My husband and I are retired. We are looking for a small business we can run until we are gone. We have found a rustic campground with 5 cabins and more space to build additional cabins. It has waterfront, woods, trails, boat ramp, and a home. The property itself was used as a successful rustic campground for years, but has never been advertised much. There is no website, no advertising, and while they are still renting the cottages, they are doing so only when someone calls and asks. The property is amazingly beautiful and we believe with sprucing up and possibly building more rustic cabins, this could be quite profitable. The owners are asking $950,000.

The situation is that this property is inherited. I get the feeling that the current owner (who has been trying to sell it for about 5 years at various prices (from over $2 mil to the $950K it is now) is trying to get the absolute most money they can. I am wondering - in these early stages , how can I figure out a rough estimate of the real value of the property? In terms of getting financing, I would like to go in with a reasonable estimate of costs. Any suggestions on how to figure this out? Since I am so early in this process, I hate to waste everyones time only to determine that we cannot afford to take this on.

  • 4
    Talk to the local municipality--both zoning and planning if they exist--what's its current zoning and could you get it upgraded to support more people. That might include extra water rights, sewage or septic upgrade, and so on.
    – mkennedy
    Jul 28, 2016 at 22:55
  • @mkennedy's comment is 100% important if it's waterfront. If you have future plans you HAVE to figure out the current restrictions. Tons of waterfront properties are grandfathered in - with tons of restrictions on what you can do in the future. A cabin 25 feet off the lake might be awesome, but you probably can't put another in the large open lot a ways down. Etc.
    – enderland
    Jul 30, 2016 at 13:50
  • I cannot begin to thank everyone who has given advice. There is so much to think of, but with hard work, research, a level head and your guidance I am confident we will make a right and smart decision. I'm off to start my research - I promise to keep you posted as we move forward. Again, THANK YOU. Jul 31, 2016 at 16:25

3 Answers 3


In addition to Alex B's excellent overview, I'd like to add a few more bits of advice.

First of all, one term you should know is "commercial real estate" - which is precisely what this is. There is a business element, but it is strictly (and almost entirely) intertwined to the underlying real estate, which makes this a special category of business which is generally considered simply "commercial real estate" (just like office buildings, shopping malls, etc).

All real estate and businesses value are based on alternatives - what other options are there? In appraisal, these are generally called "comparables". A professional appraiser is generally available for commercial real estate of this type. While a full, official commercial appraisal can run into the thousands, many/most (all?) appraisers are willing to sell you a simplified version of their service, which can be called a "letter of opinion" and can help you get an idea for the market price (what other similar commercial properties are running for). A loan company would strictly require this, but if you are thinking of an all cash or form of seller-financing this would technically be optional.

Your best bet is to read about some of what is involved in commercial real estate appraisal and evaluation, and you may even want to speak with commercial loan officers - even if you don't know that you want to get a loan to acquire the property! It's their job to help inform you about what is required and what they look for, so they can be a potential resource beyond your own research as well.

With this said, the only way to estimate value (and, conveniently, the best way) is to look at other properties! And by "others", I mean that you should really not consider buying absolutely anything until you've viewed at least 6-10 other options in some depth - and you probably want to double or triple that number if you are looking to make this the last big business transaction of your life. If you don't you'll be relying on little more than dumb luck to carry you through - which in this area of business, you don't want to do because the dollar amounts and liabilities involved can bankrupt you in no time flat.

With that general advice out of the way, here's a tiny nutshell version of valuation of commercial real estate.

Commercial Real Estate Valuation - In a (Not So) Tiny Nutshell

There are a few key parts involved in commercial real estate: land, improvements (buildings, docks, stuff like that), income, and wages.

Land: the value of the land is based upon what you could sell it for, as-is. That is to say - who else might want it? This alone has many important factors, such as zoning laws, the neighborhood (including your neighbors), water/utilities, pacts on the land (someone may have insisted the land not be paved into a parking lot, or really anything like that), alternative uses (could you put a golf course on it, or is the land suitable for a big building or farming?), etc. And is this in a growing area, where you might hope the value will increase over the next decade, or decrease, or basically stay flat (and possibly cause losses compared to inflation)?

