Barndominium receiving above market rent from VRBO

[alebrewer]

Thanks for the read, the lender can decide on whether or not to use the income as business or rental, but the 1007 has to reflect monthly market rents. If the lender wants an operating income form would you advise using current or market rents then?

LTR market rents for consistency purposes.

 

[Xavier Hargrove]

Agree. That is why in my first response, I told the OP that if they are appraising it as a going concern, the typically motivated buyer is an investor/absentee owner running it as an air bnb

For res purpose loans, the STR income is not allowed, thus the model for the typical buyer changes - for valuation purposes.

I have appraised a number of properties where the proud owner tells me how much they get per night or week from airnb and I tell them right there we an not use those figures and have to use annual ormonth to month long term leases - so there wont' be a nasty surprise later.

Flipping the script here just cause I am curious, as a going concern value can a certified residential appraiser complete this, or is this a more general appraisal license?

 

[J Grant]

Fully agreed. Which is why the typically motivated buyer may be looking at LTR as the most profitable model, or LTR - all depending on the market.

Here is my opinion on the topic: having appraised a number of properties in this scenario - the actual buyers of certain properties might buy them for STR, and that gets baked into the prices, and thus, the SCA is relied on. That said, for the rental portion, the lender wants only LTR,so the rental income might read differently as support for a value opinion.

PS the GRM is a joke, it just circles back to sale price so IMO is practically worthless. The lenders used to ask for an income and expense statement, and that would indicate a negative loss, gain, or break even, which tells the story better - maybe that is why they dropped it. I rarely get asked for an income and expense form in income property appraisals now

 

[J Grant]

Flipping the script here just cause I am curious, as a going concern value can a certified residential appraiser complete this, or is this a more general appraisal license?

No, a cert general should complete it.

 

[J Grant]

Thanks for the read, the lender can decide on whether or not to use the income as business or rental, but the 1007 has to reflect monthly market rents. If the lender wants an operating income form would you advise using current or market rents then?

Are you using a 1007 form, or a 1004 or 1073 form form? The fannie STR rule applies to all.

 

[alebrewer]

PS the GRM is a joke, it just circles back to sale price so IMO is practically worthless.

Not if the GRM is derived from market analysis... The IA is actually, IMO, one of the two valid approaches to value.

The lenders used to ask for an income and expense statement, and that would indicate a negative loss, gain, or break even, which tells the story better - maybe that is why they dropped it. I rarely get asked for an income and expense form in income property appraisals now

We were never required to develop the 216 - that became a lender overlay at some point. Shouldn't even be filled out by appraisers, as they don't have actual expense information. Most of the 216's I've done actually show a net negative NOI.

 

[J Grant]

Not if the GRM is derived from market analysis... The IA is actually, IMO, one of the two valid approaches to value.


We were never required to develop the 216 - that became a lender overlay at some point. Shouldn't even be filled out by appraisers, as they don't have actual expense information. Most of the 216's I've done actually show a net negative NOI.

I personally believe a negative NOI is the reason that the lenders scrapped the 216 - they were killing too many deals. While rents have risen the prices of products and insurance has risen so steeply that a lot of them do not make sense as a purchase when the 216 reveals the truth

The appraiser could make a pretty good estimate of expenses, and there was a column for the UW to add their version of expenses anyway.

My problem with the GRM is that even if the rents are accurate ( it is often hard to find actual rents ) and one analyzes them, if the stale price is divided by the rents for the GRM - what happens when sale prices are inflated? It seems to me a closed loop circling back on itself.

 

[Terrel L. Shields]

And if rented as FURNISHED... then you are valuing a small hotel...not a house. Part of the RENT from VRBO is due to the furnishings. Part of the RENT is spent on the clean up after the occupant leaves. Part of the RENT is paid to VRBO. Part of the RENT is spent on management. Part of the RENT is spent for utilities.

So, to use a VBRO income legitimately, you must build a Net Operating Income statement. Then do the same for comparables and calculate the direct capitalization rate. You do not use GIM's.

Do the cost approach (it's new.) Do the sales approach. Consider if there is an additional DEDUCTION for functional obsolescence - for being a super-adequacy. Actually, here where I work we do have a few such buildings that are 4,000 SF or more. And several that are about 50/50 shop and house, that might be closer to 6,000 SF.

 

[J Grant]

And if rented as FURNISHED... then you are valuing a small hotel...not a house. Part of the RENT from VRBO is due to the furnishings. Part of the RENT is spent on the clean up after the occupant leaves. Part of the RENT is paid to VRBO. Part of the RENT is spent on management. Part of the RENT is spent for utilities.

So, to use a VBRO income legitimately, you must build a Net Operating Income statement. Then do the same for comparables and calculate the direct capitalization rate. You do not use GIM's.

Do the cost approach (it's new.) Do the sales approach. Consider if there is an additional DEDUCTION for functional obsolescence - for being a super-adequacy. Actually, here where I work we do have a few such buildings that are 4,000 SF or more. And several that are about 50/50 shop and house, that might be closer to 6,000 SF.

That's great advice if appraising it as a going concern.

For a residential loan, the appraiser is not allowed to use the VRO income, hard stop. It sounds like the OP is dealing with a residential purpose loan assignment.

 

[Terrel L. Shields]

It sounds like the OP is dealing with a residential purpose loan assignment.

Or a commercial property trying to get a residential loan rate?