All Forum Posts by: 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.

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

Quote from @John Carbone:

Quote from @Kyle Smith:

I know there is a lot of uncertainty coming from all directions about the next 1-3 years in short term real estate.  I am all the sudden on the fence about building.  I built a pool cabin with a great view in the Smokies and closed on it in January of this year. I have had incredible returns this year.  I just went under contract for a new lot and I’m looking to duplicate this particular cabin.   If occupancy rates stay as they are now for the next year or two, I will still cash flow around 50k-80k with this new cabin build.   Knock on wood..

Should I wait and build once we have more data about the future economy or take the plunge? My gut tells me to build and scale this thing ASAP! But there’s so much negativity out there and even the old timers are saying the incoming storm will be pretty bad.  People still vacation right now, but will they vacation at 2019 occupancies the next 2 years? Will employment tank and take the vacation market with it? What are your thoughts? Build with my proven formula or hold onto my money and wait? Thanks in advance.

 Here is the way I see it, and I think you should too. You need to look at this new potential cabin build and figure out how
it will affect your risk levels. Lack of risk management is the biggest mistake people make in real estate. I am not one these people that follow the Dave Ramsey crowd of pay cash for everything…far from it. I’m all in on this market as well, every dollar I’ve earned and then some has been put into investing in this market.

when rates were 3 percent I was telling anyone and everyone to get as much borrowing power at fixed terms as you can. This was the expansion phase for businesses, I went hard here myself. 

with interest rates rising 250 percent, you need to recalibrate your system and look at your portfolio. Is it worth it to go into high interest rate debt for this new project and have this new property impact your other successful properties in your portfolio?

How much of a drop in rents will you be able to handle? The way I’m underwriting my own deals for expansion is that I need to be able to cover the new payment with 7-10 days of current rental numbers. Anything that doesn’t meet those threshold is too risky for me with borrowed money right now.

If you can weather a 50 percent drop in revenue and have the means to cover the payment and get through construction then go ahead and do the new build. It’s not about who is going to be right or wrong, Just understand that the risk has risen dramatically and plan accordingly. 

good stuff everyone.  I appreciate the insight. 

Quote from @Michael Baum:

Hey @Kyle Smith, how long did it take for your new cabin to be completed? Will you be using the same builders/crews as you did for the first one?

I would assume that if you are building the same cabin again that the new build would take a bit less time depending on lead times for materials as the crews have already done it once.

What will the value be of the property once the cabin is ready to occupy? Will you have significant equity once it is done?

It took 12 months to build and it was a nightmare but we pulled it across the finish line.  I learned a lot and I’m moving on to another builder which I know and has a great reputation.  He’s saying he can complete it in 8-9 months.  If current prices drop another $65/sqft I’m still sitting around $230k equity on the property once it closes.   I’m hoping we stay in the 400’s/sqft.  Cost to build is around $300/sqft.  

I know there is a lot of uncertainty coming from all directions about the next 1-3 years in short term real estate.  I am all the sudden on the fence about building.  I built a pool cabin with a great view in the Smokies and closed on it in January of this year. I have had incredible returns this year.  I just went under contract for a new lot and I’m looking to duplicate this particular cabin.   If occupancy rates stay as they are now for the next year or two, I will still cash flow around 50k-80k with this new cabin build.   Knock on wood..

Should I wait and build once we have more data about the future economy or take the plunge? My gut tells me to build and scale this thing ASAP! But there’s so much negativity out there and even the old timers are saying the incoming storm will be pretty bad.  People still vacation right now, but will they vacation at 2019 occupancies the next 2 years? Will employment tank and take the vacation market with it? What are your thoughts? Build with my proven formula or hold onto my money and wait? Thanks in advance.

