This cabin will do $60,000 a year

“This cabin will do $60,000 per year.”

Proclaims the selling realtor of a home purchased by one of our homeowner clients. So it was difficult for us to break the news to the excited new owner that the cabin would probably do no better than $40,000 in a good year. In fact, they fired us on the spot and went to another management company that gave them an answer that they liked better. Fair enough.

There are several reasons why the income of this cabin will be limited to $40,000 a year, but the purpose of this post isn’t to delve into those. This post is to alert potential buyers that there are some tall tales being spun by over-anxious (at best) realtors in the Smoky Mountains.

Let’s look at some reasons for that, and how potential buyers can protect themselves:

• There is a flood of new real estate agents cashing in in the Smokies. Many are new to the industry and/or this market, so their familiarity with vacation rentals and realistic incomes is limited.
• Real estate agents need to sell to earn a commission, and like sales people in any other business, their job is to point out the most optimistic of scenarios that will result in you following through with a purchase.
• Competition to close deals is frantic in the Smokies. Real estate agents know that their opportunity to close on a particular property is a very tight window. Thus the pressure builds to embellish potential returns.
• Real estate agents are usually trusting the books of the current owner and/or the incumbent management company. A lot of times, those numbers can be really fuzzy. John Doe claims his cabin did $60,000 in rents, but forgot to mention that $15,000 of that was taxes and housekeeping fees.

Takeaways:

1. Find a local real estate agent that has been doing business in the Smokies for a decade or more. They are out there. Your best chance of success is working with one of these agents.
2. While information from the real estate agent, seller, and incumbent property management company is useful, you can’t rely solely on their information to make a sound financial decision. Do your homework.