Improvements: anything on the land is both an asset and a liability. It's an asset because it could add to the value of the land, but it might also reduce the land value if it interferes with alternate land uses. It's a liability, both in the legal sense and in that it requires maintenance. If you want to rent them out, especially, that means concern about any foundations involved, termites, roofs, sewage/septic tanks, utilities that are your responsibility (pipes, poles, wires), as well as any sort of ac/heating you may have, docks, and so on. These things are rarely free and absolutely can eat you alive.

Income: Ah, the best part, the constant influx of cash! But wait, is it a constant influx? Some businesses are purely seasonal (summer only, winter only), some are year-round but have peak times, and others don't really have a "peak" to speak of. If you are renting, are there issues collecting, or with people over-staying? How about damage, making a mess, getting rowdy and disturbing others?

Regardless, there is obviously some income, and this is usually the most dangerous part of the equation. I say "dangerous", because people absolutely lie like dogs on this part, all the time. It's easy to cook the books, assuming they even attempt to keep proper books in the first place! Businesses of this form often have a lot of cash business that's easy to hide (from Uncle Sam, or sometimes even the owners themselves if there are employees involved) - and fake! And some people are just shoddy bookkeepers and the info is just wrong.

But, there will clearly be some kind of yearly income involved. What does this matter? Well...how much is there? How much is tied to the owners (personal friends do business and they will leave if the ownership/management changes)?

In commercial real estate the income will be calculated for a fiscal year, and then there is something called a "multiple", which is market dependent. Let's say the whole place takes in $100k in rent a year. As part of buying this business, you are buying not just assets, but expected future income. In some commercial areas the multiple is as little as .5 to 2 - which means that the going rate is about 6-24 months worth of income, as part of the purchase price. So with 100k rent a year, that means 50k-200k of the purchase price is attributable to the income of the business. And if business is half of what you thought it would be? That means the net value of the whole enterprise decreases by 25k-100k - on top of the reduced income every year you own it!

Income provides cash flow, which should pay all the expenses (cleaning up from wind storms, replacing windows that are broken, hauling off trash, replacing a well that ran dry), and then the extra that remains is positive cash flow. If you take out a loan, then ideally the cash flow would also pay that completely so long as you don't have any big unexpected expenses in the year - and still have some left over for yourself.

Wages: Well, that money doesn't collect itself! There's sales, keeping the books, collecting the rent, performing maintenance, customer service, cleaning, paying the bills, keeping the insurance people happy, handling emergencies, and everything else involved with running the business. Someone is going to do it, and the biggest error people make here is not to put any value on their time - and to make it so they can never afford to take a vacation again! Pay yourself, and give yourself the flexibility to pay others when you can't (or don't want) to do it all yourselves.

Making Real Money

So, what's the point of all this? How do you actually make any money? In two ways: 1) selling the whole thing later, and 2) cash flow.

For 1, it's important that you not be in a situation where you are betting that in the future there will be a "person richer, and dumber, than I am now". If the current owner wanted 2 million, then 1 mil, then less, over multiple years...this suggests either he is delusional about the value of his place (and most property owners are), or that its actually hard to find a buyer for such a business. You are going to want to make sure you understand why that is, because most of the value of real estate is...well, in the real estate itself!

For 2, you need cash coming in that's considerably more than the cost of running the place. Also, cash flow can strongly change the value of the business for resale (depending on the multiple, this can make a huge difference or prevent you from selling the thing at all).

You mentioned you want to put in more cabins, more marketing/sales efforts, etc. That's great, but first, that would mean added investment beyond the purchase price. Is it legally and physically practical to add more cabins, and what is their current utilization rate? If they are only renting 10% of their current capacity, increasing capacity may be premature. This will also vary through the year, so you may find there is a problem with being sold out sometimes...but only for a small percentage of the time. Which means you'll be adding buildings only to have them used for a fraction of the year, which will be very hard to make a profit from.

If cash flow is good, ideally even being enough to cover a loan payment to help cover the purchase price (and remember that commercial real estate loans are much smaller loan-to-value ratios than in residential real estate), there is one final barrier to making money: the damn non-regular maintenance! Roofs, wells, and wooden walls all have a sad tendency to cost you nothing right up until the point they cost you $30k+ on a single day. Is there enough cash flow to make these sort of certainties (and if you plan to be there for years, they are a certainty) not put you in the poor house?

This was rather long, but I hope this overview helps you appreciate all that you'll need to look into and be cautious of during your future en-devour!


