Host, Christine Karpinski:   Today's guest is Pat Malone. Pat Malone is a real estate agent in Gatlinburg and Pigeon Forge, Tennessee. He has been an active property investor since buying his first duplex in 1984. Since then, he's owned, refurbished and rented over a dozen rental properties in Florida and Tennessee. He first bought in Gatlinburg, Tennessee about seven years ago and moved to Gatlinburg in 2003 to work for RE/MAX All Pro Realtors in Gatlinburg.

He's actually kind of a different real estate agent. He's rented his own properties by owner. He also has a little arm of property management and he's used to VRBO, CyberRentals and others to market his own cabins and others in Pigeon Forge and Wears Valley.

He specializes in finding profit potential in the Smoky Mountain vacation rental market. If you're looking for a property in the Smoky Mountains, Pat Malone is a really good real estate agent to go to. I've known a couple of people who have purchased through him and have been very happy with his services.

Thank you so much for joining us, Pat.

Guest, Pat Malone:  Thanks for having me, Christine.

Christine:  Probably most people know that I do own in that area and happened to know a fair amount about the Gatlinburg market and, when I talk to the press, I often tell people that Gatlinburg and Pigeon Forge is one of those areas that is sort of a hidden goldmine for vacation property owners because it seems to be a really solid year-round rental market, and the prices for property seemed to be pretty reasonable.

They haven't gone off the charts like in Florida where you can't buy a property for less than a half million or a million in certain areas. It's still very affordable, and Gatlinburg happens to be one of the top tourist destinations in the United States.

So when people are looking to buy a vacation home in Gatlinburg, can you tell me a little bit about what people have to buy in order to have a good rental property?

Pat:  Well Christine, it has gotten very competitive here and people that are buying rental cabins or a condos almost have to have some of the amenities like a pool table or a game or hot tub or Jacuzzi and now even high speed Internet access is being asked for a lot. If you go to Colorado and other vacation areas you see very little of that, but here it's so competitive and there are so many cabins there that if you're going to compete, you need to have some of those amenities.

Christine:  Now you mentioned one thing that just sort of hopped up, you said cabins and condos, I actually own cabins, I know they rent really well. I was wondering how is the condo market there in Gatlinburg? Is there actually a pretty decent market for buying and renting condos?

Pat:  Well, just like most areas, I think everybody prefers any single‑family type property but the condos are making a resurgence here. They used to be in the mid '80s there were a lot of condos built up around Chalet's village which is where the ski resort area is and those are still there and they're in the hundred thousand dollar price [range] or even some under a hundred thousand dollars, but the new ones are high in granite counter tops, tiled floors, that sort of thing going from $200 to $500,000. It's not the blue‑collar market that it used to be at one time.

Christine:  No, and 10 years ago you could go to Gatlinburg and buy a place for much less than $100,000 and today that kind of property really doesn't exist anymore. How does the location of the property, like does it matter if you're in Pigeon Forge, if you're in Gatlinburg, further out ‑‑ how does the location coming to save the cost and rentability of those properties?

Pat:  Well, I used to think when I first came up here, that Gatlinburg was the only place to be but I've since changed my mind. I have properties in Pigeon Forge, Wears Valley, Sevierville. Once you get a quarter or half a mile off the main parkway, Pigeon Forge and Sevierville, you're out in the country. So it's as attractive to me as Gatlinburg is. I think Gatlinburg still has some somewhat of a premium for the rental market and the sales market, but not as wide a difference as it once was.

Christine:  Right. And now how is the market there? Across the country we've seen certain markets actually doing quite well and other markets where it's going down. How has the market in the Pigeon Forge and Gatlinburg area of Tennessee, how has that been in the last year?

Pat:  In the last four months, I just saw some figures that we're down about 20% from last year. But it's like the rest of the country. We had gone through probably seven or eight years of unsustainable growth.

Christine:  Right.

Pat:  So we were due for a correction and we're in it.

Christine:  Right. [laughter]

Pat:  But that's the nice thing is people that have found ways to rent their property out at a profit or at a break even, they can sit tight and wait for the market to rebound.

Christine:  And have you noticed any trends in the market? Whether people are going toward ‑ you already said that cabins do quite well, but are people really looking more toward private things with bigger pieces of land further out, or is it still sort of mixed?

Pat:  I think people, when they think of going to the mountains, they think of a cabin out in the woods. And the closer you can get to that, the better. If you have a view, that's prime. You have privacy. That's what people want. But there are still cabins and condos that rent right in the middle of town. But I think the preferable property for people would be something a little bit further out, with a view, and private.

