STR in Gatlinburg/ Pigeon Forge/ Sevierville

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STR in Gatlinburg/ Pigeon Forge/ Sevierville

Amber Krueger
Rental Property Investor · Madison, WI · Member since 2019 · 19 posts · 9 votes

I'm heading to the Gatlinburg/Pigeon Forge/ Sevierville area next week and am going to look at short term rentals while I'm there. I've listened to Avery Carl and reached out to a realtor with the Short Term Shop to set up some showings. I'm wondering if the market is saturated or if there is anything coming down the pipeline that would make it difficult to rent short term. I have a STR in Upper Michigan that is going well. Something in TN would be much higher risk in the possibility of an economic down turn due to the price point and mortgage payment. I look forward to getting down there and learning more! Any advice/experience is appreciated!

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
4y

I have no idea about the Short Term Shop in particular, but I would definitely be consulting with folks - probably more than one -  that have been through the ups and downs in the Smokies.  The last 4 to 5 years aren't representative of reality.  It's been a massive bull market.  The Smokies are a wonderful place to invest long term, but I am talking to folks several times per week now that are in deep water; they simply didn't make deals that work when the rental market is more normal. 

It seems that everyone intended to plan for a downturn, but far underestimated the depth of the downturn when even a modest oversupply combined with decreased demand takes hold:  A decline in demand isn't necessarily linear with a decline in rents.  If there are 2000 cabins and 2100 guests looking for those cabins, rents rise substantially - there is a 5% undersupply.  Rents go up a lot more than 5% in that scenario - try 20-30%!  That is where we have been for several years.

The same is true in reverse.  Let's say supply of cabins has increased by 10% - up to 2200 cabins now - but demand has normalized - to perhaps 1800 guests looking for those cabins, you've now got competition among cabins to get those 1800 guests booked.  This is where we are approaching.  MANY cabins are sitting empty right now.  Huge cabins are sitting empty even offering $300 a night, that were renting for $600-800 a night just a year ago.  That's the truth.  Go to VRBO and take a look for yourself.

I am not a RE professional but am happy to give you my unbiased take on any property that you are looking at. I've been investing the Smokies since 2005.  My number is in my profile.  

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Quote from @Amber Krueger:

    I'm heading to the Gatlinburg/Pigeon Forge/ Sevierville area next week and am going to look at short term rentals while I'm there. I've listened to Avery Carl and reached out to a realtor with the Short Term Shop to set up some showings. I'm wondering if the market is saturated or if there is anything coming down the pipeline that would make it difficult to rent short term. I have a STR in Upper Michigan that is going well. Something in TN would be much higher risk in the possibility of an economic down turn due to the price point and mortgage payment. I look forward to getting down there and learning more! Any advice/experience is appreciated!


     Prices there are sky high. You really have to run the numbers and see if you can find something that works at today's rates and occupancy levels.

    1Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y

    Short term shop has historical data on their website, check that out. @Collin Haysalso has a lot of historical data too that you can’t find on the web. 


    0Reply
  • Paul Wolfson
    Los Angeles, CA · Member since 2019 · 77 posts · 32 votes
    4y

    Even if home prices fall by 25%, why would there be a decline in demand from guests looking for cabins? Like other members said, even in 2008, there was not much of a decline in this region for folks looking to vacation. Would like to hear your opinion on this.

    @Collin Hays

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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y

    Here is my “guide” more or less.  You want to budget for an average year, but you need to be prepared financially for below average years, and sometimes well below average years.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
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    3Reply
  • Amber Krueger
    OP
    Rental Property Investor · Madison, WI · Member since 2019 · 19 posts · 9 votes
    4y
    Quote from @John Underwood:
    Quote from @Amber Krueger:

    I'm heading to the Gatlinburg/Pigeon Forge/ Sevierville area next week and am going to look at short term rentals while I'm there. I've listened to Avery Carl and reached out to a realtor with the Short Term Shop to set up some showings. I'm wondering if the market is saturated or if there is anything coming down the pipeline that would make it difficult to rent short term. I have a STR in Upper Michigan that is going well. Something in TN would be much higher risk in the possibility of an economic down turn due to the price point and mortgage payment. I look forward to getting down there and learning more! Any advice/experience is appreciated!


