Getting Started in The Smoky Mountains

Have you ever had an amazing mountain vacation in a cabin?  What if you could build a portfolio of short term vacation rental cabins that you could use for your family’s vacations while also making the cabins available to other travelers for their vacations and make a profit?  Sounds like a cool thing to do, maybe even dream like.  A lot of investors are doing exactly this in Eastern Tennessee’s Smoky Mountains.  A recent study of the area indicated that there are 17,000 short term rentals in Gatlinburg and Pigeon Forge, while the Great Smoky Mountains National Park reports tourism numbers in 2022 at nearly 13 million, three times the number of visitors to the next most popular park in the nation, the Grand Canyon National Park.

With this extreme amount of popularity in the area it is no wonder investors are buying cabins.  However, with the high number of short term rentals in the area you will need to buy a cabin that stands out.  This way the highest number of guests are likely to book your cabin over your neighbor’s cabin down the road.  You’ll want to buy something special with all the amenities that guests are seeking.  It is highly recommended to buy a cabin that enjoys beautiful views, preferably of the Smoky Mountains that they came to the area to see.  You’ll also want to stock your cabin with all the amenities and comforts of home.  Hot tubs and pool tables are a must for the area!

Where are the Smoky Mountains?  Sevierville, Pigeon Forge and Gatlinburg are the main three towns that make up the heart of the Smoky Mountains.  A lesser known area in the Smoky Mountains is Townsend, often referred to as the ‘peaceful side of the Smokies.’  Townsend is home to Cades Cove and River Rat, amongst some other key tourist favorites. Tourism, however, is slow to grow in Townsend due to the quieter nature of the town, and the fact that the town is slow to approve business zoning changes.  

Your best bet is to buy a cabin in a spot that will consistently book.  Your cabin will appeal to the most visitors if it is within a 20 minute drive of Dollywood, The Island in Pigeon Forge, or Ripley’s Aquarium of the Smokies.  These are three of the hottest tourist attractions in the area and most guests will want to stay close to these sites to include them in their jampacked travel itinerary.  An additional area to consider is Wears Valley, which is slightly farther than 20 minutes from these sites but enjoys its own unique appeal – a major park entrance called Metcalf Bottoms.

Occupancy and seasonality in the Smoky Mountains are what make it such a great market to invest in.  Most cabins that are the best investment properties to consider are going to enjoy year round occupancy.  These investment cabins typically book year round with lower occupancy periods being January and February.  Back to school and graduation celebrations also cause additional slow travel periods.  It is typical to book weekends during these lower months, however overall occupancy will be down during these periods.

The ideal cabin size to purchase is a two or three bedroom with two or three bathrooms.  This size of cabin is great because you can cater to couples or small families.  You will tend to book your calendar full at this size, and you can also get last minute bookings with this size of cabin.  Large cabins usually book out further due to the nature of large groups needing to coordinate with each other prior to travel, in this case we don’t usually see last minute bookings at larger cabins.

Cabins in the Smoky Mountains typically have a loft, while some also have game rooms or finished basements.  It is common for investors to put sleeper sofas or murphy beds in these spaces to increase occupancy in a two bedroom or three bedroom property.

What are you waiting for?  The Smoky Mountains are calling you…and 13 million other people all seeking to book your cabin!

Short-Term Rentals: What To Know Before Getting Started

If you're feeling like you’ve heard an awful lot about Airbnb and short-term rentals in the news over the last few years, you are not alone.

Prior to Airbnb's entry into the market, it was still fairly common for people to book a vacation or short-term rental outside of hotels when they went on vacation or traveled for business. Traditionally, these travelers would book through Vrbo or directly with the homeowner or property management company.

But since Airbnb was founded in 2008, it has become synonymous with short-term rentals. Most recently, I have seen their growth supported by the remote work movement as well as Airbnb’s own powerful advertising strategy.

If you want to take advantage of this growth and invest in short-term rentals, I believe this type of investment can often lead to higher profit margins than long-term rentals, but it's important to perform your due diligence before investing.

Impact During The Pandemic

As remote workers began to see the opportunity the pandemic provided them to truly work from anywhere, short-term rentals saw a rise. This led to existing and new investors seeing an opportunity to begin investing in remote homes themselves, thus furthering the excitement around short-term rentals.

Today, we are largely back to work in the office with fewer remote working opportunities, yet we continue to hear about Airbnb and short-term rentals. Many investors learned that the majority of U.S. travelers choose short-term rentals.

Although both rental types are an option for the same type of property (single-family homes), I find that the short-term rental option typically provides a higher margin of profitability for the same investor. This is primarily due to the ability to set a higher average daily rate (ADR) for your short-term rental than a long-term rental, sometimes in the same neighborhood.

Performing Your Due Diligence

Now that investors have begun to learn the value of renting their property on a short-term basis, though, I’ve seen over-saturation in some markets and other problems arise, like parties and communities outlawing short-term rentals altogether.

If you are looking to invest in this asset class, be sure to perform your due diligence prior to buying a property that you have an intention of listing on a platform like Airbnb. The upfront work you put in before purchasing can save you time, money and headaches down the road.

Local Regulations And Zoning

Some of this upfront work is easy to perform like contacting the city and HOA (homeowner’s association) that the property resides in. Overall, you want to ensure the property is sound and that it can perform as intended.

When you are considering buying a property, determining if the property can be a short-term rental should be your first step. Look to the laws for the city and county that the property resides in.

Calculating Profitability

Other important things to do during the pre-buying phase include figuring out if the short-term rental will make money and if you plan to self-manage or hire a professional property management company. Both steps go hand in hand when you’re deciding on purchasing or not purchasing a property.

In some cases, the margins on your short-term rental may afford you the ability to invest passively by hiring a property manager. Or it may be the reverse, which means you wouldn't be able to afford a property manager; otherwise, you would lose money.

The calculation of whether a short-term rental will be profitable for you is easy. You’ll need to determine the rent income potential and what your monthly and annual carrying costs are. Many investors will refer to this as calculating the net operating income (NOI). Net operating income, in its simplest form, is gross rent minus operating costs.

You’ll want to ensure that your NOI is sufficient to support your investment goals and pay you for the risk that you’re taking on, which largely, in this case, is no formal lease agreement in place.

Location And Vacation Hot Spots

Due to the issue of having no formal lease agreement in place on short-term rentals, many have begun investing in vacation hot spots. This affords the investor peace of mind that the property will book sufficiently on an annual basis because travelers are coming to the area repeatedly due to the popularity of the location.

Then the only thing to worry about is what the carrying costs are on the property and if the rent potential offsets these costs and then some. In most cases, I find investors are seeking to make 20% per year on the original cash that they put into the deal.

Short-Term Rental Investing

If you’re excited about short-term rentals and Airbnb, then I highly recommend hiring a team to help you begin investing. The primary team members to research and hire include a licensed real estate agent and a lender.

If you hire right, you should be able to find valuable partners who can work with you throughout the entire deal, including determining if the property you have an interest in can be realistically rented on a short-term basis.

Short-term rentals can be a great strategy for existing and new investors alike. I see them also as a fun way to visit different areas since you can use the property yourself when it isn’t rented by someone else.

Especially when it comes to what many regard as an oversaturated market, wise investors are fond of saying that it is always better to start yesterday, but I believe that getting out and starting today can still reap benefits.