We have prepared this report for both novice and seasoned investors alike. Our goal is to educate and inform investors on the opportunities that are available in The Great Smoky Mountain region. In this report, we will discuss how to select an investment property that will provide exceptional rental income, appreciate above other properties, and maximize tax advantages.
In the last few years, the Great Smoky Mountain Area has been rated by VRBO, Trip Advisor and others who track short term rental revenues as one of the top 10 places in the United States to invest. One month we were thrilled to find we had swooped up three spots out of the top five: Gatlinburg, Pigeon Forge and Sevierville being the locations of choice! In fact, our region has been recognized in the last few years as a lucrative overnight rental market!
There are several reasons for the popularity of our area with overnight rental guests who wish to stay in our properties, typically known as “cabins.” By the way, don’t let the name “cabin” deceive you. These are not your grandfather’s hunting cabins. Nine times out of 10, they are going to outperform condominiums, so be careful when choosing to buy a condo if investment return in the Smokies is your top goal. (Condominiums generally also have higher HOA fees associated with them.)
Some of the factors in what makes the region so popular include the attractions and other amenities that draw a crowd. The Great Smoky National Park is the most visited National Park in the World, with tourist counts most years around 12.5 million these days. We have more visitors every year than the Eiffel Tower, the Rome Coliseum and the Great Pyramids! Seventy percent of the population of the US can drive to the Smokies in a single day. This makes us a superb location for a spontaneous trip or the perfect spot to meet for reunions and conventions.
The Great Smokies National Park offers our guests activities including hiking, horseback riding, camping, bicycling, picnicking and sightseeing. As our mountain streams trickle out of the National Park, guests can jump in a tube, raft, kayak, or try their hand at flyfishing. Of course, there are always the thrilling zip-lines and rock-climbing adventures to discover as well!
We also have world-class sports venues, including Cal Ripken and Rocky Top Sports World that hosts national tournaments in all sports; basketball, soccer, baseball, and tennis, just to name a few. The motorsports enthusiasts are not to be outdone, hosting Rod Runs on multiple weekends in Pigeon Forge that draw the area’s biggest crowds to events of almost everything offered throughout the year. It is so congested with Hot Rods and other classic automobiles at these events that we have to let the local school kids out early during these amazing events. Otherwise, the school buses would never get the kids home before dark! Visitors in the thousands line our Pigeon Forge strip placing their camp chairs out for the weekend- the ultimate tail-gate party.
It doesn’t hurt that we are also home to the Most Popular Theme Park in the US! Dollywood Theme Park has won award after award! Most Friendly Park in the World was our local favorite. Dolly Parton was born and raised in Sevierville, and we couldn’t ask for a more effective and delightful ambassador for our area. Theaters, shopping, dining, roller coasters and water parks, are on every corner to our visitors’ delight! Also, a natural arts and craft mecca attracting artists working in all media; ceramics, wood, oils and watercolors from all over the world. The artists and craftsmen come and teach at our national school of the arts, Arrowmont and then just never leave, choosing instead to set up shop and live in our popular “Arts and Craft” area. We also have a ski resort, as well as a Ripley’s state of the art aquarium. There just is something for everyone in the Great Smoky Mountains! And guess where these guests want to stay? A cabin that is a unique Smoky Mountain experience in itself!
These cabins look nothing like home: gleaming hardwoods, big logs, carved wood beams, copper tubs, rain showers, game rooms that entertain for hours, pool tables, arcade games, private movie theatres. Most of the cabins will have a hot tub on the deck, a favorite spot for guests long after the sun has set, and guests’ need to relax their tired muscles from a hike or just shopping. Lit by the moonlight they soak laughing and telling the stories of the day. Or they will choose to roast marshmallows over the fire pit, making memories that last a lifetime. We even have many cabins with indoor pools so it can rain all week, ensuring no one needs to leave the cabin or be disappointed!
