Cap rate on a short term rental vacation home

[BRAD THOMAS]

Background - Looking at a property that we would also use as a vacation home and STR so it's not 100% about maximizing the return on the property. In this sellers market there also appears to be no real future property appreciation to get here, just utility and cost offsetting and possibly cash flow.

What CAP rates are y'all targeting for your STR's?

[Alex S.]

CAP rates are useful if you could someday sell your STR based on the income it produces. Unfortunately, you can't do that. Appraisers will use comps, not income, to determine its value.

So, COC return, or the more complicated IRR are more useful. You will see a huge range on this forum of what people "expect." I'd say 15-70% COC is possible. If you are in the 20's...you did good imo.

Also, I'm gonna disagree that there is "no real property appreciation."  No one knows that.  Currently the government is pumping historically unprecedented amounts of cash into the economy, we have a global pandemic (round 2) on our hands, and telework is changing the way people think about living and working in one place.  There could be huge appreciation in the coming years...or maybe 50% of the population dies of a virus.  No telling! :)