how to determine a golf course cap rate

by Bradley Barton MD Published 3 years ago Updated 2 years ago 4 min read

Course Handicap is calculated by dividing Slope Rating by 113 and multiplying by Handicap Index. What is the Average Course Rating?

Full Answer

Is there a guide to Cap Rate formula?

This article has been a guide to Cap Rate Formula. Here we discuss its practical examples to understand the Cap Rate Equation. Here we also provide you with a Cap Rate Formula Calculator with a downloadable excel template. You can learn more about financial analysis from the following articles –

What is a golf course slope rating?

The measure the United States Golf Association uses is the course and slope rating system, which assigns two different numbers meaning two different things. While the course rating tells you how difficult a track is for a scratch player, the slope tells you the relative difficulty of that same course for a bogey golfer. Sounds simple, right?

How do I calculate my golf handicap?

Using this Index, you can calculate a second number - your golf "Course Handicap" - for any specific course and tee. Course Handicap = Handicap Index x Slope Rating / 113 + (Course Rating - Par) The blue part of the formula is the part of the WHS formula.

What is a golf course appraisal?

How do you determine cap rate?

The basic formula is:Cap Rate = (Net Operating Income)/(Current Fair Market Value)Net operating income: Your net operating income is your gross rental income (the total amount of money you receive from rent) minus your operating expenses (such as payroll and costs of repairs).More items...

How do you value a golf course business?

As with most property types, golf courses can be valued via the income approach, sales approach, or cost approach. Each method has its limitations. Given the specialized nature of golf course properties, the application of the comparable sales approach is preferred.

Is 4.5 A good cap rate?

This is because the formula itself puts net operating income in relation to the initial purchase price. Investors hoping for deals with a lower purchase price may, therefore, want a high cap rate. Following this logic, a cap rate between four and ten percent may be considered a “good” investment.

How profitable is a golf course?

Profitable golf courses are generally selling for six to eight times EBITDA, while courses that aren't profitable tend to sell at 0.8 to 1.4 times revenue.

How many acres do you need for a golf course?

“This means an 18-hole course of all short par 3s could be built on as little as 30 acres, while an intermediate length or executive course of 18 holes of par 3s and 4s would require 75-100 acres, and a full size par 72 course would need 120-200 acres.

Is 3% a good cap rate?

A lower cap rate is generally associated with a safer or less-risky investment, while a higher cap rate will be associated with more risk. Many advisors will tell you that a high cap rate is better, or that a good cap rate is between 5% and 10%.

What does 7.5% cap rate mean?

A 7.5 cap rate means that you can expect a 7.5% annual gross income on the value of your property or investment. If your property's value is $150,000, a 7.5 cap rate will mean a yearly return of $11,250.

Why is lower cap rate better?

Beyond a simple math formula, a cap rate is best understood as a measure of risk. So in theory, a higher cap rate means an investment is more risky. A lower cap rate means an investment is less risky.

Do sales prices show any trend?

Sale prices don’t show any appreciable trends. They seem to move up and down significantly enough that no stable trend can be identified. A few very high priced or low priced sales can impact the statistics too much for reliable use.

Can a hobbyist buy golf properties?

Above all else, this tells us that economics largely drive the purchase of golf properties. Yes, there is the occasional “hobbyist” that can afford to and wants to buy golf properties, and there are other metrics besides GRM.

What is Course Rating?

The Course Rating is the evaluation of the playing difficulty of a golf course for the scratch player (0 handicap.) It is used in conjunction with the Bogey Rating, (the difficulty of the course for a bogey player of 20-24 handicap) to determine the Slope Rating. The Slope Rating will determine a player’s Course Handicap.

How is Course Rating Calculated?

Course Rating and Bogey Rating are calculated using the USGA Course Rating System. The Course Rating System is extremely objective and takes into account all the factors that affect the playing difficulty of a course.

How Does Course Rating Affect Handicap?

Course Rating and Slope Rating affect Course Handicap. Each player with a WHS Handicap Index will play off a different Course Handicap at different venues, and off different tees, depending on the Slope Rating. Course Handicap is calculated by dividing Slope Rating by 113 and multiplying by Handicap Index.

What is the Average Course Rating?

There’s not really such a thing as an average Course Rating but there is an average, or standard, Slope Rating – the difference between Course Rating and Bogey Rating multiplied by a predetermined value – The average or standard Slope Rating is 113.

What to look for in a golf course appraisal?

Some of the more important things to look for in a golf course appraisal include: Methods and techniques should be golf industry specific and reflect timely behavior of market participants, such as appropriate and relevant units of comparison, golf industry specific capitalization and discount rates and appropriate consideration ...

What is golf appraisal?

A golf course appraisal is a complex process that often means different things to different people. By definition, it is simply “the act or process of developing an opinion of value” or even simpler, “an opinion of value” . The appraisal of a golf course or golf club property is somewhat unique because unlike traditional investment real estate ...

Do golf courses sell as real estate?

Golf courses rarely sell as just real property and all interests must be accounted for and considered in the subject property and any comparable sale. Golf properties require some unique descriptive information. Some appraisers do an acceptable job of analyzing the clubhouse and other buildings. However, golf course improvements often throw most ...

Is a simple internet search to identify the “rack” rates for competitive courses adequate market research and sales should be

A simple internet search to identify the “rack” rates for competitive courses does not constitute adequate market research and sales should be developed and verified not only to include sale price and recording information, but where possible appropriate physical information and economic indicators.

Do appraisers analyze golf course improvements?

However, golf course improvements often throw most appraisers a curve ball when it comes to understanding them. Some of the elements requiring a thorough understanding and analysis include: turfgrass, irrigation system,

Examples of Cap Rate Formula (with Excel Template)

Let us see some simple to an advanced example to understand it better.

Relevance and Use

The principal use of a cap rate is to distinguish among different real estate investment opportunities. Let us assume that a real estate investment offers around 4% in return while another property has a cap of around 8%. Then, the investor is most likely to focus on the property with a higher return.