Appraise as SFR or MF?

[Sadie]

I have a property located in Baltimore that is a SFR, but the owner rents each bedroom separately, with a common LDK on the first level and a common bath on the 2nd. There are long term renters with verifiable contracts. It's worth way more as an investment, but remove the bedroom locks and it's just a SFR. It's a private sale but will eventually require a bank loan, and I don't want to leave the buyers in the lurch.

Appraise as an SDR, but be very clear about its current use. Check local zoning and see if they allow the use. Also F/F doesn't lend on boarding houses so CYA.

 

[Zoe]

Appraise as an SDR, but be very clear about its current use. Check local zoning and see if they allow the use. Also F/F doesn't lend on boarding houses so CYA.

Yeah, the bank knows whether or not they are planning on selling the loan. They have underwriter that knows and knows whether or not they are keeping the loan in house.

Talk to your client and their underwriter.

 

[Mark K]

1yr residential rental agreements generally don't create a leased fee interest as such whether it's a single tenant or multiple tenants.

If there's a valid lease agreement on real estate, how does that NOT create a leased fee interest? I'm thinking there's a few million tenants and their lawyers that would disagree with you.

Also, the OP didn't divulge the length of the current leases but did mention long-term tenants. Reasonable to believe that there are also long-term leases. I have also seen many residential leases that automatically renew as long as the tenant is current and has paid the rent on time. Some can be canceled with adequate notice and others are basically "you pay, you stay".

 

[George Hatch]

Long term occupancy over 10 years isn't the same thing as a 10yr lease.

Fee simple subject to 6mo or 1yr rental agreements is not going to get valued (by the market participants) with a GRM or going concern value when the occupancy is atypical and cannot be assumed to proceed after a sale. Why would an appraiser working toward the actions of the typical buyer for that property use a different mode of analysis than they're using?

Same in reverse: just because a few SFR buyers might convert to SRO occupancy wouldn't prompt the lenders to require a rental survey + income/expense analysis for all SFR assignments. It's still not what most buyers for that property would do.

Besides, most of these SFRs occupied by roommates are sold as vacant unless there is an actual business like a board and care operation or a frat house. That means the seller times their occupancy so it runs out before the sale.

 

[Mark K]

It's still not what most buyers for that property would do.

If, as the OP states, that the value as a rooming house is "way more" than that of an O-O SFR, why is it unreasonable to consider that the HBU, hence a lot of buyers, are looking at it and others in the area as income properties? With the shortage of living space in many areas of the country, these may be more popular and the way of the future for some economic cohorts.

 

[George Hatch]

You have a different level of exposure to non-SFR properties than most CRs.

I mean no offense to anyone but I strongly doubt the majority of SFR appraisers actually know how to value as an SRO. The income attributable to the real property interests is not the aggregate of the rents.

 

[alebrewer]

I get that the zoning laws in CA are different than most of the rest of the US, but for most of the US, boarding/rooming houses are not allowed in Residentially zoned areas. The reasons for this are fairly obvious, but include density, parking demand, turnover, neighborhood continuity. Hence the observation that the legality of the use may provide meaningful insight into the H&B use.

 

[George Hatch]

HBU is also commonly demonstrated by the actions of the market participants. Which in theory is what we're looking for when appraising to market value. If similar properties are selling but none of them have this type of occupancy then that's a thing.

 

[J Grant]

I have a property located in Baltimore that is a SFR, but the owner rents each bedroom separately, with a common LDK on the first level and a common bath on the 2nd. There are long term renters with verifiable contracts. It's worth way more as an investment, but remove the bedroom locks and it's just a SFR. It's a private sale but will eventually require a bank loan, and I don't want to leave the buyers in the lurch.

You answered your own question. It's a SFR. Take the locks off the bedroom doors, and it is like any other SFR. Could you help me understand why a buyer would pay more for the subject, than any other similar SFR? All the buyer needs to do after they purchase a similar SF, is put locks on bedroom doors and advertise for tenants as soon as they own it.

What you describe is value in use - when people ignore local zoning and modify their property for a grey area use to bring in extra $.

 

[J Grant]

Is a Toyota Camry that the owner uses to make $ driving for UBER, more valuable when it goes up for sale, than any other similar Toyota Camry? (no, unless the buyer is an idiot)

Using the Toyota for UBER did not turn a car into a commercial licensed taxi.