Starting Small In Today’s Market

A bad real estate market? Not for smart buyers. In fact, realtors, property managers and developers throughout the Southern Highlands see great opportunities these days for buyers who know how to dip into the current market. Especially with the help of rental programs.

   Owning a second home isn’t just a privilege of people with lots of dollars to spare. Prospective buyers can get into the vacation or second-home market for less than $200,000 as easily as for $1 million.

And, if you are a savvy buyer with an eye toward renting your second home, you can let others help you pay for it.

Communities in the mountains of the Eastern United States have not encountered the real estate woes of overbuilt metropolitan areas, but there are more homes on the market than usual. This brings more opportunities for buyers, notes June Slusser, broker with Coldwell-Banker High Country Realty in Blue Ridge, Ga.

“The $200,000 and under market is hot,” Slusser says. “It may not be your dream cabin, but it’s your first.”

Slusser’s own first mountain home was a two-bedroom, two-bath with loft and deck. Similar properties are available in established communities or on individual pieces of land for people who don’t want the restrictions of homeowner associations.

One of the things that was a good buy in 2007 – and still is to a degree – is new construction. The strong 2005 real estate market encouraged building, so some of those properties are still available from builders willing to offer bargains, Slusser says.

“We don’t have distress sales,” she adds. “We usually don’t have sellers who have to sell. Prices have even increased a little.”

Fannin County, GA, where Blue Ridge is located, is one of the fastest-growing vacation home destinations; therefore, according to Slusser, prices are higher there than in other nearby areas of Tennessee and North Carolina.

Blue Ridge is an hour and a half north of Atlanta and about an equal distance east of Chattanooga, nestled in the southern part of the Blue Ridge Mountains.  Nearby towns are Blairsville, Hiawassee, Ellijay and Jasper, Ga., Murphy, N.C., and Copperhill, Tenn.

Murphy, a former mining town, is now considered “on the move,” Slusser says. The chamber of commerce in Murphy bills itself as one of five top spots in the U.S. for second homes.

The typical vacation-home buyer purchases a property within a range of 215 miles from the primary residence, according to the 2006 National Association of Realtors Profile of Second-Home Owners survey conducted in April 2007.

Forty-two percent of vacation homes are closer than 100 miles and 32 percent are 500 miles or further.

NAR statistics also show that the typical buyer is 44 years old and has a median household income of $102,200.

The purchases were divided among areas close to recreational or sporting events, vacation or resort areas or mountains and other natural attractions. 

Fifty-seven percent of vacation homeowners were interested in activities related to beach, lake or water sports; 28 percent wanted boating; 32 percent, hunting or fishing; 21 percent, golf; 20 percent biking, hiking or horseback riding; 17 percent ski or winter recreation. Nine percent wanted access to tennis facilities, the report found.

Jane Holloway, managing broker for Ted Jordan Realty in Wears Valley, Tenn., knows for certain that the area’s proximity to the Great Smoky Mountains National Park, Pigeon Forge and Gatlinburg accounts for its attraction as a site for both private and rental second homes.

The area, which boasts Dollywood’s Splash Country Water Adventure Park and Gatlinburg’s many offerings from skiing to music, attracts 12 million visitors a year.

“Wears Valley is eight miles long,” Holloway points out, “and the only entrance into the park, and we’re only 45 minutes to the airport in Knoxville.”

She advises buyers to estimate spending about $100,000 per bedroom for a property in her area. Some second homes there are as large as five bedrooms.

“Views and a pond or creek can drive prices on properties even higher, she says, adding that this is a good time to buy vacant land and build a vacation home. The area also is responding to second-home buyers’ requests for luxury condos, and projects are under way in Sevierville and Pigeon Forge.

Many homes in this Tennessee area are in rental programs, and the potential for renting them has increased as part of a trend toward year-round vacationing, Holloway says. There is no real “off” season anymore.

“Our climate is easy,” she says. “People don’t get snowed in and if they did, it would be only a short time. I just tell them to get extra bread and marshmallows in case.”

Experts note that if you plan to rent out your home, you need to pay more attention to buying what might appeal to renters than to pleasing your heart’s desire.

Mountain Rental properties need to be near activities, have good views and top amenities.

“Renters don’t want a place out in the middle of nowhere,” says Shelley Draper, owner of Draper Realty in Blue Ridge, Ga., “and with nothing to do.”

The north Georgia Mountains especially attract vacationers because of the area’s abundant national forest, which appeals to hikers and bikers. Similarly, water enthusiasts can ski or boat on Lake Blue Ridge or go trout fishing on the Toccoa River, says Draper.

The Aska Trails Area in Blue Ridge boasts 17 miles of hiking and mountain biking trails. Fall leaves and clear skies also bring out the renters.

According to Draper, the more marketable rental cabin is likely to cost in the $250,000-$350,000 range and be at least two or three bedrooms, made of logs and have a mountain view.

Most likely, too, it has a hot tub, notes Greg Martin, broker with Harry Norman Realtors in Blue Ridge and owner of Mountain Memories Cabin Rentals.