Commercial real estate is generally costly and high-risk, but also can be high reward. You'll need to compare many opportunities before you can get a "feel" for what is a good deal and what is a terrible one. You'll need to consider many factors, such as resale value and cash flow/income (which they will have to tell you and you can assume is not true, due to ignorance or malice), as well as maintenance and liabilities, before you can begin to really estimate the value of an enterprise of this sort. There are people who can help you, like appraisers and commercial brokers, but ultimately you'll need to do a lot of research and comparisons yourself to help you make a good decision.

Finally, there is no very simple method for evaluating commercial real estate value. You need a variety of information, and you must be skeptical of what you are told because of the very large sums of money involved. It is doable (lots of people do it), but you must take care and do your due diligence so you don't get bankrupted by a single bad purchase.

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    There's long, with a low signal to noise, and then there's long, dense with valuable information. You nailed it. I hope the OP keeps us updates on their journey. Jul 29, 2016 at 2:30
  • +1. You should absolutely hire a real estate appraiser. A commercial appraisal will take into account many of the concerns listed here. Of course you still have to evaluate them yourself, but an appraisal is an essential starting point. Also, an appraiser with experience in the local area (or possibly experience in appraising this type of property) will be much quicker at identifying comparable properties.
    – BrenBarn
    Jul 29, 2016 at 6:08

There are many ways to value a business. Here is a simple method to get a ball park number on most businesses.

This business is made of two parts.

  1. The significant real estate assets
  2. The cabin rental business.

For the real estate:

  • What would it cost to buy a similar property without a rental business
  • What could you sell the property for if the rental business went bust? (Pretend this is $600k.)

For the business: I would consider this type of small business riskier than the stock market and so you should expect a higher return. Maybe 15 or 20%? If the rental business makes $50k profit (not revenue) and that is 20% return of your investment, the business is worth $250k. If the business makes no money or if they only make money because they don't take a salary then this is a hobby and not a business. There's no business to buy here and you are just bidding on the real estate to do with what you please.

The assets worth $600k and the business worth $250k would be added together for a fair sale price of $850k.

Adjust for your actual numbers and you should be able to get a ball park of what you think the business is worth. If you do the math and it works out that you'll make 1-3% on your business, compare that to investing in other places. If it works out that you'll make 40% on your money that's pretty awesome too.

  • 2
    Great answer, and one thing you may overlook is the salary of the staff in profit calculations. If the owners are not taking a salary, you should deduct from the profit at least 60 hours time, per week for you and your husband at a reasonable wage. Assuming this is the case, and the example given the new value would be around 790K
    – Pete B.
    Jul 28, 2016 at 18:44
  • 2
    The part I don't quite follow is the carrying cost of the $600K property. It would have (at, say, 4%) $24k/yr in interest expense. Either way, OP seems to have no idea what the income is for this property. Is it seasonal? Would the area/zoning, etc support a dozen more small cabins? Too many unknowns. Jul 28, 2016 at 19:19
  • 2
    I agree there are a lot of unknowns. If you do this ball park estimate and it shows you a profit under 10%, it's probably not worth doing more research. If you see a much higher number, it's probably worth getting more specifics.
    – Alex B
    Jul 28, 2016 at 19:21
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    I think this answer overvalues the property. The real estate business is making money because it's renting out the property, so the valuation from 1 and 2 overlap. If you're earning $50k renting out a $600k property, that's not an additional $250k value. That's a sign you can't decently monetize the property as a rental! I'd argue that the value is not the sum of the two valuations, but the higher of the two valuations.
    – MSalters
    Jul 29, 2016 at 13:47

A look at the utility bills should give you an idea of the actual number of tenants.

Some places- like I once read of Carmel, California- may require you prove you have enough water to support more rental cabins.

You may find the nearby community is anti-growth. If a profitable expansion were possible, I'm wondering why the current owner didn't do it.

Since a fire or flood could destroy all, you'll want to know what full replacement-value insurance and riders will cost.

Can emergency vehicles travel the current roads, or is the new owner going to be liable for any costs to widen, cut back brush, and otherwise bring up to code? We did this on the access to our property, then the County graded it.

If the location is so remote that a storm could cut you off, you'll want to mentally and physically prepare for this. I've lived in remote areas and it can be heavenly-until someone needs an emergency MediVac. Ensure you've got good antenna for CB or HAM-don't rely on cell alone.

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