All Forum Posts by: Ken Boone

So at those numbers your debt service is about 1220/mo assuming 1k property tax and $500 insurance (just completely guessing at the property tax and insurance). That works out to $14,640/yr in debt service. You are going have some type of HOA fee as well and expenses. It is a very small place so going to guess at $600/mo in expense including HOA fees. Just guessing - but this is the stuff you need to figure out. So those expenses come to another $7200. Put those two numbers together and that puts you at almost 22k. If you make mid 20s - let's say 25k. You have made 3k for the year or $250/month. Is your time managing guests and issues and cleaners worth the extra $250/month. What happens when the condo association leverages a 3k per client fee for re-doing the parking or red-doing the roof? You make zero that year. The other issue is that a lot places like Knoxville got over saturated with STRs in the past 2 years which means most likely those estimated numbers are going to go down. That kind of stuff can happen.

The deal is only worth it depending on what you want to put in and get out of it.  It would not be worth it to me for a unit that small.

Quote from @Zach Edelman:

Just calculating CoC, this doesn't seem like a profitable deal. There has to be better deals in the Smokies than this specific one for your price range.

 Well that is the crux of the matter.  There really are no deals to be had in the Smokies right now that is just the price you are gonna pay at this point.  Maybe a few off market deals might pop up here and there but they have been few and far between the last year or so.  It just is what it is right now.  If you want to get in to this market right now you have to pay the price.

IMO an outdoor fire-pit and mini golf on a 1 bed room cabin is not gonna be enough to jack up your nightly rates substantially.  If you do this it's not gonna be because it cash flows, its gonna be because you hope long term its gonna pay off.  

So roughly calculating your debt service with PMI, property taxes and insurance, you are looking at a monthly of around $3450 which takes your yearly debt service to around 41k, let's add another 1k/month for all other expense and you are now at 53k. In the current market I think it's gonna be a stretch to get 54k for a 1 bedroom. But let's say you do. Then it gets back to the why are you doing this? Are you wanting purely an investment or do you want a cabin to use yourself and just rent it out and have someone else help pay for it simply because you want a cabin? If it's an investment I would not be interested in numbers anywhere near that close. No matter what people say, there is work involved in self managing an STR. So if your numbers work out, you would be making 1k/yr based on my rough numbers which means you would be working and dealing with the debt service and other issues concerning your cabin for $83 per month. Is that worth your time? Again it gets back to your reason for making this purchase.

@Collin Hays Wow man how fortunate for your homeowner client that @John Carbone sent this to you!

So for an STR, this is typically too much effort for the typical person. I am an IT consultant by trade and have been for decades and I don't go through this with my STRs. You have to weigh the risk/benefit ratio and to me there is not enough risk for me to provide network separation between the guest using internet and my wifi thermostat, ring camera, streaming TVs. They are all password protected and I just don't feel like there is a huge risk with the guest jacking something up through the network. Keep it simple. They would have to figure out my password and most people just are not gonna be able to do that. Again, I said MOST.

Now having said all that, if my STR was attached to my house where I lived, I would absolutely have firewall separation where there would be no way they could reach my house network from the network at the STR. Too much to protect at my personal house from a network perspective. Not so much with my stand alone STRs.

Also, just adding subnets does not help unless there is firewall separation between the subnets.
 

@Collin Hays Yea I think you are right about that.  I just don't see a 20% drop with these interest rates making much of a difference on the profitability, especially if someone uses leverage.

I just got another letter in the mail from a realtor in the area telling me that even though the interest rates are up, the market is steady and it's still a buyer's market!  Wow.

Interestingly enough, another realtor emailed me today a general overview of the market type of email, and that showed that we are seeing the largest difference in the past year of the median list price to the median sold price.  The gap was somewhat tight in Jan, and has been getting larger and larger since.  It looks like the gap between the two for April was almost 250k from the chart she sent me.

The Smokies have always been an 8 month season place.  Jan-Feb were always low months, May and September were always lull between the peaks but not as low as Jan-Feb, and the rest is slam on.   The secret to the smokies has always been buying right - just like anywhere else.  

Unfortunately for a lot of people that jumped in this market in the last 2 years, they just didn't buy right.  That is what it boils down to.  Not saying that is true for everyone who bought int he last 2 years, but for a lot of folks it most definitely is true.

Covid created an anomoly and if folks didn't do their due diligence with how they spent their money (lots of money) that is just on them.  There were a number of folks on here who gave warnings such as @Collin Hays for quite a long time so if someone were watching BP to make their decision to buy during COVID and read the posts from pumpers, they would have had to have read many of Collin's warnings as well with other's who backed that up.

To those that have been around it's not a 20% haircut - that 20% to us was a huge bonus - now we are back to norm.

But I hear ya, speaking of pumpers, I just got an email last week from one of my old realtors in that market, asking me if I wanted to buy anymore, because there are "still many great deals to be had!!!".  

@John Carbone I am not trying to come down on you at all John if that is how this sounds I don't mean it that way, its just that you are never going to get accountability for what people post on the internet.  It's just the way it is.  These days there is no accountability anywhere, the media, the government, but especially what is posted online.

Quote from @John Carbone:

Quote from @Luke Carl:

Also showing a snapshot of your summer bookings that were most likely booked out several months ago is not indicative of the current situation. Something changed abruptly between April and May. 

This is how May was before covid.   May has always been a drop off month.  Spring break is over and kids are not quite out of school  yet. Expect the same come end of august into September.   Yes I do agree we are seeing less demand but everybody and their brother visited the smokies in the last 2 years and I think some of them want to go somewhere else this year. To me it just feels like we are back to pre-covid times.  And then we are also competing with a number of folks that bought in last year at super high prices and not making bank like they expected and are slashing their prices like crazy.  Many visitors are going to change bookings for price alone. Unfortunately those that doing that are going to find out that strategy is still not gonna work in the long run.