2021 Best place to invest in STR
san jose, CA · Member since 2017 · 26 posts · 6 votes
Is it still possible to get 10% CAP rate for managed STR?
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
Just run the numbers and see what your net profit is.
Much easier to make money if you self manage.
Calculate all of your expenses. I mean everything. Then take your income. You can then determine your profit. I calculated my monthly expenses at $3200 that’s $38400 Income is approximately $58,000. Year is not over. 20K profit.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related. My favorite number on the spreadsheet is monthly cash flow. Which is also not the best choice because it’s easy to manipulate.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost always be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is NOI/Value. So basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
I calculated the $113,000 my short terms are grossing this month.
Shake and bake.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
The short terms that I personally own are grossing $113,000 this month and I do not calculate cape rate on them because they are 1-4 family and comps determine value.
I do calculate cap rate on my apartment buildings.
Good for you. That sounds like a good month no doubt. However, I'd still say the rental income plays a part in the value. To say it doesn't is foolish. Take Shields Mountain (which does not allow short term rentals) and the values there right next to another place on Upper Middle Creek Road like Summit View for example and the values are tremendously different BECAUSE of the rental income generated and capability.
And going to what the actual initial post posed: "Is it still possible to get 10% CAP rate for managed STR?" That is a BETTER posed question using a CAP Rate as the metric determined rather than COC return %. Because people are going to have different financing types and of course down payment percentages that largely impact a COC return, but play no part on CAP Rate. So the original post question, in my opinion, asked it right by using Cap Rate. He may intend to put 50% down while others only intend to do 10% to 20% down. So the answers would be skewed.
But to answer the original question from the post. It is very difficult to get a 10% cap rate on short term rentals now while still using a management company. Unless the management company charged 10% or 15%. Then it still may be plausible market dependent.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
The short terms that I personally own are grossing $113,000 this month and I do not calculate cape rate on them because they are 1-4 family and comps determine value.
I do calculate cap rate on my apartment buildings.
Good for you. That sounds like a good month no doubt. However, I'd still say the rental income plays a part in the value. To say it doesn't is foolish. Take Shields Mountain (which does not allow short term rentals) and the values there right next to another place on Upper Middle Creek Road like Summit View for example and the values are tremendously different BECAUSE of the rental income generated and capability.
And going to what the actual initial post posed: "Is it still possible to get 10% CAP rate for managed STR?" That is a BETTER posed question using a CAP Rate as the metric determined rather than COC return %. Because people are going to have different financing types and of course down payment percentages that largely impact a COC return, but play no part on CAP Rate. So the original post question, in my opinion, asked it right by using Cap Rate. He may intend to put 50% down while others only intend to do 10% to 20% down. So the answers would be skewed.
But to answer the original question from the post. It is very difficult to get a 10% cap rate on short term rentals now while still using a management company. Unless the management company charged 10% or 15%. Then it still may be plausible market dependent.
Just curious. How much does the normal property manager charge for the normal Sort Term rental in Gatlinburg?
Also, what would be the normal length of stay of people using STR in Gatlinburg? 2 nights? 6 nights? Other?
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
The short terms that I personally own are grossing $113,000 this month and I do not calculate cape rate on them because they are 1-4 family and comps determine value.
I do calculate cap rate on my apartment buildings.
Good for you. That sounds like a good month no doubt. However, I'd still say the rental income plays a part in the value. To say it doesn't is foolish. Take Shields Mountain (which does not allow short term rentals) and the values there right next to another place on Upper Middle Creek Road like Summit View for example and the values are tremendously different BECAUSE of the rental income generated and capability.
And going to what the actual initial post posed: "Is it still possible to get 10% CAP rate for managed STR?" That is a BETTER posed question using a CAP Rate as the metric determined rather than COC return %. Because people are going to have different financing types and of course down payment percentages that largely impact a COC return, but play no part on CAP Rate. So the original post question, in my opinion, asked it right by using Cap Rate. He may intend to put 50% down while others only intend to do 10% to 20% down. So the answers would be skewed.
But to answer the original question from the post. It is very difficult to get a 10% cap rate on short term rentals now while still using a management company. Unless the management company charged 10% or 15%. Then it still may be plausible market dependent.
Just curious. How much does the normal property manager charge for the normal Sort Term rental in Gatlinburg?
Also, what would be the normal length of stay of people using STR in Gatlinburg? 2 nights? 6 nights? Other?
Most common and “normal” from a property manager in Gatlinburg is 30%. There are companies that do it for 20% (some long term and others for a year or two with introductory rates). There are exceptions of course companies like Evolve are lower and some boutique or small local management companies may be a little less. About a decade ago 40% was the most common. So the trend is downward, but still higher than most regions.
Normal length of stay is largely number of bedroom driven. A small one bedroom the average is usually just under three nights when taking into consideration the entire year of bookings. The higher the number of bedrooms, the larger the average number of nights per reservation. It is rare to have any reservation for longer than a week in our market, but it does occur occasionally.
Can't do cap rate on a a single family home. Think you mean COC.
I think you have a fundamental misunderstanding of Cap Rate? Cap rate can be calculated on a single family rental home just the same as any other rental producing property. Cap Rate excludes out any consideration of financing or the costs of obtaining financing (among other things). I'm not disagreeing with you if you are implying that COC return is a better way of evaluating a short term rental, but to simply say you can't do cap rate on a single family rental home is false.
