Appraise as SFR or MF?

[George Hatch]

People rent out rooms in their homes all the time and it does not make it an MFU or a hotel. Just like a STR if you want to use the income to value it it would need to be based on market rents for the home, not the rooms for 6 month minimum. What does the City say as to the zoning and legal use?

Pay attention to what the man said. When these properties do sell they usually sell as vacant. If there is a business interest onsite that sells that conveys as a separate transaction, same as a liquor store or a stop-n-rob or a restaurant.

The lender never gets the weed if they foreclose on a cannabis operation.

 

[CCAAMO]

I agree. its a SFR. My comment on the income related to if he wanted to include the income approach, he can not use short term rents to complete it

 

[Zoe]

You can probably just use contract rents on the rent schedule and put in actual expenses from the income/expense statements the owner gives you. You probably don't need rent comps and do income cap approach. It will be hard for you to develop a GRM because you will have a hard time finding rent comparables that are designed that way. If it was subsidized housing somehow, you might could find a rent comparable.

I think you said the leases were 6 month + leases. You could direct cap the proforma income expense statement and do income cap approach but I think your lender will be happy if you use single family sales and include the rent schedule showing contract rents and expenses. They probably may need the rent schedule showing income expenses just to see if the subject is generating a profit.

 

[Zoe]

It needs to be legal use per code. I am sure they have to file income with IRS on it.

 

[Overimprovement]

Single room occupancy operations and hospitality rentals and board/care operations all make use of the realty but those operations also include a significant management and non-realty component as well. Assets which a mortgage lender will usually not get back if the loan fails and they foreclose.

Bingo. OP is hinting at enterprise value, not real estate value.

 

[Mark K]

Since there are current leases on the subject with accompanying tenants rights, I don’t see how you could appraise this as anything but an income property without using an extraordinary assumption or hypothetical condition.

 

[JTip]

There are long term renters with verifiable contracts. It's worth way more as an investment

HBU analysis. It's legal at its current use, makes the most money/value, etc, etc.

If the city requires permits and inspections, this is NOT the only property being used like this.

 

[JTip]

OTOH, you could just ignore the tenants, the permits and income, and appraise as an owner-occupied single-family dwelling so the owner can get a nice rate at his local bank.

That's what I wouldn't do.

 

[George Hatch]

Since there are current leases on the subject with accompanying tenants rights, I don’t see how you could appraise this as anything but an income property without using an extraordinary assumption or hypothetical condition.

1yr residential rental agreements generally don't create a leased fee interest as such whether it's a single tenant or multiple tenants. Even if those rental agreements started as of the date of the appraisal. More of an impediment to marketability. Unless the typical buyer will continue to operate as such.

Single room occupancy or a single family occupancy, the same limitations will apply. Tenant occupied SFR usually doesn't prompt for an expectation that the only comps for that property will be rented.

 

[Zoe]

The owner is probably already having to give tax returns to get the loan. The income/expense statements they use to file taxes need to match whatever they give the bank and appraiser.