Airbnb Income

[George Hatch]

Obviously there's nothing wrong with them asking a question or you answering that question. And as you say, there probably is a mix of part time owner-occupancy in with the rental business. I guess what I'm trying to say is that you can burn a lot of brain cells trying to suss out the details on all of the comparables, only to find that they're still usually selling based on sales comparison rather than income. I've seen market segments out in the desert where they show two listing prices, one for "as furnished" and the other for "as vacant".

Here's the thing about the income approach - if you can't find enough relevant and reliable income data to work with in a market segment then it's highly likely that most of the buyers and sellers and even the agents in these deals will be equally unable to, also. Which will usually lead to them making their decisions based on the info they can find: namely the sales comparison data.

Now with all that said, the central premise still holds - all RE is local. That makes these various possibilities to analyze and consider rather than assumptions to make.

 

[Elliott]

When I get a request for a 1007 with a property that is used as a short term vacation rental, I tell the lender that it is not a monthly rental, which was the original intent of the form. I give them a thumnail how I'm going to treat them, which is similar to CAN, a blended nightly rate x 365 x occupancy rate = gross rent. Then, gross rent - management and operational expenses (which are significant) = net rent. Net rent is dvided by 12 = Equivalent monthly rent, which is used for the 1007. Also, the equivalent monthly rent can be compared with other traditional monthly rentals. I've never had a lender come unglued about the process, but I always tell them upfront what the analysis is going to look like. The big gross rent figure gets whittled down to more realistic monthly equivalent.

Airbnb, Vacasa, etc., have disrupted dozens of neighborhoods turning locals against investors. Sadly local governments see vacation rentals as a revenue source they can tax. Fannie and others don't seem to care about the commercial aspect of a residential loan program being used to finance mini-motels. Its been disappointing to see how easily local government roll over when they see a few bucks and don't support residential zoning ordinances.

 

[CANative]

Obviously there's nothing wrong with them asking a question or you answering that question. And as you say, there probably is a mix of part time owner-occupancy in with the rental business. I guess what I'm trying to say is that you can burn a lot of brain cells trying to suss out the details on all of the comparables, only to find that they're still usually selling based on sales comparison rather than income. I've seen market segments out in the desert where they show two listing prices, one for "as furnished" and the other for "as vacant".

Here's the thing about the income approach - if you can't find enough relevant and reliable income data to work with in a market segment then it's highly likely that most of the buyers and sellers and even the agents in these deals will be equally unable to, also. Which will usually lead to them making their decisions based on the info they can find: namely the sales comparison data.

Now with all that said, the central premise still holds - all RE is local. That makes these various possibilities to analyze and consider rather than assumptions to make.

Not sure if you're talking to me George, but this is not designed to be part of an attempt at an income approach. No one is going to buy a million dollar house for it $30k in rental income. Besides, there's no figuring operating expenses and such because the information and amounts are so wildly different and based on how much then rent and their particular terms - linen, towels, cleaning, etc., etc.

From the same report:

"Income Approach: While many properties in The Sea Ranch are registered in the vacation rental programs the occupancy rates, daily rental rates and net income is so inconsistent that a GRM or cap rate cannot be developed with any reasonable reliability. The income approach was not necessary for the intended use of this appraisal."

They want these things because the homes are not the primary residence for their borrower AND it is rented. This client stalked me for almost a month before I agreed and under specific terms.

As to burning brain cells, It was an easy house to measure, located in the meadow areas near the highway so there were plenty of comps and I got my usual $595 plus and extra $250 for the vacay rental opinion.

 

[William Little]

I occasionally struggle with the short term rental problem. Getting sufficient income and expense data from homeowners that manage their own property is not likely. When homeowners or property managers do provide data I don't usually have good faith in it. Expenses typically appear underestimated and there is frequently a big hole where you should be finding "replacement reserves".
The easy solution is not to do the assignment unless the borrower or realtor tells you that the intended use is owner occupancy, and you can make a good case for HBU as such. Every property can be appraised; short term rentals are about as complex a residential property appraisal assignment as I can imagine. They should be done, and done properly. Thank you all for your posts on this topic.

 

[CANative]

I usually complete the simple simon OIS form to get a ballpark on reserves. Management expenses are based on a survey of those properties under local vacation property managers and I use that figure whether or not they are self-managed, locally managed or using a national or franchised booking system. I'm "harsh" on the replacement items such as appliances and interior components such as floor coverings, kitchen items, etc. which I see as akin to rental cars and trucks. "It's not my house, so crank up the heat and burn the pans on the Wolff range." lol

I don't think they want the income to see if they can rent the property for income between default and resale. I think they want a picture of net income to qualify for the loan product.

It's a matter of "what else can be done" and is nothing like rent analysis in urban/suburban markets. And I make sure the reader understands this. I report/they decide.

 

[sputnam]

In resort areas most imcome properties are AirBNB or VRBO... how to count this as rental income for single family rent comprable if you only have 3 months of income statement?

Most resort areas experience seasonal variations in monthly income. Rental properties at the beaches here often are fully rented (at higher rates) during the summer and have zero income during winter months. One way to handle it is to use monthly average based on annual income. So what if you only have 3 months of income info for the subject? It's market income that matters. Use comparable rents/income.