and I am otherwise able to support the expenses of the property with my W2 income. So, riding out a few months of no to low revenue wouldn't be a problem, but obviously would result in using up some of my reserves.
I'd like to get y'all's take on how you see the Smokies' vacation rentals doing over the next 3-6 months. Any thoughts or insight would be much appreciated.
Hi John - this came to me this morning from my Property Manager and I think its all pretty accurate:
Instead,
I want to look past this crisis and offer some encouragement for the
future. Things will get better. This will not last forever. We will
be here to see you through.
While we are likely in store for a very rough ride in the short term, I
want you to know – the Smoky Mountains will be the first vacation market
to recover. You can count on that. Put it in the bank. All the
reasons that make Sevier County Tennessee the
best place in the country to own income earning vacation property are
still right here. In fact, many of the things making us a desirable
destination, will ring especially true once the dust clears from the
COVID panic.
We are a driving destination located within a day’s drive
of 75% of the US population. You don’t have to get on a crowded
airplane to visit the Smoky Mountains.
We are a
nature-driven tourist destination. The GSMNP is still our number one
attraction, and those mountains are not going anywhere. Visitors to the
Smokies don’t have to get in the crowds to enjoy their time here.
We
are affordable compared to other vacation destinations and staying in a
private cabin offers entertainment and food preparation options that
add vacation value.
Renting a private mountain home
will be more immediately appealing than hotels when guests return to
planning vacations. Enjoying a private cabin keeps you out of those
hotel elevators and common spaces.
The Smokies is a family vacation destination – and some stress-free family time will be high on everyone’s wish list soon.
While I want each of you to be prepared for some tough months ahead, I
also want you to be encouraged. Our vacation market, like most of the
world, is on pause. However, things will not stay paused forever. The
show will go on. Our guests will return.
The Smokies will always be desirable, and we will be here promoting all those things that make our destination, and your beautiful cabins – the place to be.
I’ve been on the sidelines in this market for about 18 months. Everytime I get close to pulling the trigger a great deal pops up in my primary market which pulls me away from the Smokies.
I hope prices crash. So I can BUY BUY BUY.
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
@Mike V.@Leora Merrell What I saw in this market is that the price still too expensive to make number work. What is you guys looking for return those days s good investment?
@Vincent Chen...I'm still pretty new to this whole STR thing and REI in general, so I don't know if the numbers were good or great when we bought in the area. I just know that I needed to stop sitting on the sidelines always wanting to do this, but never pulling the trigger. My wife finally asked me "Are we going to do this or just keep talking about it?" That was all I needed to pull the trigger and 30 days later, we had an offer on a place and were in the process of getting our first cabin. We were doing great until the virus hit, but there's always something that can hit you in REI from what I've been told and read, so if its not a pandemic, it may be tenants that stiff you for rent for the last 3 months and you have to evict them or one of the numerous stories that @Paul Sandhu shares with us on this forum. I'm just new and naive enough that figuring out the numbers for CoC or ROI or any other algorithm on REI isn't my primary concern right now. I know I will learn that as I grow and will do things smarter in the future. For right now though, I'm happy that I'm in the game. Best of luck my friend and we're all here to help where we can...Paul
I am not worried about the tenants at all. I have only accept if people are employed in essential Industries or have a guaranteed payment such as Social Security.
and people who think they will stay on my dime will be reminded that when the Courts open any evictions are prosecuted and that their credit history will be in the crapper for up to 10 years with an eviction proceeding
Just adding my experience to the mix based on @John Craven's original question -- I own a short term rental near Pigeon Forge and before the pandemic I was booked solid through June into July. While I've had a large number of cancellations, I have since booked out all the opened dates (albeit a little cheaper) to local travelers who just want to get away for a few days. A few weeks ago I had 4-5 cancellations for April, but now I am ending the month with a 98% occupancy after new local bookings came in and I'm helping other owners manage their rentals.
