Smoky Mountains Glamping Resort for $1m? good deal?

Question

I need some help on dissecting financials for this deal. The property is 4 acres with 5 tiny homes and 1 main house (doublewide). All of them currently listed on airbnb. 40 minutes from Gatlinburg. All of them currently listed on airbnb. Income for 2023 is most likely going to hit $100k. Expenses $28k (Excludes mortgage). Net income $72k. Everything was recently built and seems well maintained. They are about to list on MLS for $1million. If I look based on cap rate it would be a 7.2% cap rate. Is that good cap rate for airbnb? The interesting part is that I could buy it as main residence and live in one of the units and manage the property myself which would make a mortgage a lot easier... But I don't know how the bank would react to a $1million value for tiny homes. I would love seller financing but they want 40% down and I can't do that without getting some other loan. Thanks for any help

Nathan Gesner · Answer

If you want to be successful, you need to learn how to calculate your return.

The mortgage is your biggest expense, so why aren't you including that?

You would put a minimum $200,000 down. After paying the mortgage and other expenses, you would have $8,000 left over. Divide your income ($8,000) by the amount invested ($200,000) and you'll see a 4% return on your money. Awful.

Guess what? That doesn't include the amount of time you spend managing the five rentals! Let's say it takes ten hours a week to manage these five rentals. That's 40 hours a month. Keep that $200,000 downpayment in a savings account at 4% and you'll earn $9,000. Flip burgers at McDonalds for $15 an hour for 40 hours a month and you'll earn another $7,200. That's double what you can make with this investment, you'll have less stress, and you'll get discounted fries.

How to analyze deals: https://www.biggerpockets.com/blog/easily-analyzing-rental-p...

Bruce Woodruff · Answer

I would look at it with the mortgage as an expense, because that's frankly what it is for you. At 7% APR with 20% down, you're at $5.3k per mo. So your actual expenses would be about $93,000. Leaving you basically nothing....

Ryan Moyer · Answer

Not to put a damper on things, but there's no room for sugar coating it when you're thinking about picking up $1M in debt, so I'll just say that honestly sounds like a terrible deal to me personally, unless you think you can heavily outperform their revenue numbers.

Annual revenue of 10% of purchase price is pretty much the very low end of the barometer for STR.  Most people shoot for a good bit higher.   And that's a barometer that was set even before rates went way up, so it gets even harder to justify now.

But at least in those cases you were getting a solid appreciating asset on a foundation.  In this case you're basically just buying the revenue, and it's not very impressive revenue relative to the purchase price.

Financing is going to be very difficult on something like that (and likely even more expensive than normal) to boot.

Brian Barch · Answer

I could be wrong here, but I think some of the glamping trend is fading.  I don't see or hear about a lot of repeat customers in that space.  I get the appeal to saying you roughed it a bit one time, but it'd be tough to sell people on that year after year.  I also don't love the long term appreciation aspect of effectively owning a high end tent.

Brian G. · Answer

@Andres Rossini in the current environment you need to gross at least 15% of the purchase price per year to be profitable. So a $1M purchase needs to generate at least $150k/yr for you to be profitable with leverage unless you put down a very large down payment which I wouldn’t do personally. Also, STR is a fair bit of work (it’s an active biz) so you need a higher return for the hassle factor and time required.

Travis Timmons · Answer

First post, Smoky Mountains, and glamping...That's the trifecta! We've all been there. That's not a good deal, and you probably don't want to get into glamping for your first STR investment. Glamping may be the ultimate easier said than done RE topic.

You also probably don't want to buy in the Smoky Mountains unless prices have come back down to earth there. The numbers just don't work with high home prices and rates in the 8s for investor loans. The needle can likely be found in the haystack, but other, less mature markets offer a far better cash on cash return.

Joseph Dasmerces · Answer

Hey Bruce i agree with Ryan, less then 10% on a STR is low relative to all the time effort you have to put in managing the property. A good rule of thumb for me has always been i won't even consider a STR if it doesn't generate at least 20%. I hope this helps

Michael Baum · Answer

Hey @Andres Rossini, so I am with everyone else on this and this is a walk away.

First off, unless those tiny homes are sitting on some kind of foundations, have full utility services and are livable, they have no value in regards to a mortgage.

The mobile home is a crap shoot. It will really depend on how old it is, how it is secured etc. There are plenty of companies that won't loan on mobile homes as well as those that do.

As far as the financials go, I wouldn't go down this road.

Collin Hays · Answer

"40 minutes from Gatlinburg" can mean a lot of places.  Can you be more specific as to where the location is?

Sarah Kensinger · Answer

Lately I have been running numbers on properties similar to what you're looking out. Unless there is a way to add value to the property and double it's worth, I would say it's something to walk away from. The numbers would be to tight and not worth it.

Smoky Mountains Glamping Resort for $1m? good deal?

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