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Rental & Investment Cabins

Rental & Investment Cabins in the North Georgia Mountains

 

The North Georgia Mountains has a very high number of cabins that are on Short Term Vacation Rentals – in other words, 2, 3, 4, & 7-night rentals.  There are over 1,100 in Fannin County alone – or at least 1,100 that have registered with the county to pay the Lodging Tax!  This is in large part related to the fact that there is a lot of potential to get a decent ROI (Return on Investment).

I have a lot of clients looking for rental or investment cabins.  My wife Terri and I had a cabin built in 2005 and rented it until we sold it in 2015, so I am extremely familiar with the best way to acquire and rent out a vacation rental cabin.  My advice to those clients is that as a general rule of thumb, rental cabins are going to return about 8% to 12% of the purchase price in GRI (Gross Rental Income) on an annual basis.  Then from there, you have to pay expenses, such as debt service, supplies, utilities, Vacation Rental Management Fees, etc. In my opinion, looking at the investment from an ROI percentage is a better barometer than the past rental history.  The issue with counting the past revenue history from cabins that are already on a rental program is that past success does not necessarily mean that it will continue on the same trajectory – especially if it is with a vacation rental management firm and you change vacation rental firms or move it to VRBO/HomeAway/TripAdvisor/AirBnB, or vice versa.  Some Vacation Rental Firms spend more on marketing and reservations than others, and some have higher trip charges and maintenance and supply fees than others.  Also, some of the cabins don’t charge rental fees as high as they could or should, and in those cases, the GRI percentage may be significantly lower than the potential rental income that you will get using the 8% to 12% of the purchase price in annual GRI.

Some people choose to self-manage their rental to avoid paying the fees charged by a Vacation Rental Management Company, which up here in the North GA Mountains typically charge a 35% fee plus supplies, repairs, trip charges, etc.  If you self-manage it may take a couple of years to reach the 8% to 12% ROI as you build up your clientele, build up your online ratings, and start to get repeat business.

Also, many of the cabins with a great rental history may not even mention in the MLS listing that they were on a rental.  This is due to the fact that some clients don’t want to even look at houses that were on a rental program as they can show “wear and tear” faster, especially if they are not maintained properly.

A few things to keep in mind when buying a cabin for Short Term Vacation Rentals is that in most cases you do need to buy a “cabin” as that is what most people are looking for in a short term rental – a cabin with a view, a cabin on a creek or river, or a cabin in the woods – and the demand is pretty much in that order as well. So a ranch style, vinyl-sided house or mobile home in the middle of the woods is not going to rent out very well (if at all) as a Short Term Vacation Rental, whereas a solid log or wood sided cabin that sleeps 12 people with a killer view of USFS (United States Forest Service) or WMA (Wildlife Management Areas) would rent out quite well.

One area for investment potential that is often overlooked in the North Georgia Mountains is the Long Term (3, 6, 9 months or one year) rental market. Because there are so many vacation rental cabins up here there are a lot of businesses that cater to the visitors and tourists that come to the area.  So that results in a lot of restaurant servers, dishwashers, chefs, cleaning people, maintenance people, etc.  But these folks all need a place to live and there is a dire shortage of long term rentals – probably because the short term rentals use up a lot of the available housing inventory.  The investment clients that I have that do long term rentals do very well renting them.  They can put their rental up on the Blue Ridge Facebook page and receive over 100 inquiries within hours.  ROI based on the Net Rental Income for a Long Term rental can be very similar to the Net Rental income for a Short Term Vacation Rental after you factor in your expenses, especially if you are using a Vacation Rental Management Company charging 35%. Plus, the added benefit is that it takes less time and effort and expense to rent out once a year. Also, in essence, you have the entire real estate inventory to look at for long term rentals, as long term renters will accept a vinyl sided home or mobile home.

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Steve Tucker

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