WARNING: ROUGH TERRAIN AHEAD

Almost every day, I am on the phone with a potential STR investor inquiring about a certain property for sale in the Smoky Mountains.  It's been a long time now since I have seen one that makes good economic sense.  Prices in the region have gone parabolic.  Basically straight up.  That isn't sustainable.  

I lived through a similar scenario in 2005 when I purchased my first cabin at the height of the market at that time.  Within 3 years, that property had lost half its value on paper.  Luckily I didn't need to sell it, and I just kept renting it out.  But it wouldn't be until around 2017 that the cabin value would recover fully.   That's 12 years.

Today, it is worth at least triple what I paid, maybe even quadruple, but I don't expect these values to hold.  

• Interest rates are rising, which takes a bit of the shine off of RE investing.
• CAP rates in the Smokies are often down in the 7 and 8 range now.  That is very low.
• Construction is rabid, so at some point, the market will have excess inventory.

The only situation where I advise buying in the Smokies in January 2022 is if you have at least a 10 year hold period, and you can afford to actually be in the red on a monthly basis for a sustained period of time.  

If you are buying a $1 million cabin that is projected to do $120,000 a year, run the numbers for $75,000 per year, because as things cool off, there will be lots of vacation home choices for vacationers, and you will have to be competitive to keep yours occupied.  

Been there.  Done that.  It will happen again.  And I think we are going to see things softening as soon as this year.   

All the best.