I have a 3 bedroom pool cabin and I can tell you a cabin that size will easily do $200k gross/year.  I wouldn’t sell.  The view is key to maximizing that return, but a cabin that size with those amenities will kill it, recession or not IMO.   I’m about to build another one. Maybe I’m a crazy person.  LOL 

Quote from @Jay Hinrichs:

Quote from @Kyle Smith:

My new luxury pool cabin with a view is on pace for amazing numbers this year and I’m in the process of building another one.  I can’t imagine a scenario where these top performing cabins tank.  I think it’s about the mediocre middle as stated before that will be hit hard.  If you buy and build right (for recession) I think you’re good.  At least that’s my assumption and I hope I’m right because I am heavily leveraged.    One thing I noticed is, big view lots under $170k are still getting scooped up in less than 24 hours with multiple offers.    I was talking to a local investor this week who stated the industry/market is always driven by the cycle of riding in the new car vs the old.  If you have a newer or “updated” cabin you’re going to be alright and do fairly well.  If you own aN older status quo property, you might update it and add extra amenities to stay current.  The economy exacerbates this realization.  I’m seeing the huge storm coming (foreclosures) but I don’t believe we are going to be close to other crashes.  Too much money and foreign investors have entered this market.  I think the bottom will be much higher $$ than people believe.  I think unemployment will be the number we should all watch.  If people aren’t making money, they aren’t vacationing.  I’m not worried about saturation either.  I just got the latest numbers from Sevier County, and believe it or not, we are still in the negative with cabins built since the 2016 fires.  The area, activities, entertainment, etc are increasing at a fast pace and new cabin builds are in balance with the amount of visitors coming to the area. 

Make yourself unique, update your cabin, get creative and hang on….

do you follow the trustee sales ?  are you seeing any uptick in them ?  or do they do sherrif sales there ?  thats always a good indicator

Hi Jay,

Sorry, I do not have that particular data.

The “rental only” cabin data I have is as follows.   These numbers are as accurate as you will ever get (trust me on this one):

Total New cabins built in Sevier County from 2020-2023: 1360

Sales Average Price per sqft for rental cabins: 2019-$204 / 2020-$251 / 2021-$359 / 2022-$491 / 2023-$465

Total rental cabins in Sevier County: 7365

Total rental cabins burned in 2016 fire: 1345 (1017 have been re-built)

Total sales of STR cabins 2015-2023: 9566 (amongst 7365 cabins)

Number of rental cabins built since the fires in 2016: 2301

Net number of new cabins built since fire of 2016: 956 

So, essentially only 956 cabins have entered the market since 2016.  Figure in the incredible amount of newcomers to this area and its growing popularity, exposure, new attractions coming etc, I’d say… not bad at all.   I think the saturation argument does not hold water.  The cabin market looks pretty balanced to me.  

My new luxury pool cabin with a view is on pace for amazing numbers this year and I’m in the process of building another one.  I can’t imagine a scenario where these top performing cabins tank.  I think it’s about the mediocre middle as stated before that will be hit hard.  If you buy and build right (for recession) I think you’re good.  At least that’s my assumption and I hope I’m right because I am heavily leveraged.    One thing I noticed is, big view lots under $170k are still getting scooped up in less than 24 hours with multiple offers.    I was talking to a local investor this week who stated the industry/market is always driven by the cycle of riding in the new car vs the old.  If you have a newer or “updated” cabin you’re going to be alright and do fairly well.  If you own aN older status quo property, you might update it and add extra amenities to stay current.  The economy exacerbates this realization.  I’m seeing the huge storm coming (foreclosures) but I don’t believe we are going to be close to other crashes.  Too much money and foreign investors have entered this market.  I think the bottom will be much higher $$ than people believe.  I think unemployment will be the number we should all watch.  If people aren’t making money, they aren’t vacationing.  I’m not worried about saturation either.  I just got the latest numbers from Sevier County, and believe it or not, we are still in the negative with cabins built since the 2016 fires.  The area, activities, entertainment, etc are increasing at a fast pace and new cabin builds are in balance with the amount of visitors coming to the area. 

Make yourself unique, update your cabin, get creative and hang on….

Thanks everyone.  I’m going to order one.