What to Consider When Purchasing Investment Properties
Rental Cabins, Chalets, and Condos
With the Smoky Mountains being one of the top vacation destinations in the nation, it’s no surprise that a great deal of transactions in the area involve investment properties. More specifically, rental cabins (or chalets or condos).
Purchasing an investment cabin sounds like an “easy” way to make extra money, but you should be fully educated on how investment cabins work. More goes into renting a cabin than you think, and if you’re not aware of what to consider, it can be overwhelming. You should invest in rental properties because it is a sound financial decision, not because it sounded like a great “get rich quick” scheme.
First, you’ll need to see what you can afford. Pre-Qualification is a simple process that only takes minutes over the phone. Sellers require pre-qualification letters with offers. Your lender can tell you what price range you are approved for, and what your monthly payment will be. This is a very easy process that is sometimes overthought by a potential buyer. Once you know your ideal price range and payments, you’ll know what price you’re comfortable in purchasing.
After you decide what price range is most suitable for your budget, you’ll need to determine what specifications you’ll need or want in a cabin. So let’s go back to the basics:
Most haven’t fully considered what their “basics” are. Some buyers are purchasing a cabin to use for vacations, and rent for the rest of the year. Others are looking for strictly an investment. If you’re planning to use the cabin, you need to decide what is the minimum space your family will need on vacation, while being sensible with your budget.
- Do you need two bedrooms? How about one bedroom with an extra sleeping area (loft)?
- What is more desirable to you: panoramic views or wooded privacy?
- Would you consider a property with HOA (Homeowner’s Association) Fees? If yes, what is your budget for the fees?
- Would you rather vacation in a resort with a pool or in the woods with a chance of a wildlife visitor?
These are just a few example questions of what to consider for “The Basics”. There’s no guarantee that you’ll get everything on your wishlist, but it will definitely help your Realtor® not waste your time on properties that aren’t relevant to your needs. You’ll need to decide what would be a “must have” and what would be considered “nice to have, but not a must”.
Here’s a list of “Basics” for you to consider:
- Desired Setting (Resort, Woods, etc.)
- HOA Fees
- Are mountain views a must?
Don’t expect to know what you want up front, but at least have an idea so you’re not on a wild goose chase.
Amenities are a major factor in the decision of which cabin to rent. Cabins in our area do particularly well on a rental program if amenities such as a whirlpool tub or hot tub, game option(s) (pool table, air hockey, or ping pong table), internet service, and TV options (such as cable, Netflix, Hulu, etc.) are available. If you’re purchasing a larger cabin, a movie/theater room has tremendous rental value.
For a moment, imagine yourself as a renter. What particular things would you look for? When my family travels, we usually choose a rental with game options, such as a pool table or air hockey, rather than one with all the TV options. We can watch TV at home, but would rather have a “pool tournament” at night or if it rains in the day. There are also families that would rather have the internet and TV available. If your cabin has both available, then you’ve not lost potential renters.
Most of the potential renters that stay in the Smokies want to be close to the attractions and action of the “Three Cities” (Sevierville, Pigeon Forge, and Gatlinburg). We also have renters that want to stay in Wears Valley or Townsend. There are also small communities that are popular rental areas, such as Waldens Creek and Chalet Village.
If this is an investment that you plan to use, you’ll want to stay near your favorite attractions, or at least not a long drive from it. Truth be told, if a buyer has found the “perfect cabin” they will be more lenient towards the location.
Decor is a vital part of renting a cabin. The decor itself can be largely responsible for how well your cabin presents in pictures online. Give the renters a sense of not only being in the Smokies, but “feeling” it too! The decor doesn’t have to be extravagant. For example, a rustic patterned rug in the living room, cabin quilts and shams in the bedrooms (Lid’l Dolly’s in Pigeon Forge has a excellent selection), or bear lamps on the end tables (Three Bears General Store has great choices).
Many cabins do well on rental with a theme that matches its name (yes, you will need to name your cabin for the rental program). For instance, a cabin named “Bear Lodge” with a bear and wildlife theme.
Majority of cabin owners are not locals, and depend on local rental companies to market their investment properties. A common mistake investors make is not fully educating themselves on how rental programs work. Another problem is not fully researching rental companies, but instead choosing a company simply because a cousin or good friend is using it. Some investors prefer to save the money and rent it out themselves, but it will take a lot of time and commitment. There are rental websites for owners that help with advertising, but the most popular option is VRBO (Vacation Rentals by Owner).
This is the single most requested item of an investment properties: the Rental History, and as much as can be provided. Some cabins have been on a program for years, and that history can be provided to add value to the cabin.
A few things to consider about the rental history:
- How long has this cabin been on a rental program?
- Is this a reputable rental company?
- How is this property presented on the rental website?
- How many days has the owner used the cabin?
- Is the decor suitable?
- What amenities are available to renters?
These are the main points to consider when purchasing a rental cabin or chalet. If you’re considering investment properties in the Smokies, give me a call. I’d love to discuss your Smoky Mountain real estate needs.