| I have received several questions from clients | | | | my opinion, I have no indications of prices |
| regarding the current state of the real estate and | | | | recovering right now. I don't think they have a lot |
| rental market here in the Smokies. I thought I | | | | of room to go lower, but also do not think we |
| would post my analysis for all to see regarding | | | | have hit bottom yet. In March, I believe it was, I |
| the Sevier County area real estate market, | | | | showed a 6 bedroom, 6.5 bath in Black Bear |
| foreclosures, and the impact of the "real estate | | | | Ridge with a fairly good view. It was on the |
| mortgage bubble" on the local rental management | | | | market for $399,000 and I thought this was a |
| companies. Below is my sometimes critical and as | | | | decent deal due to the rental income potential I |
| straight forward as possible analysis of the | | | | was aware of and had looked at for comparable |
| market. | | | | cabins in the development. When it dropped to |
| The overnight cabin rental business realized a | | | | $375,000 I thought it was a good deal and my |
| decrease in business during the early summer | | | | family and I considered purchasing it ourselves for |
| months (compared to the same time frame in | | | | investment. We ended up not buying it and it sold |
| previous years) when gas prices spiked to around | | | | for $375,000 not too long afterward. Just recently |
| the $4 mark. I think it discouraged some visitors | | | | the same model of cabin in Black Bear Ridge |
| from traveling here and some from making plans | | | | came on the market completely furnished as a |
| to travel during the later months or at least | | | | foreclosure with a much better view and now it is |
| waiting to book their vacations. The good cabin | | | | in contract for $369,000. So prices have without |
| management companies adapted quickly once | | | | question seen declines (particularly in certain |
| they came to the realization their occupancy was | | | | developments facing a lot of foreclosures) from |
| not as high as it was in the past by offering | | | | the beginning of the year to now. The reason I |
| incentives. The rental management companies | | | | believe there is still room for the prices of cabins |
| typically offer some sort of "incentive" such as | | | | to go down is because even at current |
| stay 5 nights get the 6th night free or something | | | | foreclosure prices, most cabins do not cash flow |
| along those lines. But a few management | | | | with 20% down after paying 40% to a rental |
| companies were smart and tied their discounts | | | | management company and all the utility expenses, |
| directly in to what the consumer was seeing as | | | | taxes, homeowners insurance,etc. There are a |
| the reason for them not making the trip - gas | | | | few cabins here and there that will cash flow, but |
| prices. So, they advertised on their websites | | | | the vast majority still do not. When a large |
| things such as Summer Gas Incentives - 10% off | | | | portion of the cabins hit the point where they |
| cabin rentals and things of that nature. For | | | | cash flow I believe that will be the turning point as |
| instance, a cabin that would typically rent for $200 | | | | investors see the cabins as a wise investment |
| per night would be a savings of $20 per night and | | | | and while there is a lot of inventory of good deals |
| the typical summer stay is at least 3 or 4 days, | | | | they will begin buying again. As they begin buying |
| so it was enough of an incentive to entice the | | | | at the point where quite a few cabins cash flow, |
| visitors to book the cabins. The average visitor to | | | | the inventory will go back down and I think there |
| the Smokies is not extremely affluent, they are | | | | will be a recovery. I cant predict when that point |
| your normal average Joe for the most part. This | | | | will be, but I do try to have as much data as |
| ultimately resulted in slightly less rental income for | | | | possible and analyze the market very carefully. |
| cabin owners, but far outweighed the alternative | | | | Currently, the developments with the most |
| of having no rentals at all! | | | | foreclosures are Black Bear Ridge, Hidden Springs |
| Some management companies did not adapt as | | | | Resort, and Covered Bridge Resort. This can be |
| quickly and I believe they are suffering because | | | | attributed to buyers paying outrageously high |
| of it. The vast majority of people who rent cabins | | | | amounts for cabins at the peak of the market |
| do two things: drive to the destination and find | | | | and the cabins never realizing the gross rental |
| the cabin they end up staying in on the Internet. | | | | income they were "projected" to have. Most |
| The management companies who capitalized on | | | | other foreclosures are scattered here and there, |
| both of these by placing in the top in Google | | | | other than the three I mentioned above and Sky |
| Searches, use pay-per-click advertising and | | | | Harbor (just due to its sheer size and large |
| adapted quickly to the gas increases seem to be | | | | number of cabins). A lot of the good deals in |
