First time investor, never owned a property. Cabin is located in a subdivision on lakefront. Short term rental cash flows $5k net during peak seasons and $2-3k otherwise. Asking price is $110k. Is there a way to assess the real value before I seek partial funding? The property is under new management so cabins are all selling. Is that a red flag?
Real Estate Agent · Houston, TX · Member since 2020 · 175 posts · 75 votes
8mo
When you say "real value," are you referring to the property's market value? If so, comparable sales would be the most reliable way to determine that. I would caution against valuing the property based solely on short-term rental revenue, as the STR market can be highly volatile. There are many reasons owners are selling STRs right now, but one of the primary ones is that many buyers were originally presented with revenue projections that have since changed significantly due to market conditions. It may be more helpful to request income statements for the past two years—or longer, if available to better understand historical performance.
Great question, @Audri Flores! Let me help you think through this:
On valuing the property - Jesus made an excellent point about comps vs income approach. For STRs, I'd look at both:
1. Comp-based value: Pull sold cabins in Lake Conroe from the last 6-12 months - similar bed/bath, lot size, lake access. That gives you the "floor" value as if it were just a regular property.
2. Income-based value: At $5k peak + $2-3k shoulder months, rough annual gross might be $45-50k. After expenses (cleaning, maintenance, utilities, management ~25-35%), net could be $30-35k. At a 10-12% cap rate (typical for STR), that values the property at $250-350k. The $110k ask is well below that - which is either a great deal OR the income numbers need verification.
Questions I'd ask:
- What's the actual trailing 12-month revenue (not projections)?
- What are the HOA rules on STRs? Any minimum stay requirements?
- Why is it under "new management"? What happened to old management?
- What's the occupancy rate? High revenue with 95% occupancy is different from 50% occupancy.
On the "new management" question - not necessarily a red flag, management companies change often. BUT dig into why: Did the previous company fail? Did they violate rules? Or routine change?
The fact that "cabins are all selling" could mean:
1. Owners cashing out at peak values (buyer caution)
2. Market shifting away from STR-favorable
3. Regulatory changes coming
4. Or simply normal turnover
For $110k all-in on a lakefront cabin with $5k/month peak potential, the numbers look attractive IF verified. I'd request 2 years of actual income statements, review the STR permit/HOA rules, and visit in person if possible.
Good luck! What's your planned exit strategy - pure STR hold or potentially flip later?