How to do VRBO valuation. Analyze an opp.

[Leland S.]

A realtor referred me to purchase a new build town home in Nashville on a commercial lot (hence NOO VRBO capability) for 450k.

I ran some numbers on the income and assumed anywhere from 55k-77k with estimated to full occupancy. I understand winter months are dead. I assumed 70% occ $150/week day night, 95% occ. on  $600 thurs-sat for 34 weeks of the year, 50% occ 89/nt weekday, 200/nt thurs-sat for 18 weeks of the year.

To calculate a "cap rate" I used NOI (after mortgage costs, utilities, hoa) and determined it's a 4-8% cap rate. This isn't all that exciting.

I feel like builders are selling any VRBO at exorbitant prices because "investors" (i.e. lots of dumb people with big 401k's or loans) will "snatch them up" (per current realtor lingo).

Given the high maintenance/mgmt required of VRBO I really don't see this as being a great deal when I can invest the same capital in new builds or flips to sell for the same profit and have minimal management work. 

What's your criteria for VRBO's and what to look out for? 

[Steve Frye]

@Leland Smith I’m an agent here in Nashville and own a few STRs myself. I do quite a bit of work with STRs in Nashville and have pretty close relationships with most of those developers. I’ve got a few proformas that I’ve pulled together that I’d like to share and review yours as well. I’ll connect and message you to set something up to talk.