All Forum Posts by: John Carbone

As someone who lives on the ground in Sevierville I’ll add my two cents here. You better make sure this property, if it is currently on the rental market, is actually renting out well NOW and if it isn’t being rented, find out why that is. There is demand, but there is a ton of supply out there now. I’ll make a post when I have time showing the supply increase in Gatlinburg. 

I am seeing a ton of cabins being sold that have been milked for a decade or more by previous owner who paid in the 100k range selling them for 500k now. These properties have been abused with no maintenance done whatsoever other than handy Andy patching stuff up as issues came up. Up until this point they got away with this business model because demand had been in equilibrium or greater than supply. The market has shifted, and we are likely looking at a 5-10 year horizon where supply will be exceeding demand. These people dumping their properties now are very likely on pace to make half of their revenue than last year if they didn’t do any updates. I don’t blame these people for what they did, as the saying goes why fix what isn’t broken, and it never made sense for them to invest in the property. We are fully in the transition phase of how it used to be, to how it will be in the future. Enter this market extremely cautiously. This doesn’t even factor in the higher rates now and the impact it will have on cash flow. 5 percent 6-month treasuries right now are a good place to ride this transition phase out. Prices are on the decline and momentum has shifted. There is no fomo here anymore, be patient until you find the property you really want. 

Even if you bump up occupancy to 80 percent that adds 13k, remove the pm to add another 10k. You will be making a few thousand a year on a 160k investment and you have to do day to day work. This 160k will make the same (or more, and no risk) sitting on your couch collecting from Jerome powell (you still lose to inflation though) We may be entering a virtual STR sweat shop era for new buyers that self manage now, only at least in a sweatshop you are guaranteed to make something.

This has all been predicted over a year ago by myself and a few others on this forum. All it took was common sense and a calculator as well. 

Quote from @Leslie Anne Morris:

Quote from @John Carbone:

Quote from @Leslie Anne Morris:

Quote from @John Carbone:

Quote from @Leslie Anne Morris:

I don’t underwrite my deals like that, or see any sort of statistics based on multipliers as an agent. I know what you’re talking about, but it’s going to be really hard in the current market to do that. Everything seems to be super deal specific and underwritten individually to check profitability. 

Isn't the rental income the only driver in determining profitability for a cash buyer? As long as there's no HOA the costs are pretty fixed for carrying costs for a turn key property, If two properties were listed for sale with same rental revenues why would they trade at different prices? Are we no longer seeing bottom line investors or is it shifting to more retail wanting to have a vacation home.

It depends on the investor and what their goals are.  The problem is you can't go on historical rent and projections are tough these days also.  I work with bottom line investors and folks wanting a vacation home.

So it sounds like there is still a gross rental multiple that applies, but it now requires more validation to confirm the numbers will continue to produce. While I agree that historical and future projections are more difficult now, the underlying component of “how much will this cabin generate” now and into the future relative to the cost to purchase (ie. A rental multiple) seems to still apply, it’s just not like it was in 2021 where deal comes across, rent roll checks out, done. Surely people are underwriting deals with a gross rental multiple in mind as a baseline even in this market. 

 I'm not.  Personally, I am still doing what I've always done which is net operating income and cash on cash.

What is the cash on cash threshold for a million dollar property for a cash buyer that you are seeing? Generally speaking, a 10 percent cash on cash will equate to an 8x gross rental multiple with no financing (in the smokies.)

Looking at current prices now, I don't see any way someone is getting double digit COC unless it's a second home 10 percent down, but even those became very strict with a lot of origination points. Investment loans are close to 10 percent, seems like it has to be cash buyers now, and are they willing to take on risk of 10 percent returns when they can get 5 percent risk free in 6 month t-bills?

Quote from @Leslie Anne Morris:

Quote from @John Carbone:

Quote from @Leslie Anne Morris:

I don’t underwrite my deals like that, or see any sort of statistics based on multipliers as an agent. I know what you’re talking about, but it’s going to be really hard in the current market to do that. Everything seems to be super deal specific and underwritten individually to check profitability. 

Isn't the rental income the only driver in determining profitability for a cash buyer? As long as there's no HOA the costs are pretty fixed for carrying costs for a turn key property, If two properties were listed for sale with same rental revenues why would they trade at different prices? Are we no longer seeing bottom line investors or is it shifting to more retail wanting to have a vacation home.

It depends on the investor and what their goals are.  The problem is you can't go on historical rent and projections are tough these days also.  I work with bottom line investors and folks wanting a vacation home.

So it sounds like there is still a gross rental multiple that applies, but it now requires more validation to confirm the numbers will continue to produce. While I agree that historical and future projections are more difficult now, the underlying component of “how much will this cabin generate” now and into the future relative to the cost to purchase (ie. A rental multiple) seems to still apply, it’s just not like it was in 2021 where deal comes across, rent roll checks out, done. Surely people are underwriting deals with a gross rental multiple in mind as a baseline even in this market. 

