Smokies "hiney showing" thread

[Collin Hays]

 We have officially entered the "Hiney Showing" phase in the Smokies.  That is, homes being offered for less than what was paid for them very recently.  It's all a part of the boom/bust real estate cycle in resort areas.  The inevitable end to "But this time it's different" chants. 

I'll be posting these as I see them.  

Here's the first. No further bookings in April or May. It was purchased for $2.4 million in 2022.  Asking $2.25 million today, and offering $20K in "buyer credits".

3385 Birds Creek Rd, Sevierville, TN 37876 | MLS #1256702 | Zillow

[Collin Hays]

Someone paid $1.2 million for this in 2022.  A most grievous error.

Unable to sell on MLS, now going to auction with no reserve. It might bring $750K, which would still be too much.

4525 Hooper Hwy, Cosby, TN 37722 | MLS #1258689 | Zillow

[JD Martin]

Quote from @Collin Hays:

Someone paid $1.2 million for this in 2022.  A most grievous error.

Unable to sell on MLS, now going to auction with no reserve. It might bring $750K, which would still be too much.

4525 Hooper Hwy, Cosby, TN 37722 | MLS #1258689 | Zillow

 My god, I remember when houses like that sold for under $100k in Cosby. 

[John Underwood]

Incredible. I guess this had to happen.

10 years from know these places will be worth more than what they paid, but they are bleeding too much now to survive.

It's crazy how low occupancies are right now all over the country.  I expect this is temporary. 

I talked to someone yesterday selling their condo in Hilton Head. The combination of lower occupancy and continuously increasing regime fees (insurance was a big factor) forced them to sell. 

The condo is under contract. I woulder if the new owner will keep it a STR and how the numbers will possibly work for them?

[Chris Seveney]

@Collin H.

I should go back to several of my posts from probably a year ago, where I was commenting on this and received a lot of heat from people telling me how I am wrong, I do not understand the market, and the market is going to continue to skyrocket.

I said the same thing about the Shenandoah Valley in Virginia and just waiting for her there as well.

Simple math, covid created significant demand and little supply and now demand has normalized and market is over supplied

[Nathan Gesner]

Quote from @Chris Seveney:

Same. The most memorable example was when someone (maybe even Collin H.) shared two little cabins in Gatlinburg that sold for $1 million and then the buyer was going to pour money into renovations. I said it was a huge mistake, but everyone told me they were in an excellent location and the numbers would work. 

I would love to see what that owner is netting (losing) today.

[Collin Hays]

Quote from @John Underwood:

I talked to someone yesterday selling their condo in Hilton Head. The combination of lower occupancy and continuously increasing regime fees (insurance was a big factor) forced them to sell. 

Great point John. The input costs for operating a STR are a multiple of what they were even 5 years ago. Doubling or tripling of property taxes by the taxing authorities, new permit requirements and fees, insurance, increasing VRBO and Airbnb fees, etc.

[Leora Merrell]

This is going to be a fascinating thread. I'm on the mls every day in this area just to make sure I'm in tune with what's going on (we own several in this area and I'm semi-local). Reality still has not set in for most sellers. I just keep seeing more and more pop up for sale at insane prices. 2 bedrooms for $725k that were last bought in 2022 for $695k using a HELOC on their primary to fund the down payment. All the while being coached and encouraged by realtors and even some on these forums to purchase that way. And now the same people are telling them "there's never a better time to sell."
New construction isn’t even moving. I’m still watching the 13 one bedroom cabins I’ve mentioned here before. Started at $625k nearly a year ago. Down to $459k and not a single one has sold yet. It’s too bad. 

@Chris Seveney- we have an str in the Delaplane/Marshall area. I’ve been watching that area too. Thankfully we’re more in wine country and less in Shenandoah (though only 25 mins from the park) and have been totally fine because we capture winery/brewery hopping guests and horse show people. But the Front Royal and Luray areas are going to experience the same thing as the Smokies, IMO. Hopefully not but I don’t see how it can be avoided. 