Truly nowhere else in the United States can you find this massive a collection of log and timber cabins that are true entertainment centers in themselves! Ranging in size from one bedroom to 16 bedrooms, a Smoky Mountain Cabin stay will not be soon forgotten! Most guests return 2-4 times per year, taking in each season from the first spring wildflowers to the summer rafting and hiking to fall leaves that brilliantly stun and finally Winter Sports and Festival of Lights surrounding the holidays! We find we have guests who have been coming for generations. It is their family tradition.
All this good news means that these cabins are a destination unto themselves, and so they will perform very strongly in rental revenues, giving the cabin owner a strong investment when managed correctly. Such performance also affects the cabin’s value and strong appreciation. These cabins have proven stronger performers than hotels, apartment complexes, commercial properties and residential rental properties with ROIs of 5%-10% year after year. In some cases, our investors have found their Smoky Mountain Investment properties have outperformed their stocks and bonds while also serving as an investment you can actually stay in and enjoy – not to mention the saving of vacation money all the while! Many Florida CPA’s send their investors to see us each year.
Let’s look at income projections and expenses. Within this report I will give you expected revenues for each size cabin.
Before we get to that, there are a few other reasons that vacation cabins have proven a strong investment for so many of our clients. The local property taxes are exceptionally low, with the region depending more heavily on sales tax instead. This approach means the tourists are paying for the roads and infrastructure. Also, property insurance is also very affordable compared to other places because unlike beach destinations we don’t have hurricanes and flooding. Our utilities are low due to TVA creating hydropower from our dam-controlled lakes. And finally, we have very little red tape in the process of building and maintaining our overnight rental properties. We are a very conservative area, favoring the entrepreneur spirit and belief in individual freedom to own property unencumbered by large local government.
So How to Choose the Best of the Best Investment Cabin?
- Look for a Good Location.
When choosing a location, consider what the majority of renters are looking for. You can be in Sevierville, Pigeon Forge or Gatlinburg.
- Short drive time to attractions, theaters, shops, etc. Advice: Keep your cabin within 30-minute drive time from the Parkway.
- Stay on pavement or good gravel roads. Avoid one lane, rutted-out, steep, mountainous roads. Watch situations where it is questionable as to who is going to maintain the road.
- Although close is good, don’t get too close. Advice: Be careful with cabins that are only one street away from the Parkway. Remember, you are renting a cabin, and cabins are supposed to be located in nature.
- Last Question: resort vs. private setting – you can go either way. It seems 50 percent of renters want a resort with a pool and the other half wants privacy.
2) Choose Your Amenities Well.
Top producing cabins will have many of the following amenities:
- Ample Decks
- Lots of Windows
- A game table- pool table – air-hockey
- Hot Tub on the Deck
- Electronic entertainment, media and sound upgrades
- Large TVs throughout
- Outside Fireplace or Fire pit
- Fantastic Upscale Smoky Mtn. Décor
- Indoor Swimming Pool
- Architecturally Pleasing Floor Plan
- Ensuites– where each bedroom has its own private bath
Even if the cabin that is right for you is lacking some of these items, many of the amenities can be corrected or added. They do make a difference and must be considered. Just changing old TVs to the latest and largest can change the rental numbers. Because we are all about the numbers, we need to look at each cabin and determine what can be done to maximize the rental revenue. We will help you with this process. Some of the better buys are going to be where a seller is making simple mistakes that we can remedy with minimum dollars.
- 3) Cash Flow- What Can You Expect?
A good investment property will pay for itself through rentals, tax savings and appreciation. We will want to project the gross revenue and expenses.
Rental histories are always quoted in gross revenues. Most rental management companies will negotiate a split with the owner receiving anywhere from 70-85 percent of the gross rental proceeds depending on what the rental company is offering to cover from their side.
It is also possible to self-manage in which case you may keep all the proceeds.
If you are purchasing a new cabin or a cabin that we are going to remodel, it is likely that you will be purchasing a cabin that will not have a rental history or a poor history. We will need to do an analysis as to what is necessary to generate the highest and best revenue. We will want to get a rental history of comparable cabins as well as estimates from rental companies as to their gross revenue expectations.
