Finding the Win:
If you are looking for a vacation style cabin home in the Smokies that you can make
money with, you’re probably wondering, ‘Where is the win in this market?” This is
always the right question! And there is always a win to be found, but what is it? The first
step in finding the win is to determine what you want in a cabin in addition to its earning
potential. If you aren’t having the greatest time on your own vacation staying in it, when
you come to visit, no amount of income will make you feel better about what you own.
So, make your list of wants and then find the property that best fits as many of those
items as possible and can be a solid source of income when you’re not using it.
Let us start with what not to do! In terms of income production, these are four things to
be wary of when searching for potential properties:
1) An overpriced property where the seller purchased it at the height of Covid. They
won a bidding war but they paid too much and now want to go in another
direction, so they need to sell it for higher than it is worth. It wasn’t the right
purchase then and is not the right purchase now.
2) A fixer upper with expensive issues that don’t readily bring value or issues that
cannot be understood fully until you pull off walls or start the work to figure out
what all needs to be done to increase its income.
3) A property that you “fall in love with” but is has an issue that you cannot
overcome, like location (you cannot move a house; you can repaint, but you
cannot relocate – remember, if you’re not happy when you stay in it, no amount
of income will make you feel better about it)
4) Poor quality construction! Don’t let the fancy remodel of a poorly constructed
home deceive you. It is not as valuable as something in good to excellent
construction. It will cost more to maintain and will wear out faster. Resale value is
something you need to keep in mind, and if you have to completely remodel it
again before you sell it down the road, you will have a difficult time recouping
your initial investment.
So, with those warnings in mind, let’s talk about what an investment win will have.
These are four things that are a win in this market:
1) A special property because of a feature. That could be a great view, a beautiful
stream, a wonderful design, or even a pristine location. Many lenders will tell you
“Date the (mortgage) rate, but marry the property,” and this is great advice! Rates
will not remain high forever. Figure out the cash flow numbers, especially if
investment is your number one reason for buying. If the numbers make sense
now, then this property will continue to appreciate and be a great investment for
many years.
2) A fixer upper that has issues you understand and can price and has high
potential for value and on the short-term rental (or long term) rental market once
refreshed.
3) An outdated cabin that is high quality, has great bones, is located well but not
performing well as a rental and therefore the purchase price reflects that.
(Remember, you can always offer less if you can justify the reason for the lower
offer to the seller!) Once you address the décor and outdated fixtures the value
is instantly apparent, both on the rental market and in resell value.
4) Any lot that is located well and has a beautiful view (even when it can’t always be
seen behind the trees). In Sevier County as we have less and less land, property
will become more and more valuable.
So that’s it. If you need help determining if a property can cash flow, I’m always
available to help you figure that out.