     Prices there are sky high. You really have to run the numbers and see if you can find something that works at today's rates and occupancy levels.


     I checked out the market for myself and that is absolutely what I found. Tough to find numbers that look good. 

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @Paul Wolfson:

    Even if home prices fall by 25%, why would there be a decline in demand from guests looking for cabins? Like other members said, even in 2008, there was not much of a decline in this region for folks looking to vacation. Would like to hear your opinion on this.

    @Collin Hays

    Number one, there was significant demand decline in 08-09-10.  

    It doesn't take but a small drop in demand - even 10 percent - for rents to fall 20-30-40%.   

    Scenario 1:  Normal market.  There are 100 properties, 100 customers for those properties, and the average rate is $200 per night.  Everyone is happy.  Houses are full and customers have a place to sleep.

    Scenario 2:  Boom demand cycle. There are more customers than usual.  You now have 110 people looking for those 100 properties.  You have an undersupply by 10 percent.  That means rents that were $200 can now go to $250.  An increase of 20 percent. You still have 10 people left out that had to do something else.

    Again, when the number of properties and demand are roughly equal, homeowners till get their $200.  But that's a 20 percent decline from when there is an oversupply of customers and undersupply of homes.

    Scenario 3:  Softening demand cycle.  When there are more properties than customers, then prices fall precipitously in order for properties to get rented.  If normal demand is 100 customers for the 100 properties, but because of a soft economy you now have 90 customers, now you have 100 properties chasing those 90 customers.  Rents can be be slashed 20-30% to grab those customers.

    Scenario 4.  Softening demand and overbuilt supply.  If supply has increased to 110 homes and there are 90 customers, rents can get cut in half for homes to stay rented.  

    We are leaving Scenario 2 and entering Scenario 3 currently.  We could slip into Scenario 4 if interest rates rights 2 more basis points.  

    Note:  This is for the Smokies only.  Other areas may differ.

    [email protected]806-672-7102
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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y

    I want to caution not to get too caught up in the whole "positive monthly cashflow" deal.  I think that is missing the point big time.  

    If you bought a STR and literally never made a single dime on a monthly basis, the fact is, it might still be the best investment of your lifetime. Remember, someone else is paying off your investment that is appreciating - often substantially - over time.

    Case in point: In 2005, I put $50,000 down to buy a $240,000 cabin. $240,000 wasn't my investment; $50,000 was. Now the cabin does very well and has a nice monthly case flow, but even if it was just "break even" and never made a dime in income, it is still an amazing investment. Here is how:

    $50,000 initial investment

    Home value today: $700,000

    So in 17 years, I've made $650,000 off a $50,000 investment. That's just above a 20% annual return. That is without any "cash flow", nor depreciation benefit on my taxes.

    Of course, the cabin is now paid off - by other people - so that monthly cash flow is exceptional.

    Think LONG TERM.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
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  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
    0Reply
  • Paul Wolfson
    Los Angeles, CA · Member since 2019 · 77 posts · 32 votes
    4y

    Thanks @Collin Hays for the clarification. While home values may definitely decline if there is another 2 point rate hike, how would that result in us entering into scenario 4?

    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @Paul Wolfson:

    Thanks @Collin Hays for the clarification. While home values may definitely decline if there is another 2 point rate hike, how would that result in us entering into scenario 4?


    Paul, we are already seeing a tremendous business slow-down right now.  Just today, Fed-Ex slashed earnings and gave a bleak outlook for the coming 12 months, and predicting a "worldwide recession."  Bed Bath & Beyond is shuttering hundreds of stores.  Movie theatres are closing everywhere.  Company after company are missing estimates and lowering guidance.

