The Great Smoky Mountains region has long attracted vacation rental investors seeking steady returns, but market dynamics are shifting. Occupancy rates in Gatlinburg have fallen sharply, from pandemic-era highs of 80% in 2021 to about 53% today, forcing agents and investors to adjust their strategies amid greater competition and more selective travelers.
Deanna Workman, a realtor with Century 21 Legacy who serves the Gatlinburg and Pigeon Forge markets, has seen these changes firsthand. Alongside her husband, she closed 50 transactions in 2025, about 20 of which involved vacation rental properties. Her experience offers a clear view of how local agents and investors are adapting to a more challenging environment.
Supply Surge Reshapes the Market
The main reason for the decline in occupancy isn’t a drop in tourism but a surge in new listings. “We have so many new builds coming up,” Workman says. “Back in 2020-2021, there weren’t as many brand-new builds. Your occupancy was much higher at that time. You didn’t have as many options.”
With hundreds of new vacation rentals entering the market while visitor volume remains steady, the supply of available properties now outpaces demand. “We still have the same amount of people coming in, if not more,” Workman notes. “But when you have so many houses, you can only fill so many with that same number of people.”
This oversupply has increased competition among owners. Properties that consistently attract bookings are those with standout amenities, such as in-ground pools, indoor putting greens, or resort-style features, that justify premium nightly rates and appeal to travelers sifting through a crowded field of choices.
Changing Investor Expectations
Out-of-state buyers still dominate the Smoky Mountains vacation rental market, accounting for about 75% of Workman’s recent vacation rental transactions. However, their approach has shifted from quick decisions to careful analysis.
“More in-depth due diligence on numbers because of the shift,” Workman explains. “We want all the paperwork that we can get. We want to go back at least three or four years, if you have it. We want projections from multiple different companies.”
Investors now demand detailed financials, multi-year income statements, and projections from several management companies to verify potential returns. They also scrutinize property management firms’ fee structures, service offerings, and reputations before moving forward. The era of making rapid purchases based on surface-level analysis has largely ended.
The Price Point Dilemma
Higher-priced vacation rentals face the most significant resistance. Properties listed above $1 million linger the longest, as investors question whether premium price tags can deliver acceptable returns amid lower occupancy. “A lot of times people want those numbers to be so good and their ROI to be high,” Workman says. “You can get more if you buy two rental cabins at $600,000; you get two incomes versus that one for $1.2 million.”
This preference for multiple smaller investments over a single expensive property allows investors to spread risk and potentially improve their portfolio’s overall performance. The focus has shifted to value and income potential rather than prestige purchases.
Adapting to Financing Realities
Even as interest rates have risen, qualified vacation rental investors still have access to funding, with Debt Service Coverage Ratio (DSCR) loans becoming increasingly popular. DSCR loans evaluate whether a property’s rental income, typically documented through a rent schedule, can cover its mortgage payment, rather than relying on the borrower’s personal income. This can make it easier to purchase investment properties.
“The DSCR actually goes based on a rent schedule, so it’s not based on income,” Workman explains. “Your monthly payment has to be less than what the rent schedule shows that you’re going to make. So you’re able to purchase it with the income that the property will make.”
This approach expands financing opportunities for buyers who may not meet traditional lending criteria but can demonstrate the property’s income potential. As more investors seek to leverage income-based loans, understanding the nuances of these products has become essential.
Thorough Due Diligence: Preventing Deal Collapses
Most failed transactions stem from inadequate preparation, not unfavorable market conditions. Buyers often underestimate total investment requirements until inspections reveal unexpected issues.
“Sometimes it’s the type of financing. Sometimes they bite off more than they can chew,” Workman says. “Once they do the home inspection, all these cosmetic things play in, and then you’ve got the deeper ones—septic, well, structural, termites, roof needs to be replaced. When all that’s taken into consideration, that’s when they’re like, ‘That’s more than my budget.’”
Workman stresses the importance of comprehensive inspections, even if buyers feel pressure to move quickly. “The biggest recommendation that a lot of people, especially in the short-term rental, try to avoid is home inspections. Definitely do it.”
Market Timing: Focus on Long-Term Value
Despite current headwinds, Workman urges investors to focus on long-term value rather than waiting for perfect conditions. Her advice is direct: “Don’t stress about the rate. The rate can change, and you can refinance. If you find a home you like, or an income property you want to invest in, get it. Don’t hesitate. Find the house you like, do your due diligence. If you love it, buy it. Don’t wait.”
Ongoing infrastructure investments, including planned public transportation upgrades and continued commercial development, support workers’ confidence in the region’s long-term prospects. These improvements are expected to support steady demand for both residential and vacation properties over time.
Residential Market Remains Resilient
While the vacation rental segment faces increased competition and slower absorption, the residential market in the Smoky Mountains remains comparatively stable. Homes priced accurately typically sell within 30 to 60 days, and a range of loan programs continues to support first-time homebuyer activity.
FHA 203(k) loans, which finance both purchase and renovation costs, have proven especially valuable for buyers seeking to improve older properties. “We can get vetted contractors to give us a bid to repair all of said items, and then we use those in conjunction with the purchase price to get them financed,” Workman says.
Outlook: Analytical Approach Drives Success
The Smoky Mountains vacation rental market has moved from a period of easy profits to one where careful analysis and realistic expectations are essential. Investors who succeed today are those who conduct thorough due diligence, ask hard questions about potential returns, and seek professional guidance rather than chasing inflated projections.
For real estate professionals, the current environment rewards those who provide transparent analysis and honest advice. “I don’t want you to buy an $800,000 house, and it’s only going to make $40,000 a year gross, because you’re going to be in the hole,” Workman says.
The market’s shift from speculative buying to an analytical, value-driven approach benefits both buyers and the broader vacation rental ecosystem. By prioritizing sustainable growth and realistic expectations, the Smoky Mountains region is laying the groundwork for long-term stability, even as the days of effortless returns recede into the past.
