Vacation Rental Valuation??

[Jon Moser]

Hello BiggerPockets! I am very new to real estate investing and need help putting value to a property that I have come across. The property has 3 log cabins that sit on 5 acres of land. All built with in the last 20 years and are in great shape. There is also a plot with a 50' x 70' metal building and a well that supplies the cabins. The couple runs a very successful vacation rental with these cabins. This property is not on the market, I approached the owner after learning they want to sell in the near future.  We have had a number of conversation and we have gotten to the point of talking price. Being that it is not actually on the market I have no clue what their asking price will be or should be. After talking with the owner, he wants me to shoot him a price. The only numbers that I have are the assessed value from the county assessor. I also know their approximate yearly income from the rentals. How do I value this type of property? Any help will be greatly appreciated! 

[Pancham G.]

Originally posted by @Jon Moser:

Hello BiggerPockets! I am very new to real estate investing and need help putting value to a property that I have come across. The property has 3 log cabins that sit on 5 acres of land. All built with in the last 20 years and are in great shape. There is also a plot with a 50' x 70' metal building and a well that supplies the cabins. The couple runs a very successful vacation rental with these cabins. This property is not on the market, I approached the owner after learning they want to sell in the near future.  We have had a number of conversation and we have gotten to the point of talking price. Being that it is not actually on the market I have no clue what their asking price will be or should be. After talking with the owner, he wants me to shoot him a price. The only numbers that I have are the assessed value from the county assessor. I also know their approximate yearly income from the rentals. How do I value this type of property? Any help will be greatly appreciated! 

Jon, if you know the amount of gross annual income they are generating from the property, then you need to find the expenses on the property. This should include everything. Since this is a vacation rental, it will typically have more than a normal SFR. Here are a few expenses to consider:
- utilities
- marketing
- taxes
- insurance (can be more for vacation rentals depending on the area)
- cleaning expenses
- toiletry & other supplies (since this is a vacation rental)
- property management (this can be high if you are not going to manage it yourself)

After you have all of these then you can find out NOI (net operating income). Once you have NOI, you can divide that with the going CAP rate for the area (if you know this). If not, then you probably have to find out. If you can't find out, then I would think that whats the BARE minimum return you want from this, and use that number to come up with the maximum you would pay.

Hope this helps. (btw, don't look at the county values as they usually are very off).