When buyers contact me about buying a vacation rental cabin that is at least partially for investment purposes, the hottest question on their mind is how well a property will do as a rental! They are focusing right where we need to: finding a property that will perform well on rentals is essential! Sometimes the next thing I hear from them is “I only want to look at cabins that have a great rental history.” I love their spirit! However, as I share at this point in the conversation with them, just because a cabin isn’t currently earning a high dollar amount, doesn’t mean it won’t. As a matter of fact, I usually am most interested in finding them a cabin that someone is making a mistake on because my staff and I are able to analyze the mistake and correct it.
The ability of a cabin to be profitable is based on a variety of criteria. Perhaps the current owners prefer to use the cabin more often than a new owner will. Maybe the cabin doesn’t have the right décor to attract guests. Sometimes it’s not being marketed as competitively as it could be. Once we identify the exact causes of a low rental income report, we can determine whether or not it’s something that can be corrected before we decide if this is the right cabin for you. If you purchase a cabin that is already performing at the top of its potential, you are most likely going to pay the highest price possible. This is not usually how I like my buyers to spend their money. I love to find a cabin that we can purchase, say, for $300,000, then make about $10,000 worth of changes to make it worth $350,000. And where it was doing a gross rental revenue each year of $40,000 before, now with our changes it is going to reach $60,000. That is the win we are looking for to make it a profitable cabin!
Over the years, I have put together a list of resorts based on discussions with past clients, with rental companies we maintain great relationships with, and from reviewing listings based on how they tend to perform on the rental market. From those discussions and reviews, I am able to keep track of how the rental cabin market is doing overall and which ones are producing the highest levels of income overall for their clients. When it comes to resorts, the ones that generally perform the best on the rental market are located in places that are easily accessible, have great mountain views or pristine Smoky Mountain forest views, are close to shopping and/or tourist attractions, or some combination of the above. While this is not always true for every single cabin, it is a great rule of thumb for our area. One to two bedroom cabins on rental with the strongest performing resorts will be routinely earning up to $45,000 in gross rental income, while 3 to 4 bedroom cabins in the same locations will be performing around $60,000 on up. Larger cabins will produce $100,000 and above with the right combination of amenities, marketing, and views of the mountains!
Average rental incomes in profitable cabins
The “medium range” resorts tend to do a little more than half what the top-end resorts collect in rental income based on cabin size, number of rooms, and amenities. Meanwhile, 1 to 2 bedroom cabins at the lower end of gross rental amounts will bring in between $18,000 and $30,000 and 3 to 4 bedroom cabins will generally produce between $25,000 and $38,000, on average. With that being said, I do tell prospective buyers not to discount a cabin based on rental history – even if it’s in a lower producing area – until we’ve had a chance to look at why that might be happening. For example, if the cabin is on a high point in the resort and has a great view into the Smokies, it could produce a great deal more than the average for that particular area. Or maybe it’s being used primarily as a vacation destination for the owner during peak season. In that case, the next owner looking at it strictly for investment purposes will do far better with rental income than the current owner has. So it’s an art and not a science, but the performance of cabins can be predicted.
The search for the “perfect” profitable cabin will be an analysis of a group of important characteristics. By the way, we do have a report that just targets those characteristics. It is called “What Makes a Profitable Cabin?”