[Chris Seveney]

Quote from @Leora Merrell:

This is going to be a fascinating thread. I'm on the mls every day in this area just to make sure I'm in tune with what's going on (we own several in this area and I'm semi-local). Reality still has not set in for most sellers. I just keep seeing more and more pop up for sale at insane prices. 2 bedrooms for $725k that were last bought in 2022 for $695k using a HELOC on their primary to fund the down payment. All the while being coached and encouraged by realtors and even some on these forums to purchase that way. And now the same people are telling them "there's never a better time to sell."
New construction isn’t even moving. I’m still watching the 13 one bedroom cabins I’ve mentioned here before. Started at $625k nearly a year ago. Down to $459k and not a single one has sold yet. It’s too bad. 

@Chris Seveney- we have an str in the Delaplane/Marshall area. I’ve been watching that area too. Thankfully we’re more in wine country and less in Shenandoah (though only 25 mins from the park) and have been totally fine because we capture winery/brewery hopping guests and horse show people. But the Front Royal and Luray areas are going to experience the same thing as the Smokies, IMO. Hopefully not but I don’t see how it can be avoided. 

I had a condo in Basye we bought in 2013 for $20k that at the time they could not give them away, up through 2019ish it had little appreciation. Homes could be had for $150k-ish. Today those condos are $150k and homes are $300-$400k. Its a matter of time but the cost to own and maintain them vs. what you will get as a STR does not work, and as a LTR they absolutely do not work. It takes time to have this work through the system but give it a year or two when these owners realize they are losing $ every month. It happens faster in places like the smokies because the $ value is much higher so pain is a lot worse.

[V.G Jason]

I have entered the chat. I want a Smokies house, and had my eye on this going into May. I think if I'm able to find something appropriate in the next 2-4 weeks, I will buy one. This seemed relatively early for people to sell, I thought it'd take another year. Lots of delusion the agents put over on the sellers, and then we all know how agents are on the buy side just peer pressuring. 

[Collin Hays]

Quote from @V.G Jason:

This seemed relatively early for people to sell, I thought it'd take another year.

 “You ain’t seen noth’n yet.”

[John Carbone]

This thread just needs some optimistic positive thinking….where is Luke Carl at to fire everyone back up? 

[Scott Trench]

I've discussed the REI market at length, and I've been a little skeptical of the smokies for a while now. It's a very regional play - or appears to me. I'm in CO. There's no world where I get on a plane to travel to a cabin in the smoky mountains in the US southeast. I can, for roughly the same price go to beaches, major cities, other countries, etc.

I also think that, generally, STRs are not like a one off way to build wealth. Buying a vacation home and thinking it brings in cash flow is a sure way to make the locals rich, as vacation rental communities are extremely seasoned at extracting wealth from visitors, perhaps especially including those who own remotely. 

This creates a particularly challenging environment for the investor in a general sense:

- A regional vacation market

- Competing not with other rational investors, but with people who just have a mountain home; and therefore are fine to run it at a loss.

- Competition can and actually will increase in bad times, because people who own casually for second homes will try to get something instead of nothing by listing their properties for the first time.

- People will fight to give everything they have to keep their primary residence, but if their second or vacation home becomes a pain in the rear, they’ll sell. This can create huge swings in inventory.

- Buying that first STR property in a "hot" vacation market that isn't local therefore seems like one of the highest risk investments one can possibly make.

I will not be surprised to see pain in several similar markets around the country, perhaps including certain desert locations that surged in popularity, certain lake areas, and the pain may extend to even areas like CO mountain towns, despite the fact that unlike the smokies, people do travel from all around the world and country to get there.

[Collin Hays]

Quote from @Scott Trench:

I've discussed the REI market at length, and I've been a little skeptical of the smokies for a while now. It's a very regional play - or appears to me. I'm in CO. There's no world where I get on a plane to travel to a cabin in the smoky mountains in the US southeast. I can, for roughly the same price go to beaches, major cities, other countries, etc.

