We closed on our first short term rental property, Sweet Home Bearolina (linking to Instagram, as we are redoing the website at the moment), in June. We stayed with the current management company through the summer, but at the end of August we were able to get into the property, make some upgrades, take new pictures, and as of September 1, we are actively managing the property!
When I shared snippets of this, I received some questions about our experience, and though we are only a few months into the process, I wanted to answer some of the most popular questions I’ve received. I have learned so much from talking to other property owners, so I hope you find this an interesting topic, too!
How did you decide on this location?
Our property is located in Wears Valley, about 15 miles west of Pigeon Forge and 19 miles from Gatlinburg. We learned that half the country is within a day’s drive of this beautiful area of Tennessee, which helps keep this spot a popular choice among vacationers. It also has a long rental season, as it’s a popular spot for spring breakers and summer fun seekers, and also offers beautiful foliage vistas in the fall.
Personally, I love the mountains, so being 5 miles from the entry to the Great Smoky Mountains National Park helped seal the deal. I love where we ended up, on the quiet side of the smokies. It’s close to all the action, but at the cabin, it’s peaceful and serene.
Do you plan to use it for your own family vacations?
Not a whole lot. For us, this is first and foremost an investment and small business. We want to provide a topnotch spot for families and friends to gather and make memories, and having it rented is our top priority.
If there are some open days, we’d love to go for a bit. Fun fact: for tax purposes, if it’s a short term property rental business, you can only stay in the property up to 14 nights per calendar year.
When we stayed in August, it was largely about projects and improvements, so the girls have been begging us to do a trip back for Dollywood, the popular dinner shows, all the excitement of the strip, the alpine coasters, hiking, and more.
Are you using a property manager?
When we took over the property, we stayed with the current manager for three months, over the summer, to give us a chance to learn the ins and outs of how to manage. It’s been a crash coarse for sure and we have learned so much! As of September 1, we are self managing. When you book the property, you communicate directly with us.
How did you decide on price point to make it a lucrative investment?
So much factored into this. I wanted to start with a less expensive property, but through a lot of excel formulas (David’s love language), we realized that for us it made sense to focus on the rate of return instead of price point. Some factors stay the same across price point (you have to pay for satellite, internet, propane, property management software, etc on any property) so the amount you are able to rent it for makes your net income higher on a more expensive property.
How many nights a month do you have to have it rented to break even?
It differs because the rate differs per night based on season, availability, and length of stay, but roughly 35% occupancy rate is what we need to break even. Typically speaking, 60-65% occupancy rate is considered good for short term rental properties.
How did you choose the property? How do taxes work?
We originally went under contract on a new build in a community. However, they came back to us about 6 months in requesting more money for building supplies. That fact, combined with our growing disenchantment about it’s location and the knowledge that we’d be forced into using their property management company made it a clear choice for us to back out of the deal.
We put offers in on two other properties before finding Sweet Home Bearolina and I believe it all worked out the way it was supposed to. I love our property; it feels like the perfect fit for us.
The taxes question is a little vague, but I’m assuming it means tax benefits. Depreciation can offset your income and if you meet certain requirements, it can offset other income you may have as well, making it advantageous by reducing your overall tax liability.
To receive maximum personal tax benefits you must be self managing at least one property and spend 500+ hours working on the business. We are finding racking up hours is no problem, as it’s been a lot more than we anticipated. We are really enjoying it though!
How did you afford the initial investment?
Our first rental property (long term) was $120,000 and it appreciated greatly since we first bought it in 2015. Starting with a less expensive property allowed us to get our foot in the door. It matters more than you get started, rather than at what price point you choose to get started, because then it will appreciate and grow, allowing you more options for future investment.
The short answer for us, is that we are savers by nature and have been putting aside a large chunk of what we earn for years. We were waiting for the right opportunity to invest it, and this was it for us. More about how we budget in this post.
I hope this was helpful or at least interesting to read. It’s a journey we are excited to be on and are learning so much as we go. It’s helpful that we both enjoy it (David mostly the technical side of things, and me mostly the communicating with guests side of things). If you have any other questions, please leave them in the comments section and I’ll answer them!