Are Gatlinburg, TN current prices already spelling negative cashflows for New buyers?

[Amit Sharma]

Hello Group. I am in the beginning phase of my journey towards 1st listing. So every variable, and every unknown is an uncertainty that I need to flip into a confirmed piece of information as I move forward. Request you all for your kind inputs and assessment for the income / expense sheet below. 

This is for Market : Gatlinburg. 

Price 450,000 ( Yes, very conservative)

Interest rate 6.5%

Avg Nightly Rate $180

Avg annual Occupancy rate - 63%

Going with a property Manager commission of 20%

I landed up with -ive cashflow. 

Questions for y'all.
1. Are these numbers close to accurate ( ball park of real life operations)? Does that mean current market doesn't allow a 450K property to have a +ive Cashflow?
2. Is the first property usually a low(or -ive) cashflow investment, where one builds equity to hopefully scale into a 2nd property with a net +ive cashflow?
3. The current listings on zillow for 2B2Ba are almost always more expensive than 450K. Should one wait out this year for price corrections to kick in?
4. What's the experience for any new buyers in 2023 at the current prices when they calculate their cashflow?
5. Any folks here who tried buying land, and built cabins there incrementally over a period of time ending in say 2..4 cabins on a lot?

Really appreciate your time & inputs to help me. 

[John Carbone]

As someone who lives on the ground in Sevierville I’ll add my two cents here. You better make sure this property, if it is currently on the rental market, is actually renting out well NOW and if it isn’t being rented, find out why that is. There is demand, but there is a ton of supply out there now. I’ll make a post when I have time showing the supply increase in Gatlinburg. 

I am seeing a ton of cabins being sold that have been milked for a decade or more by previous owner who paid in the 100k range selling them for 500k now. These properties have been abused with no maintenance done whatsoever other than handy Andy patching stuff up as issues came up. Up until this point they got away with this business model because demand had been in equilibrium or greater than supply. The market has shifted, and we are likely looking at a 5-10 year horizon where supply will be exceeding demand. These people dumping their properties now are very likely on pace to make half of their revenue than last year if they didn’t do any updates. I don’t blame these people for what they did, as the saying goes why fix what isn’t broken, and it never made sense for them to invest in the property. We are fully in the transition phase of how it used to be, to how it will be in the future. Enter this market extremely cautiously. This doesn’t even factor in the higher rates now and the impact it will have on cash flow. 5 percent 6-month treasuries right now are a good place to ride this transition phase out. Prices are on the decline and momentum has shifted. There is no fomo here anymore, be patient until you find the property you really want. 

Even if you bump up occupancy to 80 percent that adds 13k, remove the pm to add another 10k. You will be making a few thousand a year on a 160k investment and you have to do day to day work. This 160k will make the same (or more, and no risk) sitting on your couch collecting from Jerome powell (you still lose to inflation though) We may be entering a virtual STR sweat shop era for new buyers that self manage now, only at least in a sweatshop you are guaranteed to make something.

This has all been predicted over a year ago by myself and a few others on this forum. All it took was common sense and a calculator as well.