I also think that, generally, STRs are not like a one off way to build wealth. Buying a vacation home and thinking it brings in cash flow is a sure way to make the locals rich, as vacation rental communities are extremely seasoned at extracting wealth from visitors, perhaps especially including those who own remotely. 

This creates a particularly challenging environment for the investor in a general sense:

- A regional vacation market

- Competing not with other rational investors, but with people who just have a mountain home; and therefore are fine to run it at a loss.

- Competition can and actually will increase in bad times, because people who own casually for second homes will try to get something instead of nothing by listing their properties for the first time.

- People will fight to give everything they have to keep their primary residence, but if their second or vacation home becomes a pain in the rear, they’ll sell. This can create huge swings in inventory.

- Buying that first STR property in a "hot" vacation market that isn't local therefore seems like one of the highest risk investments one can possibly make.

I will not be surprised to see pain in several similar markets around the country, perhaps including certain desert locations that surged in popularity, certain lake areas, and the pain may extend to even areas like CO mountain towns, despite the fact that unlike the smokies, people do travel from all around the world and country to get there.

 A few counter points.

1.  People do come from “all around the world and country” to the Smokies. 14 million visit the Great Smoky Mountains National Park each year.  Far more than any other national park. We have many homeowner clients - all over the country - with Smokies investments. For the long term investors, the returns have been spectacular.

2.  Someone renting their luxury cabin for $150 a night isn’t necessarily an irrational investor: If they bought the place 15 years ago for one fourth of today’s prices, and the home is paid off, $150 per night might make perfect sense.

[JD Martin]

Quote from @Scott Trench:

I've discussed the REI market at length, and I've been a little skeptical of the smokies for a while now. It's a very regional play - or appears to me. I'm in CO. There's no world where I get on a plane to travel to a cabin in the smoky mountains in the US southeast. I can, for roughly the same price go to beaches, major cities, other countries, etc.

I also think that, generally, STRs are not like a one off way to build wealth. Buying a vacation home and thinking it brings in cash flow is a sure way to make the locals rich, as vacation rental communities are extremely seasoned at extracting wealth from visitors, perhaps especially including those who own remotely. 

This creates a particularly challenging environment for the investor in a general sense:

- A regional vacation market

- Competing not with other rational investors, but with people who just have a mountain home; and therefore are fine to run it at a loss.

- Competition can and actually will increase in bad times, because people who own casually for second homes will try to get something instead of nothing by listing their properties for the first time.

- People will fight to give everything they have to keep their primary residence, but if their second or vacation home becomes a pain in the rear, they’ll sell. This can create huge swings in inventory.

- Buying that first STR property in a "hot" vacation market that isn't local therefore seems like one of the highest risk investments one can possibly make.

I will not be surprised to see pain in several similar markets around the country, perhaps including certain desert locations that surged in popularity, certain lake areas, and the pain may extend to even areas like CO mountain towns, despite the fact that unlike the smokies, people do travel from all around the world and country to get there.

 We have a large, mostly drive-in vacation crowd here. The Smokies are a one day drive for something like 60% of the entire US population and are the tallest mountains east of the Rockies by a long shot. I remember when everything was a lot more "country" and backwater than it is today, and honestly I thought it was more fun. Huge crowds tend to ruin everything in my opinion. 

[Scott Trench]

Good counterpoints guys! We will see how things play out. And for the record, any of those challenges can be overcome and I would not bucket long term professionals into this same risk category. Someone who buys for the next 30 years in the smokies will make great money I’m sure, but someone who bought in the last three as an experiment? I think it’s a long road.

I'd just be willing to bet handsomely that occupancy is a huge challenge, revPAR suffers, and asset values fall in many STR markets over the next few years, and fear that the Smokies may have among the highest risk.

[John Carbone]

Home values need to drop 50 percent and some still will not be good investments, that’s how misaligned this market is right now. 

