Added Value of a Rented Coach House to a Single-Family Home?

[Mariociri]

I am selling a single-family home that includes with it a fully equipped coach home. It has separate utilities and a distinct address. It pays a very sizable rent and is a major motivating feature for all buyers. I read that a combined income and sales approach is acceptable when the subject property consists of the primary living unit and an income-producing ADU where income is a factor in the buyer’s decision-making process. My untrained approach as a RE agent would be to value the main home alone and add a coach home value based upon a Cap Rate calculation of the coach house value for the current rent.

Any thoughts on valuation?

 

[Elliott]

Thoughts? What are other similar properties in your market selling for with a similar configuration?

 

[Terrel L. Shields]

I read that a combined income and sales approach is acceptable when the subject property consists of the primary living unit and an income-producing ADU where income is a factor in the buyer’s decision-making process. My untrained approach as a RE agent would be to value the main home alone and add a coach home value based upon a Cap Rate calculation of the coach house value for the current rent.

No. They don't have to do that. Mixing cap rates might work, but really is just a guess.

As for combining income or cost to the sales, it can be used as an adjustment, but in any secondary market appraisal, I suspect the underwriters want to see similar houses with coach houses (ADU- accessory dwelling units.)

First you search for houses with ADUs. The buyer of a house with an ADU is likely seeking an ADU. The buyer for a simply SFR is not interested in becoming a landlord. So you have a distinct smaller market to appeal to - limited market appeal often means increases days on market. Each comp with an ADU needs analyzed and yes, if you can get the income info, you can make an income related adjustment. But the other factors need to support that same conclusion.

In a non-conforming conventional loan, this would be an easy task. But in conforming secondary market loans, the underwriting can be murder. You have to have good sales support or expect endless "stips" wanting more info.

 

[Mariociri]

No. They don't have to do that. Mixing cap rates might work, but really is just a guess.

As for combining income or cost to the sales, it can be used as an adjustment, but in any secondary market appraisal, I suspect the underwriters want to see similar houses with coach houses (ADU- accessory dwelling units.)

First you search for houses with ADUs. The buyer of a house with an ADU is likely seeking an ADU. The buyer for a simply SFR is not interested in becoming a landlord. So you have a distinct smaller market to appeal to - limited market appeal often means increases days on market. Each comp with an ADU needs analyzed and yes, if you can get the income info, you can make an income related adjustment. But the other factors need to support that same conclusion.

In a non-conforming conventional loan, this would be an easy task. But in conforming secondary market loans, the underwriting can be murder. You have to have good sales support or expect endless "stips" wanting more info.

Thank you. I wish there were other coach homes. There are some, but none that can legally be rented as this one can. To a buyer, it's a big deal. The coach home currently pays half the mortgage. I think it's a challenging assignment.

 

[Mariociri]

Thoughts? What are other similar properties in your market selling for with a similar configuration?

Not one comp with a rentable coach home in the same town. (A wealthy community with most homes over $1m).

 

[George Hatch]

What we're looking for are the reactions of the buyers and sellers in the market. For 1-4 residential we use a gross rent multiplier (which is a factor). We don't use overall capitalization rates because none of those buyers or sellers understand them or use them.

For 2-unit properties and often even for 3-unit properties, an income approach usually won't be given a lot of weight in the value reconciliation. Most weight will still usually be given to the sales comparison.

If you're a buyer or seller of a property with 2 rentable units then such will be the most comparable sales. An appraiser might have to expand their geographic radius or look at historical sales to develop an adjustment factor for the additional rents and then apply a location adjustment or a market conditions adjustment.

If there any such properties in existence in this town then you can look at their respective sales histories to see how the markets have reacted to them in the past, and then bring that rate forward for use with the current sales.

 

[shrubberyvaluation]

I am selling a single-family home that includes with it a fully equipped coach home. It has separate utilities and a distinct address. It pays a very sizable rent and is a major motivating feature for all buyers. I read that a combined income and sales approach is acceptable when the subject property consists of the primary living unit and an income-producing ADU where income is a factor in the buyer’s decision-making process. My untrained approach as a RE agent would be to value the main home alone and add a coach home value based upon a Cap Rate calculation of the coach house value for the current rent.

Any thoughts on valuation?

Can it be sold seperatly?

 

[Mariociri]

Unfortunately, it cannot. (But if it could, I would use a Cap Rate or GRM to determine value, which in my mind, would more realistically value the place).

 

[George Hatch]

The GRM would apply to the entire property's potential income, and the only way to come up with a market-based GRM is to have sales with such rents. Which if you have the sales then you don't really need the GRM.

What we don't do is hypothesize a GRM out of thin air or cite some broker survey involving properties outside of the subject's market segment as if those other GRMs are universally applicable. The GRM that goes with a 2-unit is often very different than the one that goes with the 4-unit located next door.

 

[Dublin ohio]

I would use a Cap Rate or GRM to determine value, which in my mind, would more realistically value the place

You have already stated that ADUs that can be rented are very rare in your area. Since developing a cap rate or GRM typically requires market data on similar properties. What data would you use?