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Buying a Cabin in the Smoky Mountains

              

 

 

 

 

 

 

 

 

 

 

 

 

We have prepared this report for both novice and seasoned investors alike. Our goal is to educate and inform investors on how to select an investment property that will provide exceptional rental income and appreciate above other properties.

 

Outlook for Investment Cabins in This area

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 all time high. We continue to be the most visited National Park in the United States. We are within a days travel time for the majority population of the US. Surveys conducted by Gatlinburg Chamber of Commerce that tourism will continue to flourish. The economic downturn has negatively effected the amount of dollars the tourists spend when they arrive, but it has not effected the amount of visitors making the trip.  I personally think that many are coming to our area rather than traveling further to the beach. Our clients that have purchased high end cabins report positive cash flow with continuing increase as their cabins build a loyal rental following. However, we would advise against purchasing chalets and rustic cabins with no amenities. Though the rental per night is lower the renters who would choose these are choosing a less expensive condo or hotel. We believe that the rental demand for these will remain low for the foreseeable future.

 

Looking for a Good Location

Many investors think choosing a cabin that is far “away from it all” will be appealing to renters. And it actually may be to “some” renters. However, as an investor, you are looking for a property that appeals to most renters. This is one case where the difference between “some” and “most” can be very big.

 

Here are the things that most renters want from a vacation cabin location:

  • All wood interior
  • Short drive to attractions. 5-15 minute drive from the Parkway.
  • Stay on pavement or good gravel roads.
  • Close is good, don’t get too close. Be careful with cabins that are only one street away from the Parkway. Remember, you are renting a cabin and cabins supposed to be located in wooded areas.
  • Resort vs. private setting- you can go either way. Both rent the same way.

 

Choose Your Cabin Wisely

Rental cabins have been popular among tourists for the past 30 years. However some things have changed. If you are going to do well in this investment market, you must stay current with today’s trends. For example, 20 years ago chalet with interior walls of sheetrock and decorated similar to a traditional home did very well on rental program. 10 years ago, there seemed to be a shift in trend, moving towards cabins and away from chalets. Popular cabins back then were smaller and more rustic. Today renters are looking for a premier cabins with more amenities.

Top producing cabins will have the following amenities

  • Large decks
  • Lots of glass
  • Vaulted ceilings
  • One or two game tables
  • Large hot tubs
  • Whirlpool tubs
  • Electronic entertainment, media and sound upgrades
  • Sauna
  • Movie theater room

From our experience, if investor converted one of the bedrooms into a movie or a game room, they saw increase in income. Game room out rent a bedroom!

 

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 quoted in gross revenues. Most rental management companies do 60/40 split, with you taking the 60%. If you are purchasing a foreclosure or a cabin that is a good buy (short sale) it is likely that the cabin will not have a rental history, or has a poor one. We will need to do analysis as to what is needed to generate the highest and best revenue. If an investor owns a cabin that is bringing great income, chances are he’s not selling it.  Our goal is to find a great cabin with some problems that could be fixed!

Most common problems causing poor rental history

  • Poor rental company. There are over 200 rental companies in Sevier County alone. Based upon experience, we would only recommend a handful of them.
  • Unprofessional pictures. Pictures sell, and if they don’t look good, you cabin sits empty.
  • Short list of amenities. People always want as many amenities as they can get. Even if they end up not using them all
  • Outdated furniture and furnishings

 

In Conclusion

The economic downturn has created an unprecedented real estate opportunity in Sevier County. There are a small group of cabins that can be purchased for a well below what it would cost to build them.

Most of the good buys are the result of buyers who bought at the top of the market in 2007-2008. They often paid premium prices, did not put any money down and financed their closing cost. This places them in a situation where a loss is not so much financial as it is a credit hit. The economic down turn in the country has placed pressure; sometimes a job loss or a substantial decrease in income. Many of these buyers purchased a cabin, placed with a poor performing rental company, did not attend to details of amenities or furnishings. The cabin they purchased for $400,000 will cash flow negatively.  However that same cabin purchased at $250,000 will be quite positive.

 

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