By next year, most “houses” that were converted to short term rentals will no longer be rentable as a short term rental, owners will be better off selling or renting long term, even if it’s at a loss it will be less of a loss than leaving empty or selling.

cabins that have been pillaged and not maintained will likely not rent short term except during peak times, perhaps 30 percent occupancy. Someone will need to fix them up, but unless prices drop 50 percent it won’t be worth it for an investor to renovate. 

A lot of new construction also just looks awful and not built for this market. Too many people got way too crafty and built new luxury “cabins” similar to that of a trendy Silicon Valley style home, and that’s just not the market here, those places will take huge haircuts.

also the pool cabin pumpers during Covid did exceptionally well when kids were doing school from home and there was a lot of demand year round for pools in off peak times…now those pool cabins sit empty because kids are in school and people aren’t willing to pay a premium to stay so the place sits unoccupied. All of this was very predictable, but unfortunately only a few here were able to see this 2-4 years ago. A memorable reply I recall  from a pumper here back then was “I wont let you rain on my parade” … well now it’s a tsunami coming inland and it doesn’t care about your feelings. 

[Anthony Swain]

@Scott Trench Suchhhh great points. 

I think you hit the nail on the head with the STR demand likely decreasing with supply and lower demand after COVID. Now there are these STRs completely decked out competing for the bookings against one another. I'm sure you have to upgrade more and more to get consistent bookings.

I would also agree that not as many people are willing to fly into the Smokies as opposed to flying into the Rockies or just going International. 

I am in the same boat, I would fly to Colorado before I would drive/fly to the Smokies.

Just my two cents. However, I don't have any skin in the game for mountain vacation rentals.

[V.G Jason]

Quote from @Scott Trench:

Good counterpoints guys! We will see how things play out. And for the record, any of those challenges can be overcome and I would not bucket long term professionals into this same risk category. Someone who buys for the next 30 years in the smokies will make great money I’m sure, but someone who bought in the last three as an experiment? I think it’s a long road.

I'd just be willing to bet handsomely that occupancy is a huge challenge, revPAR suffers, and asset values fall in many STR markets over the next few years, and fear that the Smokies may have among the highest risk.

 The former is an investor, the latter is someone trading. Physical assets MUST be investments-- need to think at minimum trading equity so 8 years, but more so in the 10-15 year timeframe.

With that said my poc for the Smokies still seems very optimistic and thinks I am a vulture as recently as end of February. I'll check back in on Monday see if her tune has changed. For the record, Colin is calling for the fall! That's the way I read it. 

[V.G Jason]

Quote from @Anthony Swain:

@Scott Trench Suchhhh great points. 

I think you hit the nail on the head with the STR demand likely decreasing with supply and lower demand after COVID. Now there are these STRs completely decked out competing for the bookings against one another. I'm sure you have to upgrade more and more to get consistent bookings.

I would also agree that not as many people are willing to fly into the Smokies as opposed to flying into the Rockies or just going International. 

I am in the same boat, I would fly to Colorado before I would drive/fly to the Smokies.

Just my two cents. However, I don't have any skin in the game for mountain vacation rentals.

Or you have to be the lowest barrier of entry-- meaning really convenient price and easily accessible location. In some markets, going grand makes sense. I think in some of my STR markets I go grand, but in some I try to target the lowest barrier of entry as in a 2/2 that's easily accessible, small, priced in the lower 20% and that targets young couples, girls trips or whatever they call them, empty nesters, etc. In the smokies, I want to go easily accessible and affordable. The initial investment then has a lower floor, and my likelihood of competing against the STR folks is not really a necessity. If anything, my property now makes them play more defense.

Maybe I am wrong, but that's how I see the Smokies.

[Steve K.]

These are a few examples that may indicate a trend, but what are the sales metrics looking like for the area? How many months of inventory? What is the list to sale price ratio? Average days on market? 