@Account Closed and those they put me in contact with. I move forward with optimism! I would also say that just like this venture, many years ago, it was a book "Rich Dad, Poor Dad" that got me off the bench and motivated me to go and buy our first LTR which in the end turned out successful and educational. And so there you go, that is my get started story for better or worse...Much good fortune to all!
@Paul Cox Nothing wrong for this investment, what I and @Account Closed discussed is that right now the price seems to be too high and the return is not so exciting as our expected.
@Account ClosedI agree about the numbers and a viable investment. STVRs are a commercial property and need to be run as a business. Buying a cabin in the hope to earn 6-8% net does not make for a great actively managed business. (340k purchase price yielding $22.5 net)
@Paul Cox how did your realtor help you want to be successful if she had you overpay for a property that would result in a less than 8% cash net? Did realtor represent you or the seller?
@Todd Goedeke - While I don't know how @Paul Cox financed his purchase, your 8% amount assumes he paid in cash and did not leverage the property, which would be surprising. If he put down 25%, then that return number is obviously significantly higher.
@John Craven The 8% cash return assume investment can net 50% of gross, which is not always the case. If he only net 30~40% of gross, cash return will be way much lower, even use leverage, the return is not so great as what I am expected.
Even 6-8% while not ideal, is far better than the negligible return I was receiving with the CU/Bank, and I now have an asset, and I have a vacation home, and I have built a team down there I tend to trust, and I'm gaining education in this realm called STR. So yes, I still side with my realtor being a help to me. Again, getting smarter all the time.
@Paul Cox funny, I'm searching for info about buying in Gatlinburg, come across this thread and I'm from Manassas too, living in Charlotte now, maybe it's a sign, lol. Congrats on your purchase!
So at his given rate and down payment.. if he only nets 10k/yr his CoC for 1st year is still 29%. Which is a most excellent return. The real question is whether the additional work in this active investment is worth the $832 /mo (10k/12 months) he would make on that return and that question can only be answered by the buyer and what his time is worth, how much the education he is receiving in what I think is his first STR asset purchase and what having a cabin in that fantastic part of the country is worth to him.
@Ken Boone That is not the point I think, if you really want to scale the business, 10% downpayment is not the way to do. Finally you need to finance at 15% or 20%, you need good return to scale, that is my logic.
@Vincent Chen I understand what you are saying and for me I would would want more cash flow. I do agree that the returns in that market have come down, solely based on purchase price increases that have occurred over the last 18 months. However, a 10% second home mortgage at 3.75 % to wet your feet in the STR business, and see if this is for you is not a bad option to start with. There are a lot of personal details that come into this of which only the buyer will know i.e. his cash position, his goals, family situation, etc.. all of this comes in to play for each person and weighs in on their decision making process for these deals. So it's never a once size fits all scenario. Each person needs to do what is comfortable for them and be able to sleep at night. At least that is my theory ;)
I'm so so Happy to hear your cabin is doing so well. Exactly what we talked about. It is all about how you manage your investment and knowing the numbers and actual potential going into it. This market is extremely high priced right now. We have sellers asking for astronomical prices because they have a view but based of revenue I do not see how they are making the returns promised by some Selling Agents. While one owner/investor is happy with a 15% return another one may not get out of bed for less then 30%. Its all about your personal investment comfort zone and what amount of return /risk you want.
With services opening back up in Pigeon Forge and Gatlinburg over the next few weeks Our bookings have exploded and we are also at 95% occupancy even with our larger managed cabins starting to book up again!
Hope everyone is safe and we have a profitable remaining 2020!
@John Craven The 8% cash return assume investment can net 50% of gross, which is not always the case. If he only net 30~40% of gross, cash return will be way much lower, even use leverage, the return is not so great as what I am expected.
if you go by his actual example, he put $33k down (10%) and was/would be grossing 45-50k with a net of 40-45%. using the low end on both, he would, theoretically, get $18k back yearly. That would be about 45% c-o-c. Sounds like a good deal to me (as penned out).