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Starting around the time of the Bear Sterns crisis and financial meltdown in 2007 and 2008 foreclosures and short sales in the Sevier County began to occur at a more rapid pace than in the past. During the time from 2008 to 2012 foreclosures and short sales dominated our cabin sales market. The properties listed as foreclosures and short sales were frequently priced very aggressively creating good investment opportunities for my clients and other buyers in the area. It was a period where the distressed properties were nearly exclusively what me and my clients sought and ended up purchasing due to the low prices and high rental income potential of the properties we selected. The market has taken quite a drastic change in 2013.

The number of quality cabin foreclosures and short sales in 2013 have decreased dramatically. There are still some foreclosures and short sales available, but there is more competition over these properties. It reflects a simple supply and demand. The number of foreclosures (supply) is down considerably than the 5 years in the past, while the ready, willing, and able buyers (demand) has stayed the same or slightly increased. This has caused many of the foreclosure cabins that are aggressively priced to go into multiple offer situations and being bid up past the list price. Many foreclosures now have the “first look period” where investors have to wait a period (such as 15 days with Fannie Mae properties).

Gatlinburg Rental cabin at 733 Smokerise during the fall with a mountain view

In the past, my niche and advantage was staying extremely up to date with the new foreclosures coming on the market with e-mail alerts and extensive research on my part. This enabled me to be among the very first to notify my clients of what I considered to be excellent deals on the cabins. Now, with the waiting period of up to 15 days, it allows other agents and buyers plenty of time to recognize a good deal on the market. If there is an aggressively priced property on the market that is a foreclosure, you can rest assured a lot of other people are aware of the property as well. Due to these developing market conditions, I have added an additional approach to obtain the very best deals I can for buyers.

With the number of foreclosures and short sales considerably lower in the past, I have begun focusing on analyzing a large number of cabins and determining (some from a statistical perspective and partially from my knowledge and expertise on cabin rental incomes) properties that are under-performing with their current management company. It isn’t as easy seeking out properties that are priced somewhat low due to a poor management company, but it presents opportunities that other people aren’t actively seeking out.

In our area, there are hundreds of management companies. A very limited few produce what I would consider top  tier gross rental incomes for their owners. Most of the management companies lag behind (and some very far behind) as far as gross rental income is concerned. With most of the owners being out of state, many don’t take the time, do the research, or have the knowledge of what companies produce the best rental income and what a property should be generating per year. It is really an ignorance on their part. It is difficult for me to understand why some cabin owners don’t really scrutinize the income generated and expenses when making such a large investment. In some instances, the cabin owner just wants a second  home as a getaway and is happy to get whatever rental income they can and don’t have a great concern over the  income they receive. I understand this to a certain degree, but if an owner could do more research they could in many cases receive more net income.Flowers during May at 2609 Cedar Falls Way - Smoky Mountain Cabin on Creek in Pigeon Forge

While I definitely haven’t totally abandoned my research of foreclosures, short sales, and other distressed properties, I feel I needed to combine it with my other strategy and research involving under-performing properties. I have seen first hand cabins with one management company doing poorly and when a new owner I represented purchase the property changed the management company and did some very minor changes (such as flat screen TV’s) recognized an increase of gross rental income approaching $20,000 in one year! That is quite the drastic difference of income to an owner.

The keys to locating and analyzing undervalued properties include:

  • Knowing what characteristics and features of a cabin are desirable to visitors and enable a cabin to perform well
  • Recognizing the cabin is currently being managed by a company that doesn’t spend the marketing dollars to effectively produce a high gross rental income.
  • Recognizing the price of the cabin is low due to the current owner not receiving adequate gross rental incomes.
  • The ability to determine the rental income the cabin is capable of producing with a quality management company that consistently produces high gross rental incomes.
  • During (or before) negotiations when making an offer on the cabin, stressing the current rental income doesn’t justify the listing price as an investment. Most owners in this situation have to feed the cabin money each year and I try to emphasize the fact they could cut their losses and sell it now at a lower price or keep feeding the property year after year paying for their mortgage, taxes, insurance, utilities, HOA fees, etc. This strategy doesn’t always work because sometimes a seller isn’t capable of selling the property for considerably less due to their equity position in the property. However, there are definitely situations where it occurs and the seller takes a rational position to sell the property now instead of waiting. Then, the new buyer can take advantage of the situation of a low purchase price by switching the management company to one that performs well.
  • The key to successfully applying this strategy is to have a very in-depth knowledge of what a cabin should produce with a quality management company. Being able to accurately anticipate a very tight range of what the cabin should produce is critical. There are some overall economy factors that could change the projection such as a major economic recession or depression or a major overhaul in the marketing techniques and objectives of a management company. Thus far, using my knowledge after looking at thousands of rental cabins and using the expertise of the best of the best management company general managers has yielded excellent results where we can accurately predict within a small margin what a cabin will produce on their rental program.

Essentially, this technique is taking advantage of overall good cabins that have bad management. Not too drastically different than analyzing a business that makes a good product, but lacks certain factors to make it a profitable business such as good leadership, marketing, or customer relations. I look at an individual cabin much in the same way. If I can find a good cabin that is not performing up to its potential due to factors related to the management and marketing of the cabin, I feel it is a good way for a buyer to purchase a cabin at a value and turn the income and profit around to a desirable situation.

Please click to view some of the Smoky Mountain cabin rentals I have sold to my clients