Log Cabin Blog

As I have reported in other blogs on my website, Short Sales and Foreclosures offer significantly reduced prices but have several major down sides which, after intense investigation, break down to these:

1. Typical response time once an offer is tendered is 90 to 120 days if the property is financed by a large national mortgage lender (which the majority are). On a normal transaction the response time is 72 hours or less. It appears that this is the case because these lenders were totally unprepared for the current economic conditions and to use East Tennessee jargon, “The head of the dog doesn’t know what the tail is doing”. Frequently, an offer on a short sale has to be submitted 5 or 6 times to various departments because there are no established systems for dealing with these situations. Then the offer may have to go before 1 or more committees to be approved.
2. Even if you get an acceptance of your offer, the lender reserves the right to terminate their acceptance until the transaction has closed and the buyer has no recourse for any closing costs they have expended.
3. Since mortgages do not include furnishings (although sales of existent cabins have traditionally come fully furnished at the sales price), short sales and foreclosure sales typically include no furnishings and the buyer has to pay an additional $20,000 to $30,000 (on a 1 to 3 bedroom cabin) before the cabin can be rented.

So where’s the good news? If you look hard enough you can usually find a silver lining to any dark cloud and I’ve found one!  Developer owned short sales that are locally financed and approved are available and in this situation these short comings can be virtually eliminated! This leaves you with a more or less standard transaction only at a significantly reduced price. The same is true for cabins where the developer has allowed foreclosure and the lender has already approved the situation and has assigned an officer to handle the sale. Further, in these situations, the cabin transfers “As Is” (i.e. furnished) and thus saves the buyer the extra expense of refurnishing.

More good news… After weeks of digging I have found several PRIME 1, 2 and 3 bedroom cabins here in the Smokies that fall into this category and are superb investment options.  These cabins are luxurious one to three bedrooms and are now discounted 25% to 47% from their original prices.

Email me at will@willquinn.com for details. 

When presenting information to a potential cabin buyer, I provide estimated income / expense statements as well as estimated averaged annual return on investment estimates. With an increased interest in investment cabin purchases due to the advent of short sales and foreclosure sales the following is the cover attachment I send with my estimates. It explains the criteria I use  for those financial figures I have to estimate.

“With the apparent bottoming of cabin sales at the end of 2008, short sales have become a factor (though a small factor) in the Smokies. Since the beginning of 2009, I have been analyzing short sales / foreclosure sales as they appear on the market.  While on paper the prices are very attractive, when these properties are analyzed for their investment potential, one thing becomes painfully clear; most of them were bad investment decisions when they were purchased and remain poor options even at their reduced prices. That having been said, I have found several choices that are extremely attractive options.

In preparing the Cash Flow and Averaged Annual Return on Investment estimates for these properties I have attempted to be conservative as far as any necessary economic assumptions. The income estimates for the next 7 years were obtained from the best management company for each property assuming that rental rates and occupancy would maintain the 2007 / 2008 levels which are relatively lower than the previous 5 years. This obviously assumes no rapid or dramatic recovery of general economy and each management company feels confident in their estimates.

With regard to the estimated average annual appreciation rates, 3% to 5% is a conservative estimate for these rates over the last 30 to 40 years in Sevier County according to appraisers I have consulted. Frequently, after a significant downturn in a real estate market, appreciation rates exceed their traditional averages for a time. While that could well be the case in these circumstances, I have not taken that possibility into account in my calculations.

For the vast majority of buyers I deal with, purchasing a cabin in the Smokies is a major economic and emotional decision. For my part, I am providing you with conservatively realistic scenarios so that should you decide to make such a purchase, at least in part based upon information provided by me, that your actual experience will be satisfactory and could reasonably exceed my estimates. “

That’s how I do business. If you are curious about owning a cabin in the Smokies for investment and personal use go back to www.willquinn.com and contact me.

With the economic uncertainties, foreclosures and short sales have become a factor, though small, in the Smoky Mountain cabin market. As of the first week in 2009, there are 3,616 active residential listings in the Great Smoky Mountain Assoc. of Realtors MLS. Of these, 1,048 (29%) are second home/rental cabins. Of the cabin listings, there are 9 foreclosures (.0086%) and 25 short sales (2%).

