Is a Cabin a Good Investment?
Disclaimer: I am, at this writing, a Realtor, a Property Manager and the Owner of a Property Maintenance Company. I am not an Investment Advisor, Lawyer, CPA, Insurance Agent or an advisor in any other financial field. I do recommend that you seek out financial professionals and regard their advice.
I own and work for companies that provide service in the Cabin industry. Operating the maintenance company www.CardinalCustomLawn.com and being a Realtor with Marty Loveday and Associates www.MartyLoveday.com/John-Suttles/ as well as authoring the Smoky Mtn Cabin Owners’s Manual www.TheCabinOwnersManual.com has therefore given me a unique perspective of Cabins and how they work. I would like to lay out some information that has been garnered from years of work and research and that was gained first hand in this industry.
It is important for Cabin Owners/Investors to understand what they are getting into and what they should expect.
I can tell you from experience that Cabins require a great deal of work. The amount of work that a Cabin requires shows us that they move lots of money. I have seen some large Cabins have pro-forma numbers that show them capable of moving over $100,000. per year. That is a large amount of money for a Cabin to produce. Usually the numbers are much smaller, for instance, at this writing, a small Cabin usually does about $25,000 per year. A medium Cabin produces $35-$55,000 per year and a bigger Cabin garnishes $65-$75,000 while large Cabins could easily produce numbers above the $75,000 threshold, but keep in mind, all of these numbers are dependent upon having the right Marketing and Management systems in place. Those numbers are also indicative of how much it COSTS to RUN that Cabin. Quite often a Cabin is purchased as an income producing property and when the Buyer hears that the Cabin produces $55,000 per year they think that means that they can pocket $55,000 in a year. A Buyer that is honest with themselves may look at the situation with a discerning eye and realize that things like Mortgage, Taxes, Utilities, Capital Expenditures and the like will certainly cost something. So they rationalize that they should at least be able to pocket half of the $55,000. When they start shopping around and find out that Management costs can range from 10-50% their eyes start to open. After several months of ownership they see that their financial benchmarks have not been met and they quickly become disenchanted.
You may think that I am sounding contradictory. Do Cabins make money or not? Are they a good investment or not?
The first thing to understand is that those are two completely separate questions and I will address them individually.
Do Cabins make money or not?
The answer is, Yes. Cabins CAN make money. There are several factors that go into making money: cash flow, appreciation, tax shelter and leverage can all be ways that a Cabin can make money. You have to decide what kind of money you want your Cabin to make.
Are Cabins a good investment?
The answer is, Yes. Cabins CAN be a great investment. When people make investments they are usually looking for at least one of the following: Safety, Cash Flow, Appreciation, Tax Shelter, Leverage, Involvement or Pride of Ownership. You need to decide what kind of investment you are seeking. For instance, are You interested in quick cash flow or appreciation? You must understand that investments are only things or ideas and they are only as good as how they are used/employed. For instance, when I was in school my Mom had a friend that bought a brand new Dodge Viper. The owner put it in a garage only drove it occasionally and when it did go out on the road they never drove it over 60 MPH. I remember thinking it was such a waste to never use that car for what it was built for… however, can you imagine what that car is worth now? Was it a good investment? I am sure, 25+ years later, it is very valuable since it is in near mint condition and has low miles. If I had used that car for what I saw as its value, it would probably be a pile of metal in a junkyard.
As stated above, an investment is only a thing or an idea. How that thing or idea is used makes the difference. As with any investment, if you buy it right, treat it right and sell it right it will have a much better chance of being a good investment for you. So, a thing or idea is not a good or bad investment, the investor is a large determining factor in the success of the investment.
If you want to make a good investment then you need to get educated on how to invest. With that in mind, let us look at Cabins.
As stated above, if you buy it right, treat it right and sell it right it will have a much better chance of being a good investment. So let us break those down:
Buy it right
Cabins have different values, for more on this subject read the article on Cabin Valuation. The Investor has the opportunity to choose what kind of value they are buying. When the Investor buys a Cabin solely for profit, then they need to understand that doing so precludes them from spending the holidays in the Cabin because it will be rented. The Investor sells the right to enjoy the holiday to someone else and in exchange, is building equity or cash flow.
Treat it right
Cabins take a huge amount of maintenance, for more on this read my Cabin Owner’s Manual www.TheCabinOwnersManual.com. Once again, this falls onto the Investors plans/intentions. If the investor is only interested in short term cash flow, then they will not be able to sell the Cabin for a premium because it will need so much work. If the Cabin is properly maintained it will take a chunk out of the Investors cash flow but the exit value will be higher. This idea is explained in more detail in the articles concerning The Business of Owning a Cabin.
Sell it right
Knowing the market is a key factor, this is one reason why you will want to utilize a knowledgeable Realtor on your team, for more on this subject see my article on the Science of Selling Real Estate. Knowing what options you have goes a long way in being successful in selling right.
Since we can see that buying it right, treating it right and selling it right are key factors and entails much more than can be covered in a single article, if you want more information on how to help you make YOUR Cabin a good investment, contact us and set up a consultation so that we can help you feel more comfortable and confident in your Cabin journey.
If you own a Cabin or Business in our area and are looking for maintenance solutions start your search at Cardinal Custom Lawn. Our website www.CardinalCustomLawn.com is a cursory introduction.
Are you a Cabin Owner with questions or are you interested in owning a Cabin and want to know what you to expect? Then you need to visit our website www.TheCabinOwnersManual.com where you can download a free book or purchase our Smoky Mountain Cabin Owner’s Manual.
Need help selling or buying a Cabin in the smokies? www.MartyLoveday.com is your one stop shop and the number 1 independent website for Real Estate in our area. We have the tools to service your Real Estate needs so visit www.MartyLoveday.com/John-Suttles/ today!
John D. Suttles,
Realtor at Marty Loveday and Associates. 130 Maryville HWY Seymour, TN 37865 John@MartyLoveday.com Office, 865-573-9444 Cell:865-724-8402
John is a recognized and highly respected author, educator, and businessman with a reputation for helping individuals and organizations create helpful and sustainable results.