    As interest rates rise, the cost to borrow increases for everyone.  Expansions get put on hold. New investment in product development is cut back.  Production declines.  Borrowing in general decreases.  Money is buying less.  There is less discretionary money in the family budget.  

    If you have 100 people looking for cabins in 2022, and in 2023, 10 of those people are either laid off or fear they will be, you've got a problem.  

    Another 2 point rate hike will be necessary to stave off inflation, and it's going to send us into a deep recession simultaneously.  But recessions are a necessary part of a healthy free market economy.  We cannot have only expansions.  The problem is, the Fed has become recession adverse, and it manipulates the money markets to try to kick the can down the road.  That avoids a recession temporarily, but it only makes it that much worse when it arrives.  It is arriving.  

    [email protected]806-672-7102
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  • Matt Mertz
    Leander TX · Member since 2020 · 179 posts · 150 votes
    4y
    Quote from @Collin Hays:

    I want to caution not to get too caught up in the whole "positive monthly cashflow" deal.  I think that is missing the point big time.  

    If you bought a STR and literally never made a single dime on a monthly basis, the fact is, it might still be the best investment of your lifetime. Remember, someone else is paying off your investment that is appreciating - often substantially - over time.

    Case in point: In 2005, I put $50,000 down to buy a $240,000 cabin. $240,000 wasn't my investment; $50,000 was. Now the cabin does very well and has a nice monthly case flow, but even if it was just "break even" and never made a dime in income, it is still an amazing investment. Here is how:

    $50,000 initial investment

    Home value today: $700,000

    So in 17 years, I've made $650,000 off a $50,000 investment. That's just above a 20% annual return. That is without any "cash flow", nor depreciation benefit on my taxes.

    Of course, the cabin is now paid off - by other people - so that monthly cash flow is exceptional.

    Think LONG TERM.


    What you're describing looks like an LTR. I believe the expectation for an average investor is that putting the effort and work into an STR should reward you with high cashflow + appreciation.

    I started with an LTR and the renters paid off my mortgage and appreciation eventually turned it into a giant piggy bank.  Very minimal hands-on management involved.

    I got into an STR in Gatlinburg with the LTR model as a baseline with massive cashflow on top of that. Very hands-on but luckily for us it's paying off with high cashflow. We built and furnished at $276/sq ft.

    Today it seems prices are so high that you end up doing the work of managing an STR with an LTR return.

    1Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @Matt Mertz:
    Quote from @Collin Hays:

    I want to caution not to get too caught up in the whole "positive monthly cashflow" deal.  I think that is missing the point big time.  

    If you bought a STR and literally never made a single dime on a monthly basis, the fact is, it might still be the best investment of your lifetime. Remember, someone else is paying off your investment that is appreciating - often substantially - over time.

    Case in point: In 2005, I put $50,000 down to buy a $240,000 cabin. $240,000 wasn't my investment; $50,000 was. Now the cabin does very well and has a nice monthly case flow, but even if it was just "break even" and never made a dime in income, it is still an amazing investment. Here is how:

    $50,000 initial investment

    Home value today: $700,000

    So in 17 years, I've made $650,000 off a $50,000 investment. That's just above a 20% annual return. That is without any "cash flow", nor depreciation benefit on my taxes.

    Of course, the cabin is now paid off - by other people - so that monthly cash flow is exceptional.

    Think LONG TERM.


    What you're describing looks like an LTR. I believe the expectation for an average investor is that putting the effort and work into an STR should reward you with high cashflow + appreciation.

    I started with an LTR and the renters paid off my mortgage and appreciation eventually turned it into a giant piggy bank.  Very minimal hands-on management involved.

    I got into an STR in Gatlinburg with the LTR model as a baseline with massive cashflow on top of that. Very hands-on but luckily for us it's paying off with high cashflow. We built and furnished at $276/sq ft.

    Today it seems prices are so high that you end up doing the work of managing an STR with an LTR return.

