Gatlinburg Deal Analysis

[Eric F.]

Hey All Gatlinburg STR Gurus!

I'm very interested in getting involved in the Gatlinburg STR market and have spent countless hours researching, listening, lurking and basically soaking up any info I can in this specific niche. I love the smokies specifically because of the long history with short term rentals (no new regulations popping up suddenly), low taxes, and obviously high year round demand.

What I don't understand is the complaints I hear of rising prices and having difficulty reaching the benchmark 20% CoC return. Yes, the market prices have risen compared to 2-3 years ago (or even 9-12 months ago) but the demand seems to have grown along side that, and it seems that positive cash flows can still be had, even with purchasing a home/cabin at full market price.

Take for example a specific deal I am seriously considering presently:

New construction 3BR/3BA with an indoor pool. Purchase price 850K furniture package included. Seller projects 120k gross income, and is supported by a local PM. I did not speak directly to the PM so I would need to verify if these numbers are inflated, whether they include cleaning + state and local taxes, or not, as those are pass through. I also don't know exact costs for utilities, maintenance etc but I guesstimated in my attached proforma, and I invite people with experience to chime in to see if these numbers are realistic.

Bottom line- If you look at the right side which is using a conventional 80/20 loan my CoC is right around 20%. But the real winner would be if I would be able to secure a second home loan at 90/10 which is presented on the left side of the screenshot. These numbers seem to good to be true, and this is for a home purchased at full market value. This also includes 20% taken off as PM fees, (even though legally I cannot hire a PM if I get the 90/10 loan...) which according to most experts you can't use if you plan on earning a positive cash flow. I am considering managing myself remotely, which would make this even sweeter.

I feel like I'm missing something something here. Is there a big line item expense I'm forgetting? Did I seriously underestimate expenses? Is the projected gross way off? 

I would appreciate all help from the experts-

@Avery Carl 

@Lucas Carl 

@Jay Fradd 

@Julie McCoy

Thanks BP friends!

[Justin Anderson]

Your numbers end up at around the right place but are different than what I see in our cabins.

An old 4BR with pool I manage in so-so location mayyyy hit 180-190k net this year after our fee and cleaning.  I see 20k months the next couple of months.  Occupancy is around 85% and ADR is 568/night.

That said, electric can run 1000/m by itself especially with a pool heater and/or AC unit in there.  Pool service can be 200 or 250/month as it needs some hand holding with bad guests.  While it's a new cabin, I'd budget more than 1% for expenses.  Pool chemicals, service calls, broken furniture, dishes, etc. all add up.  I'd budget at least 3 or 4% to be safe.  (You kind of address it in pool/spa and supplies, so maybe that's covered)

If it's the Laurel Valley (??) development you're looking at, I believe you're required to use their PM which isn't getting near those rev numbers, be aware of that.

But the bottom line is... Still a good time to hop in!