All Forum Posts by: Kyle Smith

hello everyone, I would like to resurrect this thread again because I have been searching for Land to build on for a year, and I still have not closed the deal. I have been fairly confident in my quest to build another cabin similar to what I have now, however, rates and occupancies are down so much I am seriously considering abandoning building again in Sevier county. I’m starting to look at other investment opportunities. How has your experience been the last few months?   Am I the only one seeing a legitimate pinch in Airbnb bookings in Sevier county?   I’m still going to do well this year, but building new with the current finance rates, it may be a tight proposition. 

So, technically I do not believe we are saturated “overall” in the Smokys but we have gone back to 2019 numbers, where a basic old style cabin 2 bedroom with a slight view does 40-60k per year gross.   I hate to say this, and I may be wrong, but in order to maintain the status quo, we may need another large attraction to draw more people to the area, a big splash to keep them coming at the pace of the new construction.  I’m speaking specifically about survival of the mediocre middle properties.  I fear it’s going to be a terrible time for a lot of people and the banks are going to own a big chunk of the cabins in that over saturated mediocre middle.   I hope I am very wrong about this.  I’ve been wrong before!

Interested.  Mountain View?

Quote from @Robin Simon:

Quote from @Kyle Smith:

So, I built my first cabin in gatlinburg last year and now looking to build the second one with an investment construction loan or a one time construction to perm loan.  I would like to reopen this discussion if possible.   My property is very expensive so I’m hoping to find one with 15% down vs 20%.  Cabin will be built in Gatlinburg TN. 

Is this a true "cabin" or would it be more of a true residence just with "cabin-style" design. This is going to be a linchpin on your options - if its more of a house with cabin styling - then its going to open up a lot of national lending options (DSCR Lenders) that typically can only finance properties that could otherwise be used as a normal SFR (vs. a true vacation-only log cabin)

We typically call them cabins in Sevier County but it’s really a house.  I will be putting it on a short term rental program managing it myself.   

So, I built my first cabin in gatlinburg last year and now looking to build the second one with an investment construction loan or a one time construction to perm loan.  I would like to reopen this discussion if possible.   My property is very expensive so I’m hoping to find one with 15% down vs 20%.  Cabin will be built in Gatlinburg TN. 

I just got word from a trusted friend who owns a large local property management company in PF.  He only saw about a 20% drop in occupancies for the top performers in the last recession.  It’s just another nugget of data to keep in our back pockets moving forward.  If you own a top performer it has to be considered a part of the equation.  

Quote from @John Carbone:

Quote from @Kyle Smith:

@John Carbone Is it realistic to consider 50% drop in any market?  I'm thinking the economy would have to completely tank for that to happen or am I being a little too optimistic?  

The land is in addition to the $300/sqft.  I've done some additional calcs and I'm going to need $110k net income (which includes all carrying costs) to break even.  With the current year earnings I would be around the net income of around $165k (if I used my current cabin net income as a go-by) with this cabin.  The new cabin would be a high-end luxury pool cabin with an unobstructed 160deg view like my other cabin.  

Yeah, its a risk but a calculated risk.  My high side ($165k net income) is $55k net cash in the bank.  Should I walk away from this deal?  $845,000 is my all-in investment.  If the Smokies market maintains $400 or more per sqft I'll have about $250k in equity at closing (conservatively speaking). 

It's a tight-rope deal.

So your expenses on this once complete are 110k a year and with a 165k in rental revenue you are projecting a 55k profit a year assuming you duplicate your comp cabin over last 12 months?

I know 50 percent seems extreme, but considering how high things have come since 2019 with Covid demand etc, I don’t think we need an apocalyptic event to see 50 percent revenue haircuts, just a typical recession will likely do considering far we have risen. 

yes, you are correct with your interpretation.  

I think we have settled into pre-covid occupancies and if we look at the numbers we are already sitting on 2018-2019 rental numbers in 2023. This gives me a bit more confidence moving forward. So, I think we have already dropped 25% in Sevier County overall.  But as many of us have concluded it’s mainly hitting the mediocre middle and lower end cabins.  

I appreciate everyone’s comments.  I’ve taken my risk assessment up a few notches since we started this discussion.  

Quote from @Zach Edelman:

What are the advantages of waiting? What is the alternative here, to just sell the lot? You will incur the expense of building anyways. Also, furthermore, I have to concur with the point mode above that by the time it's finished, there should be some wash-out in the market during the build. 

I’m still in the feasibility stage for the lot and I can walk away.  

@John Carbone Is it realistic to consider 50% drop in any market?  I'm thinking the economy would have to completely tank for that to happen or am I being a little too optimistic?  

The land is in addition to the $300/sqft.  I've done some additional calcs and I'm going to need $110k net income (which includes all carrying costs) to break even.  With the current year earnings I would be around the net income of around $165k (if I used my current cabin net income as a go-by) with this cabin.  The new cabin would be a high-end luxury pool cabin with an unobstructed 160deg view like my other cabin.  

Yeah, its a risk but a calculated risk.  My high side ($165k net income) is $55k net cash in the bank.  Should I walk away from this deal?  $845,000 is my all-in investment.  If the Smokies market maintains $400 or more per sqft I'll have about $250k in equity at closing (conservatively speaking). 

It's a tight-rope deal.

Quote from @Bruce Woodruff:

Are you getting a loan to build or using cash from some Refi? A lot of risk here, but I am the jump in the pool and figure out how to swim kind of guy :-)

Doesn't always work, but sounds like you could recoup your investment if the economy tanks?

It’s a straight up equity loan at 8.35% for the land and down payment .  I know…it’s a big ouch and gasp.   I’m a dive in guy as well.   I guess that’s how my ADHD works… worry about the consequences later.  LOL