| doing fine and actually are on par with past years. | | | | Black Bear Ridge have already been picked over, |
| In talking with several different rental | | | | but there are sure to be more foreclosures |
| management companies, they are seeing a few | | | | upcoming. Hidden Springs Resort has experienced |
| differences from the past. First, people are not | | | | the most recent influx of foreclosures, which was |
| booking rooms as far in advance. I have seen the | | | | predictable as I had viewed many of them in a |
| rentals for several cabins seem empty for August | | | | "short sale" status. |
| when I looked at them in May & June and | | | | To summarize, my opinion of the market is that |
| then all of a sudden it was booked for virtually | | | | it has some room to go down in prices still with |
| the entire month. I am not sure the reasoning | | | | the rental investment cabins. Many of the |
| behind this, but I would think with the economy | | | | foreclosed cabins even at drastically reduced |
| facing its struggles and gas prices fluctuating | | | | prices do not necessarily make a good |
| people are waiting to know their financial condition | | | | investment in terms of cash flow. There are |
| closer to the date of their vacation. They also | | | | typically a few reasons a cabin does enter into |
| have told me the cabins renting the most (at | | | | foreclosure - either the owner paid too much for |
| least with these specific companies) are the | | | | the property, the cabin was not suitable for a well |
| smaller cabins or the very large cabins where | | | | performing rental cabin, or the owner simply is |
| groups/families come to meet. So the 1 BR cabins | | | | facing troubles economically. Unfortunately, many |
| along with the 4+ bedroom cabins tend to be the | | | | cabin owners are faced with all three situations at |
| ones with the best rental histories as of now. The | | | | once which usually leads to a position difficult to |
| mid-range sized cabins such as 3-4 BR cabins are | | | | recover. A lot of the cabins going into |
| not performing as well as they had in the past. | | | | foreclosures do not have good views or other |
| For instance, a small family coming on vacation | | | | attributes and amenities necessary for a well |
| with a couple kids can stay in a 1 BR cabin and it | | | | performing rental cabin. |
| still works for them because the cabin may sleep | | | | I believe my useful skill is to sort through these |
| 4. So, the need for the cabins in the 2-4 BR | | | | properties and determine which are the most |
| range is less than that of a 1 BR cabin. Although, I | | | | appealing as investments by analyzing the |
| must also say there have been quite a few one | | | | potential rental income a cabin should generate. |
| bedroom cabins built! | | | | For example, if there is a foreclosed cabin with a |
| Cabin rentals seemed to peak in the period prior | | | | good view, all the modern amenities, and in a well |
| to 2005 when there was a great demand for | | | | established and proven development it will typically |
| cabins and the supply was still not up to the | | | | be a good cabin to consider because it should |
| demand. In and around the time of 2005 there | | | | perform well as a rental. Situations where an |
| were many large developments and PUD's with | | | | owner who foreclosed and paid too much for the |
| cabin upon cabin built in a short amount of time. | | | | property or faced other economic difficulties are |
| The demand did not increase, but the supply of | | | | the type of cabins to focus the searches. Buying |
| cabins increased dramatically, causing the overall | | | | a cabin that foreclosed due to the flaws of the |
| gross rental income for many cabins to go down. | | | | cabin itself usually leads to just more troubles |
| The cabins that were built in the 1990's and dated | | | | unless the cabin is purchased at an extremely low |
| as far as the amenities a visitor is looking for saw | | | | price. Purchasing a cabin that does not have a |
| the largest decline. These cabins now are sort of | | | | good view, does not have an open floor plan or |
| phasing themselves out as rental properties as | | | | large windows, and does not have the amenities |
| they become older and not performing as well as | | | | visitors desire still leaves you with a cabin that |
| they had in the past. The one exception is a cabin | | | | lacks what it takes to be an excellent performing |
| with a tremendous view or on a river - these | | | | rental - even if you did purchase it at what is |
| cabins continue to do well even if they are older | | | | perceived as a "good deal". |
| and dated. Thankfully, with the downward trend | | | | I hope this blog was helpful in answering a couple |
| of the real estate market, new cabin builds have | | | | questions I know several of my clients have. If |
| slowed dramatically, allowing the supply vs. | | | | anyone has any other questions they would like |
| demand find a better position than the quick | | | | my opinion on, please feel free to contact me via |
| growth period of 2005-early/mid 2007. | | | | my website or e-mail and I will give my best |
| As far as the real estate market is concerned, in | | | | response. Thank you! |
