All Forum Posts by: Paul Wolfson

@Timothy Allen my understanding is that your HELOC is not locked and banks can freeze them at any time if the market shifts or if your home's value drops significantly. Unless of course you already tapped your HELOC and are already paying it down while the money is standing by for deployment -- then at that point the bank can't touch it.

I'm heading to the Gatlinburg/Pigeon Forge area to look at some cabins (3 - 4 bedrooms). My analysis is showing projected annual income after expenses at about $30k (20% cash on cash return) using today's home values and high interest rates. 

These projections are using numbers from AirDNA showing 77% average occupancy rate and ~$270 average nightly rate.

I'm not sure if these numbers are representative of what is truly happening in today's market.

For those that have cabins in the Smoky Mountains, could you please share your revenue numbers as well as net income (after all expenses) for 2022.

I'd like to see if my projections are realistic.

Thank you in advance.

As others have mentioned, the Smokies home values are proportionally dependent upon the revenue stream. Prices are currently at 10x the potential annual revenue. My belief is that even if real estate prices begin to dip in 2023 across various markets, the Smokies and other vacation markets should hold steady as long as the revenue stream is steady. What are some things that can affect the revenue stream and vacation demand? I think the unemployment rate is the number one indicator to look at. Currently the unemployment rate is at historically low levels. However if the unemployment level begins a to rise, we will start seeing folks go on vacations less as they prioritize other things such as food and rent/mortgage. As the vacation demand falls, so will the revenue stream of STR, and as a result home values in the Smokies will start to decline drastically. But until that happens, and only if that happens, I believe the Smokies home values should remain solid. What are some of the other factors that can lower revenue streams?

Thanks @Collin Hays for the clarification. While home values may definitely decline if there is another 2 point rate hike, how would that result in us entering into scenario 4?

 @Fiza Ah how do you run historical numbers? Websites like AirDNA only show current data.

Even if home prices fall by 25%, why would there be a decline in demand from guests looking for cabins? Like other members said, even in 2008, there was not much of a decline in this region for folks looking to vacation. Would like to hear your opinion on this.

@Collin Hays

Quote from @Collin Hays:

Quote from @Pretty Khare:

Quote from @Collin Hays:

Quote from @John Carbone:

Realtors should also take note as we head into a downturn here. Be careful how you pitch deals to prospective clients. I know of people who were sued in the 2006-2009 era who were both brokers and realtors for misleading clients. A lot of realtors are new to the market since that time period and haven’t seen a downturn. If a client buys a 1m property and they lose half the value, that will likely ruin them financially. Some will try to seek recourse in a last ditch effort to salvage their financial life. Prospective clients are making huge decisions on stuff like this, the stakes are high, act accordingly.

There are a lot of similarities between 2006 and 2021/22:  Everyone had to have a cabin in the Smokies to rent out.  See the price history of this cabin.  There are a number of them in this development - Maranatha - that were built.  All with indoor pools.  This cabin originally sold for $899K in 2006.  What happened in the next few years wasn't pretty.  It would eventually sell for $205,000 in 2010.   A similar outcome for all of the cabins in this resort.  Of course, they've long since recovered, but it took 14-15 years.  

If someone tells you "but this time is different," run Forest, run!   Boom and bust cycles are a part of the deal with vacation homes.  No way around it.  

Are comparisons to 2008 really appropriate at this time? 2008 was a housing bubble induced recession, so yes the housing prices collapsed (biggest drop since the Great Depression of 1930s). However, right now we have a fed dealing with 40 year high inflation, which is a different scenario. This isn’t a housing bubble, it is an everything bubble (stocks crypto, housing etc.)

Have the housing prices gone up by a lot in the last two years? For sure.
Are the Smokies a riskier real estate market than others? I think, YES because the Smokies market is dependent on vacationers and does not have the stability that having a large population base of primary homeowners provides.
Should you runs your numbers, using 2020-21 Gross Revenue? Absolutely NOT.
Will this be another 2008 style market collapse? Probably NOT.

 

No one is calling for a financial crisis ala 2008-09.  Go to VRBO and pretend to book a McMansion cabin in Gatlinburg for tonight.  There are hundreds sitting empty.  That isn’t rain or sunshine, just fact.

 Hi Collin. I'm curious, how would you run numbers using 2018 data if you wanted to be conservative? For example, the average daily rate and occupancy rate on AirDNA shows current data -- but how would you do it for 2018 for example? Thanks in advance.

I spoke with the city hall and office of planning and development and was told the same thing by both of them in that certain districts are requiring environmental studies to be done. They also gave me a laundry list of requirements needed to get approval. I don't recall what the details were, all I recall is that this list of requirements was not there when I went to Van Nuys office of planning and development. Lastly, an HOA I dealt with in Santa Clarita threatened legal action if I were to build an ADU. Although I know I would likely prevail due to the new CA laws that were passed in 2019, it's just not worth the hassle.

@Tunde McConnell I looked into it, and talked with the city and several contractors. The general feedback is that it’s possible, but there are a lot more hurdles in Santa Clarita than any other city they have seen. I’ve moved on and looking at easier locations in the San Fernando valley.

I am looking to buy a two-story single family home in SoCal. I was hoping that after the 1994 Northridge Earthquake, building codes improved for residential properties, but I'm not exactly sure what year did the codes changed significantly. Some say that homes built in 1980s have very good earthquake codes, but others say that after the 1994 earthquake is when it really improved.

Questions

1. Do you know what year, specifically after 1994, did major earthquake code changes go in effect?

2. When the big one hits, in terms of damage, will there be much difference between earthquake codes of a house built in 1989 vs. 2004?