Appraising In An Airbnb World

[Terrel L. Shields]

part is that FNMA now allows the income form AIrBnB rentals as income to qualify for loans. Is that 25% printed in the Selling Guide

I think that may be a VA rule.

But to date there is no category for an "airbnb property" category. There are single family homes or condos that the owners choose to rent out, either by the room or by the entire property. B n B

An airbnb is a B & B. Why would FNMA qualify it differently? Because Fannie likes to speak out both sides of their mouth? Well, I donno, but I would at a minimum inform the client, demand a WRITTEN instruction explicitly telling me it is a B & B and to go ahead. But OTOH when we had this discussion years ago, someone piped up and told about a CR who got pinched by the state for doing a "commercial" B & B appraisal.

 

[J Grant]

https://www.bedandbreakfast.com/inf...d-and-breakfast/turn-your-home-into-a-b-and-b

I don't have time to research all the nuances, but there are some differences...a Bnb might have a check in desk, a sign out front etc. Bnb predates airbnb and in some properties the line may be blurred. But essentially, a SFR or condo used for airbnb purposes would be no different in its layout or structure than other similar SFR or condos.

Which means in our new era of equal opportunity gig BS, all of us own a taxi proxy if we want to use our car for UBER ride sharing and all of us own a proxy of a BnB if we want to have strangers renting rooms via airnb and serve them breakfast.

 

[Terrel L. Shields]

a Bnb might have a check in desk,

I have stayed in B and B's and I have yet to see any such thing. It is just a house. Usually the house was not even designed as a B & B. In the mountains you might find them called a lodge and built as a B n B. My cousin had just such a lodge with 5 guest rooms for his clients. He was one of the first licensed outfitters in Colorado. His fishing clients were taken to some of the finest streams in the San Juan's. His hunting clients were packed up the W. Dolores River. Of course, it was part of the guide and outfitting service and cost several hundred per day. All I've stayed at give the owner a check or now they take credit cards either over the phone when you call or zip it thru those card readers you plug into your phone.

So while they vary from small cabins hosting several different groups or people to simple rooms in a house with a single tenant, all are commercial by their very nature. It would help if the GSEs and FHA would clarify how they saw them instead another mealy-mouth, ill-defined proclamation from upon high.

 

[J Grant]

An airbnb is a B & B. Why would FNMA qualify it differently?

FNMA is allowing airbnb to qualify for borrower income, they are not "qualifying properties" as airnb. They are saying that if a person owns a residential property and uses it in whole or part to rent for airbnb, they will allow the airbnb income to qualify the borrower for a mortgage .

It has nothing to do with the property, the property is assumed to be residential...unless the property has been changed or modified interior such as a bunch of bedrooms carved out from former family/dining rooms, then it affects the property itself and appraiser should inform lender.

But if a property has the same configuration as other properties of its type in area, the fact that an owner is renting it for airbnb does not impact the property itself. If renting for airbnb is lucrative in an area it might affect who the typically motivated buyer is, and identifying that would be part of the SOW. ...if so, it would be baked into the prices of the properties.

 

[Overimprovement]

Boarding houses and bed and breakfast properties are not primarily residential in nature and therefore are not eligible.

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Again, show me something from Fannie that says someone renting out a bedroom in their home automatically classifies that property as a boarding house. I think we agree that with no food being served, that the B&B at least is out of the discussion right?

I would also argue that an AirBnB dwelling that the owner resides in IS still primarily residential in nature. Renting a home out does not make it commercial. If I convert a home to 5 units, that changes the dynamic, but that is not the issue here.

I'm sorry, but you cannot tell me that if I rent out a room in my house that all of a sudden Fannie will consider my home commercial. Are they going to call any existing loan on the home as well?

AirBnB rentals can STOP at any time, and the dwelling simply reverts back to a SFR as always.

I think unless Fannie has posted clear guidelines (maybe they have, if so, please post) defining AirBnB type rentals as a boarding house, then I just don't think what you quoted applies.

 

[Mark K]

This whole Air BNB model is a gray area that a lot of cities are trying to comes to grip with as far as ordinances including innkeeper taxes, licensing, zoning, etc.

The State of IN recently passed a law that essentially says that local communities cannot outright prohibit owners from participating in AirBnB or other similar enterprises.

IMO, it would fall back on how much of the home is being used for that purpose. Renting one room is one thing but the subject of the OP sounds like it is more of a rooming house. If it now has five bedrooms up and two in the basement, all being rented, I think this exceeds the idea behind the Air BNB model and pushes it into a commercial use. If it walks like a duck....

 

[Terrel L. Shields]

AirBnB rentals can STOP at any time, and the dwelling simply reverts back to a SFR as always.

So do many B & B's. Often they are only a B & B to get tax credits for expenses related to the B & B and be treated as commercial property. So decide for yourself, better yet ask the intended user (FHA, VA, Fannie/Freddy, In house) which all won't matter if the state board decides they are commercial. So decide for yourself...if you get hammered, don't come back whining. As for airbnb, I am not letting strangers live in my house period. Are you going to address the myriad of legal and insurance issues brought up? You had better.

https://realestate.usnews.com/real-estate/articles/what-airbnb-means-for-your-mortgage

And if the lender now considered the home to be an investment property, it could mean a less favorable interest rate following its refinance. That's because mortgages for investment properties are generally priced higher than mortgages on primary residences.​

https://themortgagereports.com/23502/can-airbnb-wreck-your-refinance-mortgage

Check the local rules for virtually all jurisdictions, and you will find laws on the books which prohibit unlicensed short-term rentals or leases of fewer than 30 days.