We will evaluate each cabin for income and income potential. These cabins can actually double in rental revenue with amenities – particularly an indoor pool or swim spa – can boost the income dramatically. Of course, we will do a financial proforma to find the “sweet spot” between the amount of the purchase price, expenses for the cabin, growth potential, appreciation potential this will determine whether this cabin is a fit for our investors’ goals. Regarding income projections, the amount of gross income possible is typically based on the number of people it can sleep.
We expect that our one or two bedrooms to have a gross rental revenue of $50,000 – $120,000; Three or Four Bedroom $75,000 – $150,000; Five or Six Bedroom $120,000 – $280,000; Seven Bedrooms and Larger $150,000 – $300.000+
- 4) Choosing The Right Rental Management Company
There are over 200 rental companies in Sevier County alone. Based upon experience, there will be a group that we will be able to recommend for each cabin location and size. Many of the aggressive, top-of-the-line agencies are very choosy regarding the cabins that go on their program. When interviewing rental companies, one should ask about their marketing strategy, how many cabins they have on their program, and do they own their own cabins or cabin community? If the company does own their own cabins, you need to be comfortable with the fact that those properties receive preferential treatment.
Some rental management companies are starting to focus on selected communities. This allows them to focus their marketing efforts on the specific attributes of that community. We will have recommendations of rental companies to consider depending on the property that we are evaluating.
- 5) Shopping for Financing.
There are quite a few options when purchasing second homes and investment properties. We will be happy to supply with you a list of our favorite lenders. There are several very strong local banks as well as national banks and lenders that specialize in second homes and investment properties.
The second option is mortgage broker. These individuals typically have greater resources and therefore, more options for financing. We can help you with suggestions here as well.
If this is your first investment property, your financing options are increased. Most first-time investors finance their cabin as a second home. This loan is classified as a residential loan.
If you qualify to purchase your cabin as a second home, your down payment can be as little as 10 percent. If you are purchasing it under an investment loan, you will need more down payment normally around 20 – 25 percent (or for best rates 30 percent). It is possible to ask the seller to pay your closing costs and perhaps points that will give you a better rate and save cash. We will work that into the negotiation.
Right now, there is an investment loan known as a “DSCR” that will shift the qualification to the property rather than your personal income. This is great loan for investors and self-employed people, as the lender uses the properties income to qualify the borrower. Most of our properties will favorably allow for this loan due to their gross rental income stream.
- 6) Understanding the Outlook for Investment Cabins in This Area
Simply put, the forecast for continued growth in this area remains strong. Tourism has increased year after year. Visitation to the Great Smoky Mountain National Park remains at an all-time high. We continue to be the most visited National Park in the United States. We are within a day’s travel time for 70 percent of the entire population of the US. Surveys conducted by the Gatlinburg Chamber of Commerce and the Sevier County Economic Development Council indicated that tourism would continue to flourish for the foreseeable future.
Our role is to guide you, research for you, and analyze with you; to remind you of your goals and then negotiate the best deal possible. We love the process, and we have many, many successful repeat investors. We hope to make you one!
In Conclusion…
The Key to why this area will bring you the highest rate of return on overnight rentals vs. other destinations is the 12.5+ million visitors to the area.
The Great Smoky Mountain National Park is the 12th most visited attraction in the World.
We are visited more often than the Grand Canyon, the New York Metropolitan Museum or Hawaii’s Waikiki Beach. That’s the secret and that’s the reason you can get excited about a cabin you can enjoy yourself and know that you are making a great financial investment. Many of our investors also have stocks and bonds but they tell us they love their investment cabins the most as they don’t get to enjoy to the view or lavish in the hot tub of their paper investments! It’s a great perk to visit your investment and on top of that, write off each tip on your taxes!
When times are more unstable, traditionally investors have gravitated to real estate as the safer, sound investment. We agree with this assessment and have seen and experienced with our clients the rich heritage of owning Smoky Mountain properties. We have watched them perform and ultimately be a tremendous blessing to our clients and their families.
We are here to partner with you to achieve your real estate dreams of owning a fantastic Smoky Mountain Investment cabin that you and your family can enjoy for many years to come.
