Profitability of Short-Term Rentals in the Smokies Broken Down
Analyzing the Financial Viability of Short-Term Rentals in the Smokies
Hey there! I’m Gracie Mayfield, an agent here at Local Realty Group. When I work with my buyers, I always ask them to ask themselves one question: “If you were a guest here and never stepped foot out of the cabin, would you have a good vacation?” It seems silly, but in reality, it ties all the features I listed above together. You’re on the hunt for the perfect short-term rental property and looking across the market, you notice a recognizable pattern. You’ve scoured the market, sifted through countless listings, and observed similar key features. The properties that consistently go pending and secure their place on the closing table share a few common traits: prime location and accessibility, enticing amenities, generous outdoor space, and ample parking per bedroom. A guest wants a trouble-free, fun, and enjoyable stay. Wouldn’t we all? Let’s break each of these down and wrap it up with an extra key metric to know if an STR will be profitable – the Gross Rent Multiplier (GRM).
Location/Accessibility
Assessing Location and Accessibility Factors
The Smokies are generally known for Gatlinburg, Pigeon Forge, Wears Valley, and Sevierville. All of these locations are very similar in regard to profitability. So, here’s what you do: you find a real estate agent to help you out, secure your financing, and start looking at the vast amount of properties available. But here’s the catch – you might not know much about the area. Your Realtor needs to cover you on that, but just to cover your bases, here’s a tip: look for properties that are <25 minutes from Pigeon Forge Parkway, Downtown Gatlinburg, or an entrance to the National Park. That way, you’ll be close to all the fun attractions families love, which is super important for attracting guests to the rental market.
Another thing to consider is the accessibility to your property. Nobody wants to deal with tricky, hard-to-drive roads all the time. Take 4WD out of the equation. So, before you commit, either take a drive to the property yourself or have your Realtor do it. This way, you can make sure the road is in good shape and won’t give you any trouble. But remember, there is a good chance certain accessibility cons can be negotiated in your contract. If a property checks all the boxes but you’re worried about the road, talk to your Realtor about possible solutions – know your options. To go along with this, always have your Realtor verify the zoning codes with each property. Certain restrictions apply and can limit the use of a property. Use this cheat sheet as a good reference in the meantime!
Amenities
Highlighting Key Amenities for Guest Experience and Profitability
To ensure a consistent cash flow as much as possible from your property, it is crucial to acquire a cabin with existing amenities or one that offers the potential for you to add them.
Imagine yourself as a potential renter and take a moment to explore the listings on platforms such as AirBnB or VRBO to gain some insight into the available rental properties here in the Smokies. You will quickly notice a significant trend: cabins with exceptional amenities tend to have limited availability compared to those lacking such features. This observation holds the key to your investment strategy. So, the question is: what amenities should you look for? As an investor, it is wise to prioritize amenities such as mountain views, well-maintained hot tubs, entertainment areas (game room/theaters), and maybe even an indoor pool. In regards to the pool, it is vital to think of long-term holds and the maintenance a pool requires. The rationale behind emphasizing an indoor pool is that East Tennessee experiences all four seasons, making it important to provide your guests with enjoyable indoor activities during the less desirable outdoor conditions.
Outdoor Space
Creating the Ideal Outdoor Oasis
My team and I recently sat down and ran a comprehensive analysis of the Smokies market. Our focus centered on studying recently sold, new construction, and pending listings. Leveraging resources like AirDNA and various rental links, we assessed occupancy rates and reviews. A notable common feature we discovered was the prevalence of outdoor entertainment spaces. While this falls within the amenities category, its significance in this shifting market makes me feel like it needs a dedicated section in this blog post. When envisioning outdoor space, consider the following:
Bonfire Pits
Bonfire Pits
a cost-effective way to infuse character into your cabinCovered Decks
Covered Decks
recognize the value in spacious, covered decksOutdoor Recreation Space
Outdoor Recreation Space
game areas, outdoor theater, etc.Nice Swim Spa/Hot tub Areas
Nice Swim Spa/Hot tub Areas
elevate the standard appeal of a hot tubCovered Grilling Locations
Covered Grilling Locations
ideal for the Dads that seek the true mountain living experienceWhile the list can be expanded with creative additions, these represent the primary focal points. Incorporating these features into your rental property not only provides additional usable square footage for guests but can also be budget-friendly.
Parking Capacity
The Importance of Parking per Bedroom in the Smokies
To provide full transparency, the limited availability of level land for parking is a prevalent issue in the Smokies, mostly stemming from the constraints of the region’s geographical features. As a result of this, numerous listings for 4+ bedroom cabins often accommodate no more than 2 cars. While many families can manage with this arrangement, I strive to steer my Buyers away from such properties. Should this be a deal breaker? No, but definitely factor this into your analysis of the property. As previously emphasized, accessibility holds significant weight, and in my view, parking falls within that category. The goal is to comfortably accommodate as many vehicles as possible. If your property offers ample parking, ensure that this feature receives the highlighted attention when listing it for rentals. It’s crucial to bear in mind that most guests at your cabin are unfamiliar with the area and may not be familiar with navigating mountain roads. Prioritizing a property that offers easy parking access can truly set you apart and give your guests some ease of mind which will result in great reviews!
Gross Rent Multiplier (GRM)
How to Easily Calculate Profitability
As a general rule of thumb, a lower Gross Rent Multiplier (GRM) implies a shorter time frame for the rental income to cover the initial investment cost. This calculation involves dividing the intended purchase price by the annual gross income. When feasible, it’s advisable to request your Realtor to always do a thorough analysis and provide any insights. They should be doing their homework too! This simple calculation serves as a reliable method to gauge the potential profitability of the cabin you have your eye on. It’s also beneficial to compare this with similar cabins (we call them comps) to understand the potential that lies within that property. However, it’s crucial to bear in mind that past rental income should not be the sole determining factor for your investment’s future potential. While they offer valuable insights, previous figures should be approached with caution, considering the possible impact of the past management the cabin was given. Not everyone does that job well. Rental history is a good reference point, but it’s essential to interpret them with a grain of salt. Here at Local Realty Group, we also have a great, custom Pro Forma that can be used to factor in any and all variables for your investment. If you have any questions regarding this, please don’t hesitate to reach out to me!
To Sum It Up…
So, whether you’re a seasoned investor looking to expand your portfolio or a first-time buyer contemplating the world of overnight rentals, taking all of this information into consideration before making that offer will set you up for success. Please remember that when purchasing an STR property, it is solely to scale your wealth. Using the properties for self-use will often affect your metrics at the end of the day. Once you have found the perfect property for what you desire, use this checklist as a way to cover all of your bases before letting it hit the rental market! Contact me at gracie@smokymountainhomesforsale.com and let’s find you a property!
