Secondary STR Markets outside of Gatlinburg?

Question

Hello, I am looking to get my first STR property in Gatlinburg, TN area (open to Waynesville and NC Maggie Valley, NC) . I am looking for secondary markets (e.g. radius 30 miles from Gatlinburg, TN). Is this the right approach, or should I get my first property just within Gatlinburg to just get my feet wet? My take in Waynesville, NC, you are equidistant to the Smokies, Pisgah National Forest, and Dupont State Recreational Forest.

Also reasons as to why I am looking to get into the STR market:

1.  W2 taxes deductions; I paid northward of 100k last year.

2. Have some free time as I work remotely ; my job is generally low stress and I find myself just playing video games in the middle of the day. I would like to use that energy towards elsewhere.

Mack Lengel · Answer

Hey @Angelo Cortez, good question!

Let's break it down further. What is it that made Waynesville jump out to you? Do you think it is an underserved market, lower prices, or just generally like the area?

You seem to make a decent income if you pay over 100k in taxes. If you want to take advantage of bonus depreciation to offset your taxes I would think having a more expensive house, ie Gatlinburg, would be more beneficial. Unless you plan on buying multiple properties in NC.

It is a beautiful area and is surrounded by a lot of great attractions but does not have a large appeal in and of itself, at least compared to Gatlinburg.

I have friends that have STRs throughout Western NC and they love them. It can be easier to dip your top into the water with the lower cost of entry but it requires you to be on top of your game in terms of the quality of the home you offer and how you manage your business. This is because there is not as huge of a pool of renters traveling through so your home needs to almost be the destination instead of just relying on other attractions.

I have no doubt you'll find success with either option it is just about finding the right fit for you. Feel free to message me, I have a good network of connections in both markets!

Angelo Cortez · Answer

@Loriel Keaton, I will keep you in mind if I settle with Maggie Valley. My AirDNA is set there currently.

@Mack Lengel Yes, the secondary markets are more appealing to me as there is less congestion and it seems like it can be easier to get into with from afar as the barrier of entry is lower.

@Mitch Davidson  Unfortunately, I don't have any RE income (yet)! My income is currently all W2, but I'm trying to diversify into real estate still. I'm still doing research on if there are any investment property deductions I can do on a 250k W2 income.

Loriel Keaton · Answer

Hey Angelo,

Some fantastic information and food for thought has already been posted here. I just wanted to offer that we own and operate our own portfolio of STR properties in Maggie Valley as well as manage for other owners. If you need more insight and guidance in this particular market, (Maggie Valley/Waynesville), I’m happy to help.

Best of luck!

Loriel

Mitch Davidson · Answer

Hi @Angelo Cortez. I'm happy to talk to you about these markets. Personally, I invest in western NC (Asheville and Bryson City), but I have friends and clients that invest in both east TN and down here. The markets appeal to a different traveler, generally speaking. East TN has more attractions, but also more congestion and noise. And it seems that a trip to Gatlinburg, especially with kids, will be more costly than a trip to Waynesville, for example, due to all the entertainment options in and around Gatlinburg. Western NC has enough attractions, and many more quiet and low-cost outdoor ones as well. Also, I think western NC appeals more to outdoor, in-forest type recreation as well, such as mountain biking, hiking, kayaking, etc.

Also, some things to note about a cost seg and bonus depreciation. First, it's less effective for a home that is not so new and not recently renovated. More importantly, you'll likely not be able to use the bonus depreciation to impact your W-2 taxes. Read IRS Pub 925. And I can send you a study my CPA gave me, which mentions quite a bit of case law where people tried to claim RE professional status, got audited, got punished badly, protested in court, and lost. For one thing, more than half of your work time for the applicable year will need to have been spent on the property. A few people out there can count their other work towards the time measurement, because they're full-time investors or otherwise employed in very similar real estate type work. Mortgage people like me, for example, cannot count their mortgage work towards the time measurement. And if you're audited, good records regarding hours will be required. Second, you'll need to have spent at least 750 hours on the property (i.e., 62.5hrs/mon if you own it for all 12 months).

Is a cost seg still worth it then? You'll spend $3K or so after all. Yes, it is. The deprecation loss carries forward, meaning it could nullify your need to pay tax on the property's profits for several years. And deprecation is one of the few good write-offs for sake of your DTI on a future mortgage. Here's the downside though. When you sell the home your capital gains are based on the original purchase price MINUS all the depreciation you've written off (with any yet-unused loss, meaning not carried over yet, added back). So imagine you buy a home for $450K. You depreciate $100K over 2 years. Then you sell it for $550K. Your tax liability is asses for $200K not $100K.

I'm not a CPA. I'm just sharing what I've learned from my own personal experience.

Hope this helps.

Secondary STR Markets outside of Gatlinburg?

Most Popular Reply