Every week, Tom Goodwin takes calls from investors and homeowners who are curious about the Mountain Laurel Chalets management program. He especially enjoys the ones who call before they buy, because he can save them a lot of headaches. One recent call was different. A couple from the Bay Area of California, who had never been to the Smoky Mountains, had put a contract on a brand new spec home in Sevier County and were set to close at the end of September. The home was still under construction, they had never set foot on the property, and they told Tom they had no plans to see it before closing. They own properties around the country, they explained, and getting to all of them isn't feasible.
Their realtor had told them the home would bring in a minimum of $140,000 a year. When Tom asked whether that number included cleaning fees or Airbnb and listing fees, they had no idea.
This episode is Tom's open letter in response, addressed to out-of-state investors who are new to the Smokies and to the realtors who guide them. He is clear that it is not a letter to every agent. Plenty of realtors in this market know it like the back of their hand and give buyers honest numbers. This one is for the ones who don't.
Tom walks through what happens to a headline revenue number before it ever reaches an owner. Airbnb and VRBO take roughly 15 to 20 percent off the top. Cleaning costs come out next, and then the management commission. Between the commission, maintenance, and line item fees, Tom puts the total at about 30 percent of gross. By his math, a $140,000 projection leaves a net of roughly $45,000 to $50,000, and that has to cover the mortgage, the utilities, and the insurance, which runs higher on a home with an indoor pool.
A "minimum" of $140,000 also invites buyers to picture $180,000 or $200,000. The projections this couple saw had a best case, a better case, and the best of the best cases. As Tom puts it, "Funny how nobody ever printed a worst case scenario." His plea to realtors is simple: "please inform and educate your investors as to what the costs are to maintaining a vacation rental home."
Tom drove by the property himself. Priced right around $969,000, it is one of about 20 nearly identical spec homes built on roughly eight to twelve acres. The view from the four foot deep balcony, where Adirondack chairs leave barely enough room to squeeze past the railing, is a road, another road, and more houses that look exactly like it. The home sits about 20 minutes from the parkway, with no room outside for a family table, cornhole, or shuffleboard, and nothing that would make a family choose this cabin over a hotel room.
His point is that this buyer is not competing against the 20 homes next door. Those are a deficit. "You're competing against the 25,000 vacation rental homes in the market," Tom says, and this home has to stand out among all of them.
The pool doesn't change that. Hundreds of new three and four bedroom homes in the market have pools, and Tom has seen four bedroom pool homes going for $179 a night plus fees, with the management company commissioned out of that rate. He has also seen basement pools turn into moisture, mold, and ventilation problems that require major repairs. The first three or four years may go great, he says, but without proper upkeep it won't increase your asset value.
The bigger market picture is not showing up in many real estate projections. Inventory has grown 30 to 40 percent in the last four or five years, with more hotels as well, while national park attendance has leveled off right around 12 million. That means lower average daily rates and occupancy for everyone. Tom says builders and buyers are stacking up average homes in the hope of another COVID boom, and that isn't coming. "That was an outlier. It is not the industry standard."
The buyer's agent in this case is based in Nashville, specializes in relocations, and is licensed in Tennessee. Tom sees a pattern in agents from outside the county partnering with out-of-county builders to develop parcels and sell the homes, and it reminds him of what happened after the fires, when excavators from Chattanooga, Memphis, Atlanta, Birmingham, and Florida came in to take advantage of homeowners who had suffered an incredible loss. When you are spending almost a million dollars, he says, your realtor should be local, should have local numbers, and should be invested in the community.
- What exactly does this revenue projection include, and what does it leave out? Ask about management fees, cleaning fees, the 15 to 20 percent OTA upcharges on Airbnb, VRBO, and other sites, and the cost of your own time, or of paying someone else to manage the home.
- Do you actually live and work in this specific market, and for how long? Tom has seen a lot of opportunists treat the Smokies like a gold rush, and he says the rate at which these homes are selling and the income being promised are not sustainable.
- What does this home offer that nearby homes don't? Does it have a view, real outdoor space, or a yard? How many identical homes are within walking distance, and what would you realistically have to change to stand out?
- What will it cost to furnish and design it properly? For a four bedroom home, Tom suggests budgeting around $100,000 for furnishings and design work. That means a designer who knows what they are doing and quality, commercial grade furniture, not pieces from IKEA that will last two or three years before they need replacing.
- Who are my objective eyes on the property? If you won't see it before closing, someone local who works for you should, and not an inspector the realtor recommends.
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