Hint: It’s simpler than you think
In the world of real estate, glamping offers a unique opportunity not just to generate immediate cash flow, but to significantly increase the value of the underlying property.
We’ve deployed this strategy with Ferncrest and seen our own land skyrocket in value as a result (read this full newsletter to see how!)
It’s a strategy that combines the allure of hospitality with the power of real estate appreciation—a combination that can lead to meaningful wealth creation.
Understanding Valuations: Cap Rates Explained
When you take a piece of land that might otherwise be considered low-value and turn it into a glampground, you’re not just building a business; you’re fundamentally altering the value of that property. The key to this transformation lies in the concept of capitalization rate (cap rate) valuation methodology.
Cap rate is a real estate valuation measure used to determine the value of income-generating properties. This number is expressed as a percentage (%) and vary based on what similar properties are earning, how risky the investment is, what the economy is doing, and the type and quality of the property.
As such, cap rates vary over time and are influenced by a bunch of different market forces you don’t have control of. You can often find out what cap rate people are using for your type of property by researching online. Right now glamping businesses are seeing anywhere from 8 to 14% cap rates.
Once you know the cap rate you’ll be using for calculating your property’s value the equation is simple:
Property Valuation = Net Operating Income (NOI) / Cap Rate
For example, if your glampground generates $100,000 in NOI (your profit) and the cap rate is 8%, the valuation would be: Valuation = $100,000 / 0.08 = $1,250,000
Understanding cap rates and this formula is powerful.
A piece of land that might have been worth very little in its raw state can be transformed into a commercial real estate asset worth a significant sum, simply by adding a reliable, cash-generating business on top of it.
The Importance of Reliable, Recurring Income
To use cap rates to achieve a valuation increase, it’s essential that your glampground demonstrates reliable and recurring income.
Consistency is key—without it, the projected NOI and, consequently, the property’s value, can’t be confidently established.
At Ferncrest, we’re nearing the critical two-year mark, which is often seen as a benchmark for establishing a track record of reliable performance.
In the below post, we share our assessment of Ferncrest’s growing valuation.
This transformation didn’t happen overnight. It’s the result of careful planning, consistent execution, and a deep understanding of the potential value locked within the land. By putting a cash-generating business on it, we’ve effectively increased the property’s worth far beyond its initial land value.
There’s no better way to create wealth than through the arbitrage of taking undervalued land and turning it into a high-value asset via a glamping business.
This strategy not only builds cash flow but also creates long-term wealth as your property’s valuation increases.
Happy Glamping,
Brian & Joanna Linton
P.S. We’ve just launched the Glampground Profit Calculator, a powerful tool to help you evaluate the potential valuation of your future glamping business. Whether you’re just starting or looking to optimize an existing property, this calculator is designed to give you insights into the financial potential of your project. Check it out here.