    Incorrect, as you are assuming the very worst case scenario for a STR. In my worst case, the return is 20% annual including the cost of a property manager. Apples and oranges to LTR.

    Even if you make a bad deal, the STR will far outperform a LTR over the long term. Won't even be close.

    [email protected]806-672-7102
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    0Reply
  • Matt Mertz
    Leander TX · Member since 2020 · 179 posts · 150 votes
    4y

    Incorrect, as you are assuming the very worst case scenario for a STR. In my worst case, the return is 20% annual including the cost of a property manager. Apples and oranges to LTR.

    Even if you make a bad deal, the STR will far outperform a LTR over the long term.

    Much respect @Collin Hays 

    I was just going by your scenario if you never made a dime in cashflow then an STR would still be worth it. I don't think the market is there yet (and hope it never gets there).

    I do find it suspect that I keep seeing homes priced at 10x the supposed annual gross income.  i.e. A cabin priced at 1mil that supposedly grosses 100k per year.  It's like everyone is basing their home prices based on the supposed gross revenue numbers from 2020-2021 record numbers.

    2Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @Matt Mertz:

    Incorrect, as you are assuming the very worst case scenario for a STR. In my worst case, the return is 20% annual including the cost of a property manager. Apples and oranges to LTR.

    Even if you make a bad deal, the STR will far outperform a LTR over the long term.

    Much respect @Collin Hays 

    I was just going by your scenario if you never made a dime in cashflow then an STR would still be worth it. I don't think the market is there yet (and hope it never gets there).

    I do find it suspect that I keep seeing homes priced at 10x the supposed annual gross income.  i.e. A cabin priced at 1mil that supposedly grosses 100k per year.  It's like everyone is basing their home prices based on the supposed gross revenue numbers from 2020-2021 record numbers.

     Yes, 10X 2021 earnings is rich, but if the cabin is on a trout stream or has an amazing view, I’m still interested at those levels.  Even 15X earnings I might be.  If it’s just a house in the woods, no way.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
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    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Quote from @Collin Hays:

    Here is my “guide” more or less.  You want to budget for an average year, but you need to be prepared financially for below average years, and sometimes well below average years.


     What size cabin is this for?

    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @John Underwood:
    Quote from @Collin Hays:

    Here is my “guide” more or less.  You want to budget for an average year, but you need to be prepared financially for below average years, and sometimes well below average years.


     What size cabin is this for?


     This is just a generalization. The same concept whether it’s a $1000 a night property or $100 a night.

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
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    0Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y
    Quote from @Collin Hays:

    I want to caution not to get too caught up in the whole "positive monthly cashflow" deal.  I think that is missing the point big time.  

    If you bought a STR and literally never made a single dime on a monthly basis, the fact is, it might still be the best investment of your lifetime. Remember, someone else is paying off your investment that is appreciating - often substantially - over time.

    Case in point: In 2005, I put $50,000 down to buy a $240,000 cabin. $240,000 wasn't my investment; $50,000 was. Now the cabin does very well and has a nice monthly case flow, but even if it was just "break even" and never made a dime in income, it is still an amazing investment. Here is how:

    $50,000 initial investment

    Home value today: $700,000

    So in 17 years, I've made $650,000 off a $50,000 investment. That's just above a 20% annual return. That is without any "cash flow", nor depreciation benefit on my taxes.

    Of course, the cabin is now paid off - by other people - so that monthly cash flow is exceptional.

    Think LONG TERM.


     This is a great point. This would be a great retirement investment and as you say there are still tax benefits.

    0Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y

    I think the market in the smokies it at a standstill for a few reasons. Everyone in recent memory is used to high cash flow deals to make things work, this is justified if you are going to bother with self managing. The smokies are no longer a “growth” market anymore. Covid accelerated the push of people to buy, and the market kind of peaked out at a property going for 10x annual gross rents. With interest rates doubling since the peak, to keep your operating costs the same as when rates were 3 percent, you would be looking at roughly 12-13x 2021 revenues to account for interest expense rising, and 2022 occupancy levels are down for most this year. I don’t see prices dropping fast enough to get back to 30 percent cash on cash turn key deals, maybe there could be a brief time if the economy goes into a depression that opportunities like this will exist, but then most people will be too afraid to buy.


