All Forum Posts by: Bill Denney

Hey @Bill Denney, so everyone here is right. It is worth what it is worth. Hopefully you are on the upside after construction.

What I might look at is improving it's appeal as a STR. Maybe build a 3/4. With all three bedrooms having an on suite bath and one general use bath. I could imagine that being a nice booking feature, especially in an area where you get multiple couples traveling together.

Also consider building it for ADA and easy access. We get a lot of inquiries about access to our lake house and it isn't very friendly. I could see it having an advantage over others.

Finally you can build it with durable materials like quality LVP flooring or tile throughout.

I can see those sorts of things increasing bookings as they would appeal to guests, but I don't think they would add extra equity in the end.

It will depend on the market you are operating in but the math should be pretty straightforward.  See what price per foot new construction is selling for.  Then see what you can get comparable vacant lots for.  Then meet with several custom builders and see what they can build comparable properties for price per foot.  Do the math and see if you have equity.

Find the intersection of a place that a lot of people visit but does not have really high 2nd home demand. You're likely going to have to make some sort of compromise or sacrifice to get outsized returns. Whether it be a renovation project, remote geographical location, or some other "hassle factor" that suppresses buyer demand, you're not going to check all of your boxes if you want a good return. 

I'm a bit of a national park nerd and other areas certainly apply to this thought, but look at something near locations like Mammoth Cave in KY or New River Gorge in WV. Nobody's rushing to buy or bragging to their friends about a 2nd home near Mammoth Cave in KY, but it provides a far better cash on cash return and a lower entry point than the markets that you mentioned. 

My advice after buying a few out of town properties is to buy your investments and rent your vacations. Don't factor personal use into the purchase. 

Last piece of advice that you did not ask for is that this is harder than you think it is going to be. You're going to either buy a turn key place that makes no money or have to set up and furnish the place yourself. Prepare to live at that property, work your a$$ off, stress, hope, and bleed cash. You're going to spend countless hours a giant pile of money before you make a dime of revenue. 

You are wanting to buy something today and get maximum returns in one year. Prices are still at record levels, mortgage rates are double what they were 1-2 years ago, and the market is saturated with people that wanted to jump on the bandwagon. You can't expect to get the same results today as you could three years ago. The formulas that worked three years ago don't work today.

I think you need to start with the realization that the market has changed. It's not 2018 and you won't get 2018 performance. Look at what is realistic for 2023 and focus on a long-term return instead of killing it in year one.

I still believe in the Smoky Mountain market and am still active here. I’m seeing ‘deals’ all the time and saving the hot ones. Deals in quotes because the market is different now. Cash on cash around 10-20% in most cases. Also I’m a fan of the 2 bed / 2 bath with those killer views of the mountains and they still perform well. It enables you to get last minute bookings for a couple looking to get away. I hold quite a few in my portfolio and lots of my clients go for that size too. 

You are essentially asking if anyone can direct you to any markets in which you can expect to make over 100% annual return. If anyone knows any markets like that I doubt they're going to share them here (I know I wouldn't as that would be a gold mine). 

Even if a great cabin in Gatlinburg/Pigeon Forge did 80k that's not going to be your profit. Let's assume you could buy something for $500k that brought in $80k gross per year. You're going to put $70k down and get a note for $430k. That's going to be about $3k per month just for principal and interest. For easy numbers put another $1k in there for taxes and insurance. So just your PITI is $4k per month. That puts you at $50k in expenses annual before you add in any other costs of doing business. Unless you think a cabin like that is going to bring in $150k gross which is where you get your $80k from.

Real estate is a long game. If you make an annual return of 10-20% that is a very good return. Most people are having trouble making anywhere near that right now because 7-8% interest rates are eating their margins. 

Yeah @Bill Denney, @JD Martin hit the nail on the head.

What you are asking for isn't a thing. No one is getting that kind of return on a STR.