All Forum Posts by: Arthur Means

Yea but to be fair, 65k on a 1 bed 550 sq ft is not the norm. Can it be done? yes Will any 1 bed cabin do that? no way. A lot has to do with location and the amenities in the cabin. It also has a lot to do with how many 5 star reviews you have and how well you manage it. Will a first time STR buyer do that - no way. He will have no reviews. He will not be able to command the same price point etc.. He has a lot to learn.

You also have to remember that prior to covid most folks would tell you the norm for that area was 20k per bedroom average - now I blow those numbers away but I also brought properties that I knew would blow those numbers away with the right amenities.   That per bedroom average has gone up quite a bit the last 2 years for various reasons, but there will be a pull back coming and people are going to get burnt.  It will be the people jumping in at these high prices for the first time with no experience that will get burnt and its gonna happen.  Can you still cashflow in this market?  Yes you absolutely can, but you have to buy right.  What properties will cash flow well at these price points has narrowed quite a bit in the last few years.  

Yes the prices have changed even more so than that.  The cabin I just finished, built with August 2020 pricing I can sell for almost 3 times that today.

At that price point on a typical 1 bed cabin, you will be lucky to break even, and if you profit, it won't be much.  And the amount of profit you might get would have to be debated whether or not it was worth your time and energy to manage it. 

For the last year, people have been selling all kinds of things and people have been so frenzied they are buying - even if they don't make sense.  I have seen some realtors jump in and help selling stuff that don't make sense.  i.e. selling building lots that wont get a septic permit, selling a cabin that did xxxx last year, which turned out was completely trashed and most likely didn't rent at all last year.  You have to be careful what you are buying, and have a  good realtor as well.

Now perhaps your reasons for buying a cabin are not purely investment related.  Maybe you want the cabin for your use and you want to rent it out when not using it just to help cover the cost.  Then that is a different story and purely up to you at that point.  I am giving my response based on your purchase being solely investment driven.

@Arthur Means

Hi Arthur,

Have you read the Avery Carl book on STRs? If not, I'd check it out. It's an easy read and is slanted towards driveable destination markets like those in TN. A lot of good info. in there, especially for folks just starting out.

https://store.biggerpockets.com/products/short-term-rental-long-term-wealth

Good luck!

I have done single family rentals in the Midwest and enjoyed it.  Prior to moving to NC for work, Gatlinburg and the surrounding areas are my most frequented vacation destination.

Some background information...

1.  I understand that every month will not be profitable. I am ok with this, but I do generally expect a positive annual cash flow

2.  I don't need the money to live, which is why I'm ok with some months being negative

3.  I work for a Fortune 500 company and receive annual stock awards. I'd like to use these to finance the down payment for this business. 

4.  The end goal would be to have 2-3 fully paid off properties and potentially retire and live off the monthly income (10-15k per month)

__

All that being said. I have some very basic questions that I'm hoping someone with experience in this market will be willing to answer. 

1. I read that property management companies charge near 30% for their services. I feel like this is essential for the success of this type of rental. What are the signs of a good management company?

2. Am I correct in assuming that if I purchase an established property with a documented history that my management company can maintain this from a marketing standpoint?  Is this the right move for someone new to this rental type?

3.  I also read that there are numerous additional maintenance requirements for cabins such as regular staining. How much reserve cash should a person keep for this type of rental? (I am planning 50k)

4.  How do I find the right realtor for cabins?  What type of downpayment and financing can I expect for a cabin with a history of profitability?

5. Assuming covid will not be our final pandemic, were you offered assistance when the city was shut down?  How did you survive?  What would you have done differently?

6.  Lastly, if you've had this type of property, what do you wish you would have known ahead of time?  Would you buy another one?

Well first, thank you Ken for the kind words.  I am a Property Manager on a DIY forum, so I am a bit of a fish out of water.  Having a Property Manager doesn't necessarily translate to financial success.  There are good and bad PMs just like there are good and bad anything. Actually, I am a big proponent of self management, if you have TIE.  Time, Interest, and Energy.  Being your own property manager is a part time job.  Sure, certain functions can be automated, but others are going to require fairly frequent interface.

