Investment Opportunities
Overnight Rental Investment
Whether you are a novice or a seasoned investor here are some investment tips that are very important to consider owning a profitable cabin. Our goal is to educate and inform investors on how to select an investment property that will provide exceptional rental income and maximize tax advantages.
Features
1. Location
In real estate location is always the number one consideration. When choosing a location, you must understand what your potential renters are looking for in a place for them to maximize their pleasure during their stay. They want to be close to attractions, restaurants, shopping and sight-seeing. They want privacy but not isolation. The isolated cabin way up in the mountains is not what most vacationers want. This applies to condominiums also.
Here are the things that “most” renters want from a vacation cabin location:
1- Short drive time to attractions, theaters, shops, dining, and access to the National Park. Keep your cabin within 10–15-minute drive from the Parkway.
2- 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.
3- Although close is good, don’t get too close. Be careful with cabins that are only one street away from Parkway. The Parkway runs right through the middle of Sevierville, Pigeon Forge and Gatlinburg. Remember, they want to experience a mountain vacation.
2. Amenities
Rental vacation properties have trends that influence the renter to choose a particular property.
Recently we have seen the following amenities increase the overall profitability.
Even though the rustic cabins will still be rented. The most profitable cabins will be outfitted in a Smoky Mountain decor/artistic lodge style. Some people refer to it as “Mountain Modern.”
- Mostly wood interiors (tongue and groove style)
- View and/or Pristine Setting
- Large Decks
- Lots of Glass
- Pool tables
- Hot Tub on the Deck
- Vaulted Ceilings
- Electronic entertainment, media and sound upgrades
- Large flat screen televisions
- Outside fireplace or fire pit
- Upscale Smoky Mountain décor
- Private Indoor swimming pools
- Movie theaters
- The indoor swimming pool and movie theater are seen in some of the most profitable properties.
Rental cabins have been popular among tourists visiting the Smoky Mountains for the past 30 years. However, some things have changed. What tourists were looking for 30 years ago is not what they want today. If you are going to own a profitable cabin in this investment market, you must stay current with what’s popular to rent.
A good source to keep up with rental trends is airdna.co.
3. Cash Flow
A good investment property will pay for itself through rentals, tax savings, appreciation (you will need a good accountant to help you with this) and even put money in your pocket at the end of the year. To help an investor determine if a cabin will have a positive cash flow look at the rental history or rental proportion. Many rental management companies will be glad to give you a rental projection on a property. From there it is simple math. Gather all the expenses for the property and deduction from the income. Typical expenses include monthly mortgage payment, insurance, HOA fee (if any), utilities (electric, gas, water sewer, TV & internet), Rental management fee (20%- 40% of gross income), and taxes. There could be other expenses. Be sure to investigate each property you are considering buying.
4. Rental Management Company
Almost as important as the cabin you choose is the management company you place the property with. Sevier County alone is home to more than 200 rental companies. Based upon experience, we would only recommend a handful of them. 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 whether they own their own cabins or cabin community. If the company does own its own cabins, you need to be certain that those properties will not receive preferential treatment.
Many rental management companies focus on selected communities. This allows them to focus their marketing efforts on the specific attributes of that community. A frequently asked question is, “What do management companies charge for their services?” Every rental company sets its own split, and many charge 40% of the gross rental. We usually advise prospective buyers to add another 5% to that number to cover any additional expenses associated with the rental process. You can find rental management companies that charge only 20%. If you have a great cabin, you can always negotiate the rental management fee.
Be sure to research rental companies that operate in the smoky mountain. Visit their site, see what kind of properties they rent. Check out their reviews. See if they have other cabins like yours. Be sure to interview at least 3 and compare them before signing up with a rental management company.
5. Shopping for Financing
There are quite a few options when purchasing second homes and investment properties. There are several very strong local banks as well as national banks and lenders that specialize in second homes and investment properties. The rate you get makes the difference between positive and negative monthly cash flow. Be patient, the lending process is slower and much more detailed so we will need to allow ample time. You will need to be prepared to provide more records than a typical home loan. It is wise to work out the lending before making an offer on an investment property.
The second option is to work with a mortgage broker. These individuals typically have greater resources and therefore have more options for financing. 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.
On investment properties currently you will need to put a minimum of 10 percent down. If you put 20 percent down, you will get the most favorable rate and there will not be any mortgage insurance required.
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 most of the population of the US. Surveys conducted by the Gatlinburg Chamber of Commerce and the Sevier County Economic Development Council indicate that tourism will continue to flourish. Our clients that have purchased high-end cabins report positive cash flow with continuing increase as their cabins build a loyal rental following. Chalets and rustic cabins without amenities typically have lower rent per night numbers. The renters who choose these are choosing a less expensive condo or hotel.
There are many cabins to choose from, and all the factors need to fall into place to make it a great investment. Should you lose sight of important aspects you can undermine your investment. If you want to make money, choose a cabin that rents and not necessarily what you like.
In Conclusion - How does the Smoky Mountains National Park help me have a profitable cabin?
In the Fall of 2019 Fobes Magazine ran an article that stated the Sevier County TN was the most profitable place in the USA to own an over-night rental investment. https://www.forbes.com/sites/ellenparis/2019/09/23/top-25-places-to-invest-in-a-vacation-rental-home-in-2019/
The reason why this area will bring you the highest rate of return on overnight rentals vs. other destinations is the 12 million visitors to the area each year. About 10 million of those are visiting the National Park.
The Great Smoky Mountain National Park is the 12th most visited attraction in the World. We have more visitors each year than the Louvre or the Eiffel Tower.
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 count the trip off on your taxes.