I think everyone understands foreclosures, but short sales may be unfamiliar to some. A short sale is where a borrower is having difficulty making their mortgage payments and the lender has agreed to consider, under certain circumstances, to allow a property to be sold for less than is owed and to accept that lesser amount as payment in full for the mortgage.

 In reviewing these 34 listings, it is obvious why most of these properties are available at a reduced price. Quite frankly, in the best of times they were poor decisions and with the challenging conditions we are currently facing the only way they will sell is at a discount from their original purchase prices. Even though the discounts on these properties range form 20% to 40+%, the majority of them would have, at best, marginal investment potential. However, a few do have good investment potential for a patient buyer who is prepared to act quickly, have more direct involvement in the cabin’s preparation for rental and in some cases, has a lower aversion to risk than my average client.

Patience, preparation and increased buyer involvement are required for foreclosure or short sale purchases for the following reasons:

1.      You must be prequalified for a mortgage and include a commitment letter from an approved lender at the time you make your offer. This is an absolute requirement.

2.      Once you have made an offer, it will likely take weeks to get a decision from the lender who must approve the sale (as opposed to a few days in a standard transaction where lender approval is not required).

3.      Even if your offer is accepted, the lender may, for ANY reason, nullify the transaction, with no buyer recourse, up to the closing.

4.      Once you have closed, you will have to completely furnish the cabin. This is not just an upgrade but complete, including appliances, furniture, electronics and décor as virtually all foreclosures and short sales come unfurnished. The typical Smoky Mountain cabin is sold completely furnished. You will also have to arrange for your furnishings received and set up in the cabin, a service most management companies do not offer.

Because of all of these uncertainties, it is understandable why many agents are not thrilled to deal with these types of transactions but if you’re game I am too. I am not trying to discourage anyone from perusing one of these opportunities but I do want you to be knowledgeable and prepared if you choose to do so.

If you’re interested, email me and I’ll send you a list of what’s available as of the day of your request (as these can change daily) along with my recommended choices.

Summarizing the sales environment, current cabin incomes and foreclosure and short sale opportunities at the beginning of 2009, one fact becomes obvious: owning the right cabin in the Tennessee Smoky Mountains is a strong and stable investment. While realistic price adjustments have occurred after a 15 year boom which reached an over-heated peak at the end of 2005, the cabin market is in the process of recovery in 2009 and should soon resume its traditional 3% to 5% annual value growth. Due to the leveraged nature of a cabin purchase, 3% to 5% annual appreciation provides a significantly higher return on investment than that and out performs many equity investments (stocks, bonds, etc) with a stability such investments do not offer. Plus, it provides the owner with their own Smoky Mountain retreat from the humdrum and hassles of every day life.

I mention in my literature what a mentor told me when I first entered real estate as a career: “You make your money in real estate when you buy it”. Current market conditions make this a prime time opportunity to successfully take advantage of this truism.

How long the recovery takes will be impacted by progress in the improvement of the national economy. However, with prices legitimately appearing to have bottomed, mortgage rates extremely attractive, gas prices back at reasonable levels and a strong rental market for quality cabins in the Tennessee Smoky Mountains the buy signals are apparent and strong.

Might I add that in analyzing this market after the trying times it has experienced, the information contained in my “Buyer’s Guide” is accurate and will be of value to you in consideration of a cabin purchase in the Smokies. Especially interesting is the breakdown of the sizes of cabins included in the foreclosures and short sales. On the foreclosure list (9 total) and the short sale list (25 total) the break down is:

            One Bedroom: Foreclosure-   1 (11%) Short Sale-   2 ( 8%)

            Two Bedroom: Foreclosure-   3 (33%) Short Sale- 11 (44%)

            Three Bedroom: Foreclosure- 3 (33%) Short Sale-   6 (24%)

            Four Bedroom: Foreclosure-   0 (  0%) Short Sale-   4 (16%)  

            Six Bedroom: Foreclosure-     1 (11%) Short Sale-   1 ( 4%)

            Eight Bedroom: Foreclosure-  1 (11%) Short Sale-   1 ( 4%)

For the reasons mentioned in the guide, 2 and 3 bedroom cabins are generally not the best investment choices. If you need another copy of the “Buyer’s Guide”, email me and I’ll send it.

When you are ready to pursue your dream of owning a second home/ investment cabin in the Great Smoky Mountains, contact me and I’ll help make this a successful venture. I serve at your pleasure.