    This market cycle is the best thing for the market though, including the smokies and current holders of cabins. As existing inventory prices drop, new construction should be coming to a halt (less supply for competition with rentals) as it doesn’t make sense to borrow 6-7 percent for a 1-2 year construction project anymore, especially when you can park your dollars in near 4 percent 2 year treasuries at the moment.
    Long term though, expect this as the new normal. 10 percent cash on cash if you want truly passive turn key, and it probably won’t make sense to self manage for that unless you have multiple properties. Property managers used to charge 40 percent (some still do), but the competition has brought that down to 20-25 percent for higher quality management. Factor in that property management fees are an “expense” so your true after tax cost is much lower and it’s all passive income and as Colin says, vacationers are paying it off.

    Personally though, I’d rather wait for prices to drop further. I’m thinking early 2023 (unless the national unemployment rate is above 5 percent) then I’ll wait out a little longer because panic will likely ensue then.



    4Reply
  • Paul Wolfson
    Los Angeles, CA · Member since 2019 · 77 posts · 32 votes
    4y

    As others have mentioned, the Smokies home values are proportionally dependent upon the revenue stream. Prices are currently at 10x the potential annual revenue. My belief is that even if real estate prices begin to dip in 2023 across various markets, the Smokies and other vacation markets should hold steady as long as the revenue stream is steady. What are some things that can affect the revenue stream and vacation demand? I think the unemployment rate is the number one indicator to look at. Currently the unemployment rate is at historically low levels. However if the unemployment level begins a to rise, we will start seeing folks go on vacations less as they prioritize other things such as food and rent/mortgage. As the vacation demand falls, so will the revenue stream of STR, and as a result home values in the Smokies will start to decline drastically. But until that happens, and only if that happens, I believe the Smokies home values should remain solid. What are some of the other factors that can lower revenue streams?

    0Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Paul Wolfson:

    As others have mentioned, the Smokies home values are proportionally dependent upon the revenue stream. Prices are currently at 10x the potential annual revenue. My belief is that even if real estate prices begin to dip in 2023 across various markets, the Smokies and other vacation markets should hold steady as long as the revenue stream is steady. What are some things that can affect the revenue stream and vacation demand? I think the unemployment rate is the number one indicator to look at. Currently the unemployment rate is at historically low levels. However if the unemployment level begins a to rise, we will start seeing folks go on vacations less as they prioritize other things such as food and rent/mortgage. As the vacation demand falls, so will the revenue stream of STR, and as a result home values in the Smokies will start to decline drastically. But until that happens, and only if that happens, I believe the Smokies home values should remain solid. What are some of the other factors that can lower revenue streams?

    To reiterate, since interest rates have doubled from early 2022, the operating costs (assuming values are the same as 9 months ago) are now more expensive by about 25-30 percent (with nominal values flat) due to increase interest expense. There are many people who bought in the last 18 months that are losing money each month currently (primarily buyers of million dollar plus properties), take a look on some of the Facebook groups - there is some panic, and this is with pretty strong rental demand from a historical perspective. If rates continue to stay this high, prices need to drop to make sense for new buyers to enter if they are financing. If they are paying cash, then at these levels, an investor is better off buying 4 percent treasuries or buying dividend paying stocks. This is generally speaking, there are some good deals out there that can be had, but it’s few and far between. 

    a few things will cause annual revenues to drop. More Inflation eroding disposable income,  A recession (which we are technically in now), high unemployment (this is not an issue now), and extra supply of new rentals for people to choose from. The cheap money era created a lot of extra inventory of cabins in the area. The whole area is about 18-24 months backlogged so despite things slowing down now, there is more supply coming on the market from new construction that was already committed to. People who are over leveraged could be forced into liquidations, and a lot of people are over leveraged in this economy. 