You can calculate it all day long but to me it doesn’t mean as much because the income and the property value on a 1-4 family aren’t related.
So you're saying that in Gatlinburg. Lets say 2 different two bedroom cabins each at 1,500 square feet. One of which is producing $70,000 in gross rental income and the other producing $40,000 in gross rental income. The value of the one producing $70,000 wouldn't almost be higher? You're saying they aren't related the gross rental income and the property value? That makes no sense. I understand, for the most part, in appraisals rental income isn't considered as the primary factor on 1-4 family as a sales comparison approach is considered.
But all of this is actually irrelevant to what you're saying. A CAP RATE is basically the annual return if someone paid 100% cash for the property. It's a different way of analyzing an investment because most people have different loan conditions (percent down, interest rates, closings costs, etc). The cash on cash return method is absolutely a better way of analyzing YOUR specific return (if leveraged). But people can artificially make deals look great by putting little to no money invested in a property and show a really high COC return due to being highly leveraged. But looking at it from a cap rate perspective, they really didn't have anything that special.
I still can't get my head around your comment (about short term single family rentals) that income and property value aren't related.
The short terms that I personally own are grossing $113,000 this month and I do not calculate cape rate on them because they are 1-4 family and comps determine value.
I do calculate cap rate on my apartment buildings.
Good for you. That sounds like a good month no doubt. However, I'd still say the rental income plays a part in the value. To say it doesn't is foolish. Take Shields Mountain (which does not allow short term rentals) and the values there right next to another place on Upper Middle Creek Road like Summit View for example and the values are tremendously different BECAUSE of the rental income generated and capability.
And going to what the actual initial post posed: "Is it still possible to get 10% CAP rate for managed STR?" That is a BETTER posed question using a CAP Rate as the metric determined rather than COC return %. Because people are going to have different financing types and of course down payment percentages that largely impact a COC return, but play no part on CAP Rate. So the original post question, in my opinion, asked it right by using Cap Rate. He may intend to put 50% down while others only intend to do 10% to 20% down. So the answers would be skewed.
But to answer the original question from the post. It is very difficult to get a 10% cap rate on short term rentals now while still using a management company. Unless the management company charged 10% or 15%. Then it still may be plausible market dependent.
Just curious. How much does the normal property manager charge for the normal Sort Term rental in Gatlinburg?
Also, what would be the normal length of stay of people using STR in Gatlinburg? 2 nights? 6 nights? Other?
Most common and “normal” from a property manager in Gatlinburg is 30%. There are companies that do it for 20% (some long term and others for a year or two with introductory rates). There are exceptions of course companies like Evolve are lower and some boutique or small local management companies may be a little less. About a decade ago 40% was the most common. So the trend is downward, but still higher than most regions.
Normal length of stay is largely number of bedroom driven. A small one bedroom the average is usually just under three nights when taking into consideration the entire year of bookings. The higher the number of bedrooms, the larger the average number of nights per reservation. It is rare to have any reservation for longer than a week in our market, but it does occur occasionally.
So if I do my math correctly, a STR Grossing $10,000 a month that has a PM @ 30% gives $3,000 a month to the PM?
And for the $3,000 a month you get what? . . .
Most common and “normal” from a property manager in Gatlinburg is 30%. There are companies that do it for 20% (some long term and others for a year or two with introductory rates). There are exceptions of course companies like Evolve are lower and some boutique or small local management companies may be a little less. About a decade ago 40% was the most common. So the trend is downward, but still higher than most regions.
Normal length of stay is largely number of bedroom driven. A small one bedroom the average is usually just under three nights when taking into consideration the entire year of bookings. The higher the number of bedrooms, the larger the average number of nights per reservation. It is rare to have any reservation for longer than a week in our market, but it does occur occasionally.
So if I do my math correctly, a STR Grossing $10,000 a month that has a PM @ 30% gives $3,000 a month to the PM?
And for the $3,000 a month you get what? . . .
It easy to self manage and pocket that $3000.00 a month.
The PM is going to schedule cleaners and communicate with renters possibly coordinate a repair. You can do this from your phone no sweat, from anywhere.
Most common and “normal” from a property manager in Gatlinburg is 30%. There are companies that do it for 20% (some long term and others for a year or two with introductory rates). There are exceptions of course companies like Evolve are lower and some boutique or small local management companies may be a little less. About a decade ago 40% was the most common. So the trend is downward, but still higher than most regions.
Normal length of stay is largely number of bedroom driven. A small one bedroom the average is usually just under three nights when taking into consideration the entire year of bookings. The higher the number of bedrooms, the larger the average number of nights per reservation. It is rare to have any reservation for longer than a week in our market, but it does occur occasionally.
So if I do my math correctly, a STR Grossing $10,000 a month that has a PM @ 30% gives $3,000 a month to the PM?
And for the $3,000 a month you get what? . . .
It easy to self manage and pocket that $3000.00 a month.
The PM is going to schedule cleaners and communicate with renters possibly coordinate a repair. You can do this from your phone no sweat, from anywhere.
That's what I was hoping was the case. Thanks