These laws are largely unenforced, but that is changing. According to the New York Post, on October 21, 2016, New York Governor Cuomo signed a bill that would impose fines of up to $7,500 against hosts who posted short-term rentals. A California couple who had already paid $2,081 for their room found themselves with nowhere to stay when another resident reported their host to the authorities.​

Third, is the property a residence? Mortgage lenders generally are in the business of financing homes with one-to-four units, and the best refinance rates go to those being used as primary residences.

New York state found that six percent of the units it studied captured almost 40 percent of the private short-term rental income.

In other words, some properties did a lot of short term rentals, a volume which will make lenders wonder whether the property is a comfy residence or an unlicensed hotel.

It’s not just lenders who will have such questions. The property will have to be appraised and that’s where problems are likely to arise.
You do know who Frank is, right?
Francois (Frank) K. Gregoire, an appraiser based in St. Petersburg and a nationally-recognized valuation authority, notes that “a room rental situation, depending on the number of rooms, may shift the use of the property from single or multifamily to a business use, such as a hotel or rooming house.

“If there are more than four units, the property is outside the one to four units certified residential appraisers are permitted to appraise, and outside the one to four unit limitation for loan purchase by Fannie and Freddie.”​

https://airhostsforum.com/t/do-mortgage-lenders-mind-you-airbnb-ing/21039

Can you say "Insurance"?

We are right in the middle of this and it seems that the underwriters are having trouble understanding the theory behind AirBnB. They are thinking we are a full on Bed and breakfast. We’ll know more tonight. Supposed to close on our refinance tonight. If for some reason it does not go through, I can only see that this will be a pretty big deal for the AirBnB business. Not being able to refinance for any reason just because you host for AirBnB. Not good.
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https://www.forbes.com/sites/alyyal...w-before-hosting-as-a-homeowner/#afc71625e6e8

Fortunately, it’s not likely that Airbnb hosting can put a homeowner in breach of their current mortgage contract. At least, “not that I’ve seen,” said Peter Klose, an attorney at Klose & Associates. Klose’s firm specializes in business, real estate and insurance law, and Klose himself has covered Airbnb legal issues on his blog.

Still, that doesn’t mean there aren’t potential legal ramifications to think about. With many cities pushing back against Airbnb and other short-term rental platforms, as well as potential violations of homeowner association policies or even a homeowner’s insurance agency, there are many ways hosting could equal liability.
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https://www.housingwire.com/articles/43878-airbnb-utilizing-real-estate-market-to-bypass-regulations

Many apartment landlords struggle against Airbnb, which they say encourages tenants to break their lease through subletting, creating unsafe conditions for other tenants.
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[Overimprovement]

Terrel--I've been in several B&B's in my life. It was immediately apparent to me when I walked in, and from the outside, that a dwelling was being used as such. I have also been in a couple homes people have rented out. No such indication.

Please stop mentioning B&B's. Every one I have ever been in served meals. Not the case here.

I have been focusing more on the concept of AirBnB in general, not as much the specific scenario in OP. Boarding houses are longer term (months) in nature, B&Bs serve food, and are much closer to a hotel than a house. A weekly rental of a room or entire house is neither of those. Now since OP stated there are 5 or more people potentially staying, that could muddy the waters, but that is really more of a zoning and local statute thing than a market value question, IMHO.

If I inspect a home, and see 5 people sleeping in 5 bedrooms, at what point does their familial relationship or lack thereof affect the actual market value of the home? Only if there are financing constraints, and no one has yet demonstrated that Fannie would NOT finance that home.

 

[Terrel L. Shields]

What do you think the BnB stands for in airbnb? The name is intended to imply equivalence be it leased for the weekend or a month. The local resort manages short term rentals of condos. That biz collapsed when the golf course closed. No breakfast, not B & B. They wanted you to eat at the restaurant but you could cook there. Most residents now are permanent and as rentals rent via airbnb or similar rather than thru the resort. Time share without obligation...whatever.

These rentals are as varied as any other one. You can get a continental breakfast in any Super 8. Or, use the microwave and fridge. Can't do that at the Hilton and it cost 3x a Super 8. Read the links I posted. They argue both ways. If I rent my farm for 1 week or a year, I still have to declare that income on a schedule F.

 

[Overimprovement]

What do you think the BnB stands for in airbnb?

It doesn't really matter what the name stands for. Each property is its own unique assignment. What does the 'air' stand for?

If someone does have a house that they are converting to a quasi-bNb, complete with modifications to the home and serving complete meals, then sure, that changes the discussion a little. But again in this case, those things have not occurred.

Again, the sniff test--if a typical Fannie underwriter walks in to a building, they are going to think--home, boarding house, or bed and breakfast. Whether the home is rented will not change their initial impression, and that is partly what appraising is about. The impressions of others and the value they put on those impressions.