Christine:  Further out, with a view, and private. Now where does the typical buyer come from in that market?

Pat:  Gosh, all over the southeast, even Michigan, Illinois, Ohio, Kentucky, of course all the Georgia, Mississippi, Alabama, Florida.

Christine:  Right.

Pat:  Probably after Tennessee, the second biggest group of buyers is from Florida.

Christine:  Right. Yeah, a lot of people from Florida after all the hurricanes decided, heck, they don't want to stay there and they moved up to the mountains of Tennessee partially because it's very affordable. Taxes are affordable, insurance is affordable, and they don't have to worry about hurricanes.

Pat:  Exactly. The last few people I had from Florida told me that their mortgage now is equal to their insurance and taxes.

Christine:  Wow.

Pat:  Which here, our tax structure is very, very favorable.

Christine:  Yes. That's one thing I do love, Tennessee taxes.

Pat:   And the people who move here, there's no state income tax as well.

Christine:  Tennessee in general, not just that market. It's becoming a market where a lot of people are moving. It's very much growing for a huge portion of retirees and even young couples, because you're right. It is very affordable to live in Tennessee and it's nice because you get a little bit of the four seasons but you don't get any extremes.

Pat:  Exactly.

Christine:  It doesn't get as hot as Florida, nor does it get as cold as the northeast.

Pat:  And the big reason that Gatlinburg exists is the National Park. It's the most visited park in the United States.

Christine:  Yes, that was astonishing to me when I first started researching Gatlinburg. It's one of the things ‑ it's funny, even here in Texas, I mentioned to somebody that I owned some cabins in the Smokey Mountains and they're like, "Where's the Smokey Mountains?" And I just sort of half chuckled going, "It's the most visited national park in the United States." And people just sort of looked at me like I had two heads.

Pat:  Yes.

Christine:  But it does make sense because it's within a driving distance of probably a good portion, maybe two‑thirds of the population of the United States. It's within a one day's drive.

Pat:  Well the numbers I heard were it was within two days drive of half the population.

Christine:  Wow.

Pat:  And one days drive to a third of the population.

Christine:  Wow. Yes.

Pat:  But the ‑‑ looking at it in detail, when I started researching, we get twice the number of people of the next visited park, which is Grand Canyon.

Christine:  Wow.

Pat:  They get 4.5 million. We get nine million plus.

Christine:  Wow. Yes, who would have thought? Now what is the average cost. OK, let's talk condos, and I'm sure people that are listening want to go, "OK, well it sounds great, tell me how much?" Are these properties $500,000, $400,000? Tell us what's the low end of the market if you wanted to go in and buy a cabin that will rent, what's the mid range and what's the high end?

Pat:  The low-end I would say is $150,000.

Christine:  $150,000? That is such an easy market to get into. You don't have to be wealthy to buy a $150,000 cabin or condo.

Pat:  Right. And because it's such a large part of the market, lenders are still very easy to deal with and secure loans from.

Christine:  Right.

Pat:  Mid‑range being I would say in the $250,000 range, and new to me in the last couple of years, the new developments that are going up have home sites that start at $300,000 to $500,000.

Christine:  And that's just the site?

Pat:  Yes.

Christine:  Wow, that's just for the land, $300,000 to $500,000. So that house has got to be, a million?

Pat:  $700,000 to a million.

Christine:  Wow.

Pat:  A million plus, and that's the extreme high end; the vast majority of properties are $150,000 to $300,000.

Christine:  That's very affordable. OK, so is there anything when you go to buy in your market that you should definitely be aware of? Certainly you're near the National Park, are there environmental issues? Are there any rental restriction bans, insurance, anything that people need to make sure to put up a red flag and research?

Pat:  Well it's a very renter friendly area; there are no vacation bans to speak of. When you're buying a property if it is a permanent residence it will be in the deed restriction. But other than deed restrictions there are really no bans at all on the rental market.

Christine:  So there's no municipal..?

Pat:  Right.

Christine:  Well that's great.

Pat:  No, they love renters.

Environmental, the latest thing that's come up in the last few months in the Tennessee Real Estate Commission is really, looking at this hard, is because so many of these are rural properties, they are served by septic system, and it's been a little fast and loose in the last few years getting permitted for a two‑bedroom cabin and building a three‑ or four‑ bedroom cabin.

Christine:  Aha.

Pat:  So that is something that the Real Estate Commission has cracked down on, they've made it very noticeable now if you go to buy something; the seller must disclose what it's permitted for as far as number of bedrooms.

Christine:  Right.

Pat:  But that is something to keep in mind, because there are a number of properties that have more bedrooms than they're permitted for.