I bought my first cabin near Gatlinburg in 2005, right at the peak before the financial crisis. I self-managed until I got sick of it.  I lived through a time when properties lost 75 percent or more of their value in the following few years after that.  Property manager or not, my income was really just enough to pay the mortgage, so I wasn't positive cash-flowing.  

Over time, you begin to positive cash flow, because rents go up and your basis stays the same.  Today, I have 5 cabins personally, and the net-to-me income is deep into 6 figures.  

I look at short term rentals as I do my other investments.  Buy and hold.  Any plans of short term flipping are quite risky.  That doesn't mean something doesn't occasionally fall in your lap. 18 months ago, I was able to purchase a cabin for $230K and sold it 4 months later for $359K.  In retrospect I regret selling it because the income was so good, but sometimes short term profits are too good to pass up, and it basically paid the entirety of my daughter's 4 years of college on the spot.  So sometimes you buy planning to hold, but something weird happens and you decide to take profits.

If you shop for a Property Manager, what they charge as a percentage is a bit of a side issue. Toyota and Fiat are both foreign cars, with the Fiat being far less expensive, but to many, the Toyota might represent an overall better value.  Find quality, and focus on what you will net after expenses.  Talk to their other homeowner clients.  

If you self manage, there are costs to doing that as well, that you wouldn't have with a Property Manager.  Example:  Airbnb and VRBO are both going to charge you 7 to 11 percent of your revenue on each rental as a service fee.  That is a legit expense.  You will also be tracking down handymen, contractors, pest control, and housekeepers.

Our clients do not have time to self manage.  Most are professionals of some sort - doctors, lawyers, executives.  Some have never even personally seen the property that they own and are 2000 miles away.  Like an annuity or bond, they simply collect a check each month.  This is the typical profile of someone hiring a property manager.  If you are really into saving $10 on a skillet, or want to be called every time there is a bad review or complaint, you probably need to manage it yourself.

Happy Investing!

A few points - I am profitable every month generally, the only time I "might" not be profitable for a month is if I do a major upgrade in Jan or Feb.. i.e. new roof, staining etc..  Jan and Feb are the slower months but that does not mean it will not be profitable.

As far as your questions..

1. Most people on this forum manage themselves - however if I was going to manage I would talk to @Collin H who is on this forum.  Not sure if he is interested in taking on new clients or not and I do not know him personally.  What I do know is that he manages a smaller set of cabins than what the big guys do.  The way I see it, he has more time to deal with the critical details than the big guys do.  From the things I see him post on this forum, he is very knowledgeable in this realm, so if I was going to have a mgmt company, I would talk to him first.   When I said I am generally profitable every month - consider that I self manage - I don't pay the mgmt fees, but I still have things I have to pay for.

2. Past history really does not have much bearing on future profitability.  It can tell at the minimum what a property is capable of, but that is it.   If you hire a management company future profitability is going to depend on how well they manage the property.  I have heard numerous stories, of profits either went crazy up or down, due to switching management companies.  It also depends on how well you keep the property maintained as well.

3. For this is really depends on the size of the cabin, and what kind cap ex things might go bad.  50k is plenty, but this is a personal decision, do you want extra to cover you for x amount of months in case of say a fire...or some other disaster?

4. Realtors for these cabins are everywhere ;)  There are a few on this forum.  Down payments can vary from 10 - 25% depending on the type of loan you get, mostly will be 30 year loans.   Possible to do a second home 10% down loan or a 20% investment loan at a higher rate.  Just depends on your situation.

5. Covid hit, and we lost like tens of thousands of dollars in bookings in a matter of 3 weeks, then we started booking again about 3 weeks later, and went on to have a record year.  This year will beat last year for us.  I would not have done anything differently and I did not get any assistance.

6.  If I knew then what I knew now I would have bought a bunch more cabins back when I started when prices were much much lower.  I will buy another.

Having said all that, you need to be very careful, because the prices are at an all time high and I keep seeing people that know nothing of this market buying very expensive properties that simply just will not cash flow well.  You have to have the right deal.  I have been calling that market the wild wild west for quite some time and there is a reason for it.  Everything is nuts there.  I will buy another, but I am not in any hurry at these prices - if a deal comes up sure, otherwise I am waiting for the market to change.