I am often asked by those who vacation to our area on a regular basis:
“Why do people invest in vacation homes in the Smokies? How does it
work? What are the costs?”
You may not realize it, but most of the cabins in the Smokies are owned by
private families just like you and me. As a matter of fact, my own family
owns 5 cabins between us! So why do people invest in vacation homes?
Well, we have 13 million visitors to our area each year. Most of them love
to stay in a cabin or chalet and not a hotel. They want to come back every
year, to meet their friends and family here, to go hiking, or just enjoy the
hundreds of yearly activities the area has to offer! Of those repeat
travelers, those who buy a vacation home have found that once they put
their down payment down, they never need to make another payment with
their existing sources of income!
So how does it work?
They purchase a vacation home, putting anywhere from 10%-30% down,
then they put it on a rental program with a manager who can market it and
schedule reservations. They are letting their guests buy their vacation
home for them, and as a huge bonus they get to come a few times (or
more) a year and stay free in their own vacation home! For many of them
the money down is just their vacation budget for the next few years. It is
interesting to contemplate how much money you spend on vacation
lodging!
What are the costs?
The management company charges an average of 20% of your monthly
rental proceeds. For that they do all the booking, coordinating with guests,
the cleaning and routine maintenance. Your part is to pay the mortgage
with your proceeds, HOA fees and your utilities.
What makes it a win? Here are few ways to consider:
1) Someone else is buying you a house. Guests are paying down your
mortgage each month.
2) Historically in the Great Smokies, appreciation of the value of
vacation homes has been between 6.5-10% a year (during covid that
doubled to 20% and more).
3) You now have a tax write off you didn’t have; you can choose to
depreciate the furniture and the house itself on your taxes.
4) Depending on what property you choose and how much time you
spend at the cabin during popular holidays and/or vacation there
outside of holidays, rental proceeds can be in excess of your
expenses. To determine what to expect, do a financial proforma that
allows you to run projections using the known expenses and revenue
that is expected. Going into the purchase with the right expectations
is another win!
In conclusion, it turns out that not only is our area wonderful to relax, create
memories, or run away to for a recharge! Our Smoky Mountain visitors just
like you are creating wealth for our families that have chosen to own their
getaway cabin! What a blessing! It is very Tennessean, you might say – a
good thing, like apple pie, a special thing, a uniquely American thing to do!