Quote from @Leslie Anne Morris:

I don’t underwrite my deals like that, or see any sort of statistics based on multipliers as an agent. I know what you’re talking about, but it’s going to be really hard in the current market to do that. Everything seems to be super deal specific and underwritten individually to check profitability. 

Isn't the rental income the only driver in determining profitability for a cash buyer? As long as there's no HOA the costs are pretty fixed for carrying costs for a turn key property, If two properties were listed for sale with same rental revenues why would they trade at different prices? Are we no longer seeing bottom line investors or is it shifting to more retail wanting to have a vacation home.

When rates were low, I know properties were trading up to a 10x multiple for gross rental income around here.

Does anyone know what is actually selling and at what multiple and are there still cash buyers with over a million?

looking to see what kind of interest and multiple a property at 160-170k in gross revenues would bring in (including cleaning fees but excluding taxes)

Prospective property is booked out for June and most of July so there is no firesale due to declining rental income just curious what experienced people in this market think a cash buyer would pay. 

Whenever someone books/cancels, that information is automatically ingested into my database. I created a dashboard from this data so that I can see a real-time wholistic view of my occupancy rates, revenue, avg nights/booking, avg guests/booking, etc. across ALL booking platforms (another custom automation using channel manager, digital automation platform, and sql server database)

I’m curious how you do this. I use hospitable with Airbnb and vrbo. Any suggestions?

You made a good choice cutting ties quickly. It’s amazing vacasa continues to buy out small pms, and within a year they obliterate the clients. They get a few people to hang on who may not be so good at math. I think they are a zombie company and it’s amazing they are still around. My plan this summer is to target people who use vacasa as their PM and try to buy a good real estate deal when revenues drop this year.

This seems like a horrible return on investment at current prices and 5 percent risk free return available in 6 month/1 year treasuries

Quote from @Hanish Sampath kumar:

I am currently under contract on a 1-bedroom septic, 3 full bath, (has 3 full bedrooms with loft space) cabin near Gatlinburg. Priced at 740 K. plus needs 30-40 K to set it up and running as a STR. Talking to some local contractors they told me there were 700 plus cabins in that area last year ran out of water and had to spend extra on water to refill their wells. Also cautions me on renting this cabin as a 3-bedroom 3 bath as I may not have the water capacity and may overload the septic leaching field. I have asked my home inspector to check the water flow speed in the well and he has not noticed any septic defects (this has been only used second home not on a rental so don't know the true capacity for both systems). I calculated the ROI based on 3 bedrooms in that area if I cannot rent it as a 3 bedroom this deal will not make sense for me. Anyone in the area who have experienced similar problems please shed some insights on this specific situation.

 A lot of replies on here, I’ll throw in what I have learned from very reliable sources on the ground here. 

First, never buy a property with a shared well. You also do not want to be in a subdivision of cabins that may be drilling to a similar depth as you. Have the inspector test how many gallons per minute your well is yielding, this can be done at the hose outside or at the pressure tank in the well house. If it’s below 5 gpm I’d be concerned. 

regarding the septic tank, using a 3 bed for 1 bed, I would recommend if you did this to get the septic tank pumped out yearly for precaution. Secondly, I’ve heard first hand from the state health inspector on septic tanks that they do not care what you do with the property after the septic inspection is passed (when it’s installed) HOWEVER, if there is a failure of the system requiring another permit for modification they will inspect and have you sign a written statement on the current use of the cabin. If you are cramming 3 on a 1 bedroom septic tank you will very likely not get a new permit to replace. This is why you see 3 bedroom cabins on 1 bedroom septic tanks selling at such a “discount” there is long term risk you are taking. 

Quote from @Olga M.:

I've learned from the Airbnb groups on another platform, that the best option is to offer them a full refund to leave immediately if they don't find your place satisfactory on day one when they start complaining. Usually, they stop. Otherwise, you cater to their complaints and then they give you a bad review anyway. 

Acknowledge and fix the issue immediately and as best you can. If they leave you a poor review, acknowledge it in a proper, apologetic, and respectful way. The public will overlook it, especially if you seem responsive, positive, and have other great reviews. Things happen.  I see a lot of hosts do crazy in review replies and it hurts them. Let the guest do crazy, but not you.

I've never accepted a discount. People should book within their means. It's a bad start and people don't appreciate it from my experience as a 5-star Superhost. People who tend to book within their means fare better experiences and leave excellent reviews. They can afford it, they can pay for it, and they are happy guests focused on their trip.

With that said, if light bulbs are out etc., then the property manager/cleaner needs to do a better job if true. Inspect every room as they clean. What's missing, what needs to be replaced, refilled, etc.? I also leave extras for my guests because things do happen over time (thermostats, smoke alarms, remotes, extra trash, spills, snow/ice, etc.). Light bulbs, batteries (all sizes), trash bags, cleaning towels, ice melt, etc.

Hope this helps.

I agree with this. I once had a guest claim they felt unsafe for a ridiculous reason. I asked him to leave and he said, how about a discount. I then told him he had 1 hour to vacate and 30 mins later he said he’s fine with everything and they are settled in now. You can’t be bullied by guests, if it was a legitimate issue I’d obviously handle it.