Gatlinburg STRs and the recession of 2022

[Collin Hays]

I have spoken with several of you by email and phone the last couple of weeks about Gatlinburg investing and the increasingly imminent recession.  I decided to write a blog post on the subject today.  Feel free to check it out at https://www.biggerpockets.com/...

Happy weekend everyone!

[Lisa Marie]

“2. The cost of borrowing is rising significantly, due to rising mortgage rates. If rates rise from 4% to 6%, that isn't a 2 percent increase. It's a 50 percent increase. That means that a cabin that was profitable yesterday, suddenly isn't profitable today.

3. Higher vacancy rates due to less traveler demand, meaning declining yields, and prices of real estate adjusting commensurate with those declines.”

Your points #2 and #3 are the lethal combination to any new STR investors, not just in Gatlinburg but anywhere. Somebody who buys a property today will probably have a monthly mortgage expense that's two or three times the mortgage expense of another property purchased two years ago. When the demand is high, everybody can charge a higher ADR that still results in positive cash flow, but if demand softens, the ADR has to come down. Well, the guy who bought the house 2 years ago only need a revenue of $5k a month to cover his expenses but you Mr. Johnny-come-lately needs $12k to break even because of your mortgage payment. Then what happens? Do you have money elsewhere to cover the shortfall and wait for the demand to recover? Or do you sell the house at a loss and walk away?