[Collin Hays]

WARNING: ROUGH TERRAIN AHEAD (biggerpockets.com)

IT'S DIFFERENT THIS TIME! (biggerpockets.com)

Smokies state of the union (biggerpockets.com)

Smokies STRs: The State of the Union mid 2022 (biggerpockets.com)

But I thought Gatlinburg was recession proof? (biggerpockets.com)

Real life returns in the Smoky Mountains (biggerpockets.com)

[Jay Fradd]

Quote from @Steve K.:

These are a few examples that may indicate a trend, but what are the sales metrics looking like for the area? How many months of inventory? What is the list to sale price ratio? Average days on market? 

Below are graphs I put together from stats in our local MLS. The most disturbing is the absorption rate in my opinion. It has went from 5 months to 13 month absorption rate in one year. A lot of inventory stacking up here in the Smokies.

[Steve K.]

Quote from @Jay Fradd:

Quote from @Steve K.:

These are a few examples that may indicate a trend, but what are the sales metrics looking like for the area? How many months of inventory? What is the list to sale price ratio? Average days on market? 

Below are graphs I put together from stats in our local MLS. The most disturbing is the absorption rate in my opinion. It has went from 5 months to 13 month absorption rate in one year. A lot of inventory stacking up here in the Smokies.

Looks like you have a buyer’s market then indeed. 

[John Carbone]

Quote from @Jay Fradd:

Quote from @Steve K.:

These are a few examples that may indicate a trend, but what are the sales metrics looking like for the area? How many months of inventory? What is the list to sale price ratio? Average days on market? 

Below are graphs I put together from stats in our local MLS. The most disturbing is the absorption rate in my opinion. It has went from 5 months to 13 month absorption rate in one year. A lot of inventory stacking up here in the Smokies.

Any idea where this compares to 2008-2012 time periods?

[John Underwood]

Quote from @JD Martin:

Quote from @Scott Trench:

I've discussed the REI market at length, and I've been a little skeptical of the smokies for a while now. It's a very regional play - or appears to me. I'm in CO. There's no world where I get on a plane to travel to a cabin in the smoky mountains in the US southeast. I can, for roughly the same price go to beaches, major cities, other countries, etc.

I also think that, generally, STRs are not like a one off way to build wealth. Buying a vacation home and thinking it brings in cash flow is a sure way to make the locals rich, as vacation rental communities are extremely seasoned at extracting wealth from visitors, perhaps especially including those who own remotely. 

This creates a particularly challenging environment for the investor in a general sense:

- A regional vacation market

- Competing not with other rational investors, but with people who just have a mountain home; and therefore are fine to run it at a loss.

- Competition can and actually will increase in bad times, because people who own casually for second homes will try to get something instead of nothing by listing their properties for the first time.

- People will fight to give everything they have to keep their primary residence, but if their second or vacation home becomes a pain in the rear, they’ll sell. This can create huge swings in inventory.

- Buying that first STR property in a "hot" vacation market that isn't local therefore seems like one of the highest risk investments one can possibly make.

I will not be surprised to see pain in several similar markets around the country, perhaps including certain desert locations that surged in popularity, certain lake areas, and the pain may extend to even areas like CO mountain towns, despite the fact that unlike the smokies, people do travel from all around the world and country to get there.

 We have a large, mostly drive-in vacation crowd here. The Smokies are a one day drive for something like 60% of the entire US population and are the tallest mountains east of the Rockies by a long shot. I remember when everything was a lot more "country" and backwater than it is today, and honestly I thought it was more fun. Huge crowds tend to ruin everything in my opinion. 

Also go down the parkway on a sunny day like today and you will be stuck in traffic. 
Summer and leaf changing time in the fall has even more people packed into the area.
There are just so many cabins to pick from. You have to stand out somehow among rhe average cabins.

I see people on FB groups say I want this and I want that, but I only want to pay X. Some owners are jumping on these value shoppers with their great properties just to fill in some dates.