“Whether they use it or not, renters want a hot tub,” Martin says. “They want the same thing you would: Number one, mountain views; number two, creeks; number three, rivers and lakes.”

If you plan to buy a place with the intention of renting it out, you need to do your homework, warns Lucy Beverly, who for 10 years has operated Asheville Connections, a vacation rental business.

While rental income can offset the cost of a second home, there are no guarantees.

“It’s important to not count on anything,” Beverly says. “You need to be prepared to carry the investment. If you have to rent it to make it work, that’s risky.”

AOL’s Money.com recently listed Asheville, N.C., as one of the prime spots to buy a second home, but even in one of the most touted, beautiful parts of the country, a potential buyer needs to be cautious.

First of all, the best properties for rental programs are outside the Asheville city limits.

“Proximity to Asheville is important, but not necessary,” Beverly says. “To get the views and privacy, you need to be outside the city.” Properties within 35 to 45 minutes of the city do well as rentals.

Vacationers in the Asheville area mostly want to rent for a week. They want a log home or a chalet with a mountain feel and central air conditioning. To get a home that would attract vacationers, a buyer probably would need to spend at least $350,000.

What about all of the condos going up in the city of Asheville?

“Those would be an excellent investment if the developer is allowing weekly rentals,” Beverly says. To be sure, the prospective buyer should always check with the condo building’s association.

The buyer who plans to rent out the vacation home also needs to think of the property as a business and avoid a huge emotional attachment to it, she says.

“You need a hot tub, a fireplace and a deck and lots of rustic, comfortable furniture,” Beverly says. “Some owners don’t understand why a group of golfers don’t like their Victorian furniture.”

If the property is to be offered for rent, a buyer should ask a rental company’s advice on furnishings, she says. It’s good to keep in mind, too, that furnishing a second home likely will cost $20,000 and upward.

Beverly also notes that rental companies want owners who are serious about renting their homes. “It’s tough to work with owners who want to come to the house during high season,” she says.

Vacationers are attracted to the Asheville area year-round and the fall and holiday seasons are quite busy. Many come during the holidays because of the Biltmore House’s decorations, she says.

The ability to attract visitors year-round is a key to a successful rental vacation home investment. At Smith Mountain Lake near Roanoke Va., one developer is helping create the year-round market for the condos he is currently building.

Matthew White, president of M&J Developers Inc. and Realty World Properties LLC, is creating a conference center he anticipates will provide the renters for the condos there. The Pointe at Mariners Landing includes units selling for from $150,000 to $650,000.

The 500-mile shoreline lake, which boasts great fishing and boating, could be attraction enough, but White also sees a readymade market for a place where companies and associations can hold retreats during low tourist seasons. For that reason, he plans to expand the meeting space from its current 300-capacity to 600-plus.

He’s also offering a special purchase program in which a buyer owns 70 percent of the condo and White’s company retains the other 30 percent. White expects property appreciation to make his 30 percent worth more later than the amount he would get by selling 100 percent of the unit. The program also makes it easier for buyers to meet lenders’ loan requirements.

White echoes Beverly’s views on the way owners who rent out their properties need to view their investment. He avoids decorating problems by selling all units already furnished. He doesn’t even want owners to display personal pictures.

“You need to like the property; you don’t have to love it,” he says.

Cabin rentals are one of the largest sources of business in the north Georgia Mountains, and Nathan Fitts, broker associate at Century 21 Professional Realty Group in the area, has seen second homes become prosperous investments.

Placing a second home in a rental program allows vacation homeowners to offset expenses, and the owner still benefits from appreciation of his property, says Fitts, who also owns Southern Comfort Cabin Rentals, a rental/management company. 

The prime time for mountain homes with views is through the summer and into the peak leaf season – mid to late October.

“Typically, the most popular times of the year for people requesting waterfront properties are the spring and summertime, as the weather is more conducive to the enjoyment of the water features,” Fitts says. “All holidays are prime time for these vacation rentals as it’s when most people are off work and looking for a romantic escape or family getaway.”

The majority of the rentals throughout the year are weekend rentals. During the summer and fall seasons, weekly rentals are more common. Also, weekly rentals are typical for the weeks of Thanksgiving, Christmas, and New Year’s, according to Fitts.

“The most requested rental cabin in our area is now a three-bedroom, three-bathroom cabin,” he says. “The trend over the last couple of years has moved from the standard two bedrooms-one bath or two bedrooms-two baths cabins to larger cabins suitable for families. They include features such as game/recreation rooms often in finished basements with billiards, pool tables, ping-pong tables, air hockey and other games.” 

It’s important to think of a return on a second home rental in terms of how long it’s occupied, he notes.

“The number of weeks or rentals that it takes to pay the mortgage of a property really varies depending on the size and amenities that a property has, including the purchase price or fair market value of the cabin,” he says. “Also, a big factor is how often that particular cabin owner uses the property versus how often the owner allows the property to be rented.”

For a good return, Fitts says, an average cabin would have to rent at least two to three weekends a month, or two weekends and a weekly rental per month.

By Sandra Brown Kelly
Originally published in the Spring 2008 issue of Mountain Homes magazine