    0Reply
  • Paul Wolfson
    Los Angeles, CA · Member since 2019 · 77 posts · 32 votes
    4y

    "There are many people who bought in the last 18 months that are losing money each month currently"

    @John Carbone what makes you say that I'm curious? Especially prior to March when the first interest rate hikes happened, folks were getting mortgage rates at 3%. Sure they bought likely at the top of the market, but their interest rates were still low as of 6 months ago and prior, so why would they be losing money each month especially, as you mentioned yourself, that the rental demand is still strong.

    "If rates continue to stay this high, prices need to drop"

    Sure, in the typical housing markets I would agree with you...but I'm not convinced that this holds true for markets that are based on revenue streams. Of course if revenues decline (for whatever reason) then yes, I completely agree here.

    "a few things will cause annual revenues to drop"

    Inflation erodes disposable income = lower vacation demand...totally agree with this

    A recession = lower vacation demand...I don't necessarily agree with this as this isn't your typical recession. There has only once been another technical recession when unemployment rates were this low, and that was during World War 2. As you can see for yourself, this current recession is not having any impact on unemployment. Because the employment levels are historically low, consumer spending has increased in the past 2 months and continues to remain strong. Consumer spending is one of the driving factors in an economy and until this number falls, I don't see a strong recession. So I'm carefully watching unemployment rate.

    extra supply of new rentals...I agree with this, but not yet sure what factor could cause this to happen. Extra supply could come as a result of panic selling due to declining revenue, but that would depend on other factors such as unemployment and continued climbing inflation.

    0Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Paul Wolfson:

    "There are many people who bought in the last 18 months that are losing money each month currently"

    @John Carbone what makes you say that I'm curious? Especially prior to March when the first interest rate hikes happened, folks were getting mortgage rates at 3%. Sure they bought likely at the top of the market, but their interest rates were still low as of 6 months ago and prior, so why would they be losing money each month especially, as you mentioned yourself, that the rental demand is still strong.

    "If rates continue to stay this high, prices need to drop"

    Sure, in the typical housing markets I would agree with you...but I'm not convinced that this holds true for markets that are based on revenue streams. Of course if revenues decline (for whatever reason) then yes, I completely agree here.

    "a few things will cause annual revenues to drop"

    Inflation erodes disposable income = lower vacation demand...totally agree with this

    A recession = lower vacation demand...I don't necessarily agree with this as this isn't your typical recession. There has only once been another technical recession when unemployment rates were this low, and that was during World War 2. As you can see for yourself, this current recession is not having any impact on unemployment. Because the employment levels are historically low, consumer spending has increased in the past 2 months and continues to remain strong. Consumer spending is one of the driving factors in an economy and until this number falls, I don't see a strong recession. So I'm carefully watching unemployment rate.

    extra supply of new rentals...I agree with this, but not yet sure what factor could cause this to happen. Extra supply could come as a result of panic selling due to declining revenue, but that would depend on other factors such as unemployment and continued climbing inflation.

    There were a lot of properties that sold for way above what the price should have been. I know of one in particular that sold for $1.6m last year and the person is losing a little each month, and also someone else bought at $1.2m and they are up a few thousand this year.Since the summer I’ve seen multiple posts on Facebook groups to the effect of “I’m losing money” it’s entirely possible that these people are losing money because they are paying a property manager, but the point is, margins are super tight right now and It is very property specific, not everyone is down on recent purchases.

    Prices have already come off the highs in this market because the interest expense has increased. They haven’t come down enough yet in my opinion to fully reflect it though. The longer rates stay high, the market is forced to accept these new normal rates  and sellers will either have to not sell, or lower the prices for new buyers at current rates. Occupancy is also down in 2022 for most people relative to 2021

    I agree, I said recession, but like you say, it doesn’t feel like a recession now because the unemployment rate is so low. I fully agree the unemployment rate is pretty much the only thing that matters at this point and I’m heavily following that along with inflation not continuing at the 8 percent levels. If inflation is controlled without causing unemployment to get out of control, then the bull market will resume.