Christine:  Now one thing that I noticed when I was buying which I thought was a little odd, but I guess it's very normal there, is a lot of properties are on shared wells. I've owned for years and I've got a shared well with two of my properties and I've never had a problem with running out of water, but does it ever become an issue?

Pat:  Very rarely. It's happened, but probably no more common than a single well running out of water, and if it does at least you've got someone else to share it with.

Christine:  Yeah, right.

Pat:  Typically there are two or three houses on a well system, I have seen them when there were seven or eight on one well.

Christine:  Wow.

Pat:  That's a little much, but if it's a good, producing well there's really no bad effects.

Christine:  Uh‑huh, excellent. Now, you had mentioned that the general population there in the Gatlinburg and Pigeon Forge area love renters, so you don't really have any issues with the permanent residents giving renters a hard time or anything like that right?

Pat:  No, mainly because I would say 90% of the income here is based on the tourism. People don't realize that the City of Gatlinburg's permanent residence is at 5,000 people.

Christine:  Wow!

Pat:  So they almost all are in the tourism business at one store, to the other.

Christine:  Right, and rental owners in Tennessee have to collect and pay sales tax. Sales tax there in the Gatlinburg area, depending on where you're located, could be anywhere from‑‑what is it? 9.5% all the way to...?

Pat:  Well the state sales tax is 9.5% and then there's a hotel/motel tax if you're in the city of Gatlinburg it's 3%.

Christine:  Right.

Pat:  City of Pigeon Forge is 2.25%.

Christine:  Right.

Pat:  In Trimble, I think it's 2%. So the base is 9.5%, and then you have to add the motel/hotel tax to the different cities.

Christine:  Correct. But I think that the amount of properties that are within that Gatlinburg or Pigeon Forge proper areas, is significantly lower than the gross number of properties that are there.

Pat:  Right, oh yeah.

Christine:  Now anything else that you would have, as far as tips for somebody that is looking to buy a cabin in the in the Gatlinburg/Pigeon Forge area? Any things that we should definitely watch out for, or positive things that we need to look for?

Pat:  Well the tip that I would give is, that people have always come in looking for properties that are already on a rental program, and they want to know what the rental history is.

Christine:  Right.

Pat:  Well, there's so many properties on the market right now as far as rentals, that sometimes the rental history doesn't tell the story, and that's where I think you could find the bargains. If you do enough homework, and due diligence, you can find a cabin that's under‑performing.

While it sounds a little counter‑intuitive, if you've done enough homework you can tell the cabin should be doing better than what it is. Buy that one‑‑do all the cosmetic fix‑ups that it takes to get it up there, and have a profitable property.

Christine:  Right. That's what happened when I purchased my properties. I think the owner was doing something like‑‑somewhere between $8,000‑$12, 000 a year‑‑and that was for gross.

Pat:  Yeah.

Christine:  I looked at it and said, "No, way! I can do so much better," and I did. I did like three times that amount.

Pat:  Yep.

Christine:  So yeah, you're right I think looking for those opportunities. Now what about property management in the area? Would you advise somebody to rent by owner, or are there some good property managers in the area?

Pat:  There are some good property managers, but if you can swing it anyway possible‑‑I would do it myself.

Christine:  Yeah, it's such an easy market to rent.

Pat:  Yeah.

Christine:  Websites like VRBO.com and HomeAway, they produce inquiries.

Pat:  Right.

Christine:  There doesn't seem to be a problem. The biggest problem that I have in that market is actually getting back to all my inquiries, because I get so many of them.

OK. Well thank you so much Pat, for joining us. I want to let people know how they would get a hold of you if they're looking to buy a property in the Gatlinburg/Pigeon Forge area. Pat Malone is definitely a really good real estate agent. He knows a lot about the market.

He also happens to know a lot about the rental market, which definitely is a unique situation. When I was buying in Pigeon Forge and in Gatlinburg, the real estate agent that I used really didn't know anything about the rent‑by‑owner market, he only knew property management. He looked at me like I was absolutely insane that I was going to even think of renting it myself.

So, I think it's important if you intend renting your property yourself, to go to a real estate agent that will support that in helping you look for a property‑‑that he'll let you know, or she'll let you know that it will rent really well.

Pat Malone's website is http://www.bestsmokymountainrealestate.com. Pat also has a toll‑free phone number‑‑he welcomes phone calls. His phone number is 1‑800‑818‑8133.

Thank you so much Pat, for joining us. We really appreciate it. I think it's some great information that you've given to the people that listen to our podcast. I wish you all the best.