So you’ve purchased a Smoky Mountain vacation rental cabin and everything is going great. Rentals are good, you’re making a bit of a profit, and you’ve got a vacation spot that you can visit when you like. Are you considering adding to your property by buying additional rental cabins? What would it take for you do own multiple cabins and keep everything under control?
If you’re ready to take it a step farther and try your hand at owning multiple rental cabins, you’ll need to be prepared.
You will need approximately 20% for a down payment on each new cabin you buy. You won’t qualify for any perks to homebuyers when applying for loans such as FHA or USDA loans. You also may need to increase your reserve cash and keep at least enough cash on hand to survive for six months of payments on all of your properties should problems with renting arise. You also need to include with that the payments on your permanent residence.
When you purchase the new cabin, you may not be able to use any rental income from your existing vacation rental as payment for the new cabin. It is possible that you can use some of the income if you can prove two years experience in vacation rental ownership. There may be rules that state you can’t use gifts of money toward the down payment unless the person who gave you the gift of money is on the title or listed as an interested party. You can use an inheritance for the down payment if you can trace the source of the money.
What’s the reason you want to purchase additional vacation rental cabins? There is the allure of using the rental income from the vacation rentals as a source of retirement income. The rental may cover the mortgage payment on the vacation rental and then some, which then creates a source of income for you. Then, once the mortgage on the vacation rental is paid off, the rental fees become a true source of income that can be very beneficial in your retirement years.
Another reason you may be interested in purchasing additional vacation rental cabins is for the investment that leads to appreciation when you sell them at a future date. You may be able to sell your vacation rental at a much higher price in future years, which will then give you income.
When purchasing additional cabins, you need to have a secure plan in place so as not to cause yourself financial strain. You will have to know what you’ll need in monetary reserve in case the cabin doesn’t rent well, especially in slow seasons. You’ll have to carry the mortgage payment and utilities and insurance out of your pocket when you don’t have rental income.
When something breaks, you will have to fix it. Immediately. Just like your original vacation rental cabin, you will need to keep money in reserve for repairs and replacements if needed of appliances or maintenance work that needs done. You will need to keep a reserve handy for each cabin, since each cabin you own will have its own problems now and again. And when a problem arises you will need to fix it immediately or risk losing rentals.
Owning more than one vacation rental cabin should not be considered a liquid investment that you can dispose of quickly. If you decide to sell one of your vacation rentals, it may take time to do this so you can’t consider this source of your income as fluid.
When considering an additional cabin, research it and see if it has a rental history that you can compare to other cabins in the area. If you’re buying this for an investment, you’ll want to know how much this cabin actually rents out and if there are repeat guests. If you have the rental history, you can be prepared for future slow times and get an idea of the income possibilities for this particular cabin. Are you only considering one cabin or more? Do you have the help of a buyer’s agent? It will be a great asset to have a good buyer’s agent helping you determine which vacation rental cabins that are for sale might be a good fit in your portfolio.
A few things you’ll also need to keep in mind when considering purchasing additional vacation rental cabins are things like when your annual returns go into the negative. If you have a major repair or the bookings weren’t good, you may end up with a loss year. When this happens, you will need to make sure you have enough money in reserve to keep from sinking.
You should also take a look at the average nightly rate for the cabin. Larger, more expensive nightly rentals won’t rent as often as smaller, cheaper cabins. Larger cabins rent to larger groups, of course so they will be marketed differently than a one or two bedroom cozy cabin which would be great for couples or small families. Do you want more rentals with less profit margin or fewer bookings with a higher profit margin? You can find out all of this from the property manager or real estate agent listing the cabin. You can have your buyer’s agent find out for you also.
Another thing you’ll have to consider is that when you own multiple cabins and you want to visit each one, you may not have enough time to visit them all during the year. You need to keep this in mind if you’re going to own more than one or two cabins. You’ll also have to decide just who you will allow to visit the cabin when family and friends ask to be able to stay there for free. This will impact your rental bookings and you need to also have in mind to ask them to at least pay for the cleaning fee to clean the cabin after use if they are going to stay for free.
Owning multiple cabins can be a huge investment but it can also be a source for a nice income if managed properly. If you are considering managing the cabins yourself, it can very easily become a full time job. If you’re not ready to tackle that sort of thing, your best bet would be to hire a property manager, like Pioneer Vacation Rentals, to manage all of your properties and take care of most everything involved with the bookings and maintenance scheduling. They can also take care of small repairs and such thereby taking the pressure off of you, the cabin owner.
And as far as reserves for upkeep of the cabins, you should have put away about 1.5% of the cost of the cabin for repairs and maintenance costs. So if you purchase a $200,000 cabin, you’ll want to keep about $3000 in reserve in case any problems arise. The secret will be to be prepared for anything that can arise so it can be handled in a quick manor so as not to affect bookings or reviews of your guests.
All in all, multiple cabin ownership can be quite rewarding. If you keep everything in order and let your property manager help you, you won’t have many problems owning more than one cabin in the Great Smoky Mountains.