    In the smokies I don’t think panic selling will cause more supply. The vast majority of rentable properties in the area are already being rented. So someone selling a rental, is being bought by someone who will rent it, so it’s a neutral impact on the supply. The main issue with supply is new construction. It’s hard to say how many new construction cabins will be coming on the market in the next 18 months (most of these were locked in with lower rates), and the vast majority of the new constructions are in the 3/4/5 bed range. Builders were not willing to build anything small because the profit margins on the larger cabins is much higher for them. In my opinion, I think the 4 bed cabin market is going to be hit hard in the next year or so due to so much supply coming on the market in this cabin class. I think these price levels are dangerous for the large cabins.

    It’s smart to still be looking though. The biggest mistake is just giving up and not looking for deals. The smokies are the best market to be in if you buy a good deal, have a long time horizon, and don’t over leverage yourself.



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  • Leora Merrell
    Rental Property Investor · Member since 2019 · 276 posts · 235 votes
    4y

    @John Carbone We were just talking to the interim Sevier County zoning engineer in charge and he said there’s three new developments recently approved for 65 units each and all four bedroom cabins. And I’ve seen the same thing on Facebook groups of people panicking. The common denominator is they all bought within the last 18 months and ran numbers based off of last years rents. Many of them had realtors (whom I would personally label as predatory) telling them it’d only be going up from here and it was now or never to buy if they wanted in. FOMO. It really is a shame. 

    1Reply
  • John Carbone
    Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
    4y
    Quote from @Leora Merrell:

    @John Carbone We were just talking to the interim Sevier County zoning engineer in charge and he said there’s three new developments recently approved for 65 units each and all four bedroom cabins. And I’ve seen the same thing on Facebook groups of people panicking. The common denominator is they all bought within the last 18 months and ran numbers based off of last years rents. Many of them had realtors (whom I would personally label as predatory) telling them it’d only be going up from here and it was now or never to buy if they wanted in. FOMO. It really is a shame. 

    Yes, me and a few others on here were discussing this early last year how unsustainable the price increases were. Unfortunately, talking of such topics then wasn’t very popular with many, and it was perceived as raining on everybody’s parade speaking of such topics. There’s a belief amongst some realtors that for every investor that gets out of the market, a new one replaces them. A part of me wonders if they truly believe the nonsense they say, or if it’s them acting in a predatory manner. Most of the realtors nowadays have never seen a slow down, or pullback in their careers so they are conditioned to think prices always go up. I know some realtors have pivoted to trying to sell long term rentals now because the massive gains in STR aren’t as lucrative as before. I’m curious to see how many of those 4 bed cabins end up being built in that development, prices are dropping pretty fast now, so that may be a project that goes on hold, but there are many more communities like this at or near completion as well, I see it everyday when driving around here. I don’t think they will be able to get people to post up construction loans at the prices they will be asking. Also on a separate but partially related note, I wouldn’t want to be buying new construction now anyway, I know a licensed contractor in Gatlinburg, and I’m being told that the crews they have working are very poor quality crews, they are literally taking anybody who can use a hammer and saw, and most of them are lasting a few weeks and quitting on the job. There’s numerous first hand stories to how the crews are wasting an exorbitant amount of time on the job and covering up mistakes.

    Disclaimer: I personally have 6 rentals in the area and I don’t have anything to sell anyone.
    0Reply
  • Collin HaysBusiness Member
    Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
    4y
    Quote from @Paul Wolfson:

    "There are many people who bought in the last 18 months that are losing money each month currently"

    @John Carbone what makes you say that I'm curious?


     I am getting about a call a week from an investor who is in trouble.  

    [email protected]806-672-7102
    SMOKY MOUNTAIN FALLS INC.51 Review
    WebsiteView Page
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