Valuing Vacation Cabin Property (4 cabins) Cap Rate?

Question

I have a river property with 4 cabins we rent on Airbnb.  I'm considering selling but am having a hard time finding the right valuation.  Since it is a unique property with 4 cabins in a vacation rental destination, I am assuming the best way to value would be a cap rate on NOI, as there are not really sales comps to compare.

The property grosses over $200k/year, nets around $150k, and is totally turn-key, updated, furnished, cleaners in place, etc.  The location is very hot and getting better, only about 2 hours from two major metro areas.

Vacation rentals are obviously a bit more work and risk from an investment standpoint so I don't want to overvalue the property by using a cap rate comparable to LTRs or other commercial options.  My question is, if you are analyzing a deal like this, what sort of cap rate would you be willing to make a deal on?

John Underwood · Answer

SFH's are valued by comps, nothing else.

Collin Hays · Answer

I don't want to be a smart a**, but a fair price is what you are willing to sell it for, and not a penny less, regardless of the CAP rate.

Number one, cabins on a river are extremely rare.  They aren't making any more rivers.  So you are in an entirely different class with that situation.  I have several cabins on rivers or mountain creeks with fishing, and it would take a mighty chunk of change for me to part with any of them.  I have a 2400 square foot cabin on 250 feet of frontage on a blue ribbon trout stream, that yields around $50K gross per year.  A fellow offered me $500K for it a couple of years ago, thinking surely I would accept it.  I told him "there's no way."  I figure the fact that it's on water is worth a $500K premium on its own.

I have a cabin right on the Roaring Fork River in downtown Gatlinburg that does about $70K a year.  I've had offers as high as $750K for it, but I wouldn't sell it for anything less than $1 million.  Why?  Because there have been exactly zero cabins sold on that river in the last 4 years.  Properties there are unique, exclusive, and cannot be duplicated.

I don't know if this answers your question, but you'll probably sell those river properties too cheap...

Chase Hoover · Answer

Thanks all for the responses.  The cabins are in the Shenandoah Valley of Virginia.  Since there are 4 cabins on the property there really isn't a good way to compare them to other sfh comps in the area, which is why I am leaning towards a more commercial valuation approach.  The river frontage definitely adds tons of value, which I think is reflected in the gross income (income wouldn't be as high if it wasn't waterfront).  I'm thinking a 10% cap would be a fair starting point, which would put it in the $1.5m range.  This also seems to be the general range that many of you calculated as well.  I figure it's always best to start high and work my way down if the market dictates.

Brian G. · Answer

@Chase Hoover with a max of $1.35M, ie 15% gross to purchase price ratio

Brian G. · Answer

@Chase Hoover so these cabins will likely be valued based on comps. Having said that, depending on condition, I would be willing to pay $1M-$1.25M purchase price for a property that grosses $200k/year. I shoot for 15%+ gross revenue to purchase price ratio. Where are these?

Michael Baum · Answer

Hey @Chase Hoover sounds like a neat property. Are all the cabins on the same lot? How much land and river frontage?

Essentially all the revenue stream that it generates will not be considered for the mortgage most likely. What @Joshua Strickland isn't far off. You can check the places that are similar around the area and use Zillow to get a baseline. Have you had an agent out to give you an idea of valuation?

The biggest issue is that whomever buys the place will have to start over with reviews etc. Yes it is ready to go, but they will have to start a new listing, hopefully move the current reservations over and start getting new reviews.

I have to assume that the $150k net is because your mortgage is either gone or much lower than what you would ask. Can you give us more of an idea of location?

Nancy Bachety · Answer

Are they all SFH? Are you able to “test the waters” and sell one at a time? Are they on each on the river? Is $1M too low, in your opinion? $1.5M? What was your gut reaction to both of them? What I find to be true is at the end of the day, you aren’t selling a business you are selling real estate. The fact that they produce $200k gross is worth something but not generally part of an appraisal or fair market value.

We just bought a 1 BR ocean front condo which grossed $80K. The price was about five times that. Some people don’t rent them and that’d be a fair price for them. We rent them and that was a fair price for us.  We expect a higher gross, of course. Unless appreciation is historically awesome, I would consider paying somewhere around $1M - $1.5 for your four cabins but it’s way too hard to say without knowing anything else about them.

Joshua Strickland · Answer

I’d base the price off the Zillow “zestimate”.

Kidding, but for real... just think about what cap rate or CoC return you would personally want to get out of a property and back out the math from there, then add 5-10% since the property is unique. The market will let you know if your price too high or too low by the offers or lack there of.

Valuing Vacation Cabin Property (4 cabins) Cap Rate?

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