Contemplating an offer on your first Gatlinburg real estate investment?
Gatlinburg tops the lists of many publications‘ “Best Places to Invest for Short Term Rental Income,” and that’s amazing! This area does boast some of the highest cash-on-cash return numbers of any vacation rental market in the country. (Speaking of which, have you checked out our cash on cash return calculator?)
There are some significant differences about the Smoky Mountain market and other, more traditional, long-term rental markets. A home inspection report only gives us a portion of the information needed to properly analyze a property. Below are a few questions to get answered during your due diligence period once under contract on your first potential Gatlinburg real estate investment!
1. How many bedrooms is the septic system approved for?
This is an important one. In the building boom of the early 2000’s, many developers installed septic systems on the lots they were developing, had them approved by the county, then later decided to build larger cabins than the septic systems were permitted for. Because of this, it is very common to come across properties with a septic system that is permitted for a lesser number of bedrooms than the property actually has. This is generally not a huge deal if the difference is only a bedroom or two. However, it never hurts to call the county and ensure that there is room to add more septic field line should the current system ever fail.
2. What is the water source?
A large percentage of the properties in this market (Gatlinburg, Pigeon Forge, Sevierville, and Wears Valley) are on well water. Many cabins will have their own private well, but it is very common for several cabins to share one well. In this case, there will be a legal document called a “shared well agreement” in place. If there is a shared well agreement, your chosen title company should be able to pull it from the courthouse document system if the seller does not have a copy on hand.
3. What are the zoning and HOA restrictions?
The zoning is only really relevant if the property is inside the Gatlinburg city limits or inside the Pigeon Forge city limits. There are a few small zoning areas that do not allow short term rentals in order to preserve affordable housing for full time residents of the area. Inside the Gatlinburg city limits, this zoning is “R1-A,” inside the Pigeon Forge city limits, this zoning is “R-1.” If the property is outside the city limits there are no zoning restrictions, with the exception of the occasional HOA that does not allow short term rentals.
If the property is located inside a resort, it’s possible that there may be restrictions on which property management company you can use, or if you can self manage your property. There are several resorts in this market that require that all short term rentals inside the resort to use their own in-house management program. AVOID BUYING IN THESE RESORTS AT ALL COSTS. Most of the management programs will charge between 30% and 40% of gross income. Without the owner’s ability to leverage hiring another manager if the property doesn’t perform well, the manager has no incentive to adhere to the highest standards of quality. Nothing will kill your Gatlinburg real estate investment income faster than being handcuffed to a lackadaisical property manager.
4. Is the access road steep, and who is responsible for maintaining it?
Being a mountain market, steep roads are inevitable. While in most cases, as long as guests are made aware that the roads to the cabin are steep, it will not negatively affect the rentability or rental income in the slightest. However, a small percentage of properties will have access roads that are just too steep. The rule of thumb is, if a Prius can get up the road without problem, it’s probably fine.
It doesn’t snow as much here as it does in the Rocky Mountain vacation rental markets, so snow removal is not a huge concern. However, road maintenance, such as pothole repair and road salting in case of ice, is something that needs to be considered. If the property is located inside a resort, road maintenance will be included in the HOA fee. If the property is not located inside a resort, you’ll need to find out if the road is a “county” road or a “private” road. If the road is a county road, the county will maintain it. If the road is a private road, it is up to all of the property owners on that road to maintain it. In the event that the road is private, be sure to find out if there is any legally binding “shared road agreement” in place between the property owners to ensure that everyone contributes to the maintenance.
5. Are there any requirements that the property stay with the current manager for any period of time after closing?
Sometimes, property management companies will require that a property stay on their program to accommodate pre-existing bookings for a certain period of time after closing. We do not recommend agreeing to anything more than 6 months post-closing. Anything further than that will be a detriment to your Gatlinburg real estate investment, and we want you to be successful!
There are plenty of other questions to ask when searching for a cash-flowing Gatlinburg real estate investment, and you’ll need an experienced agent to help get all of your questions answered. Schedule a consultation with us today here!