Form 1007

[Wm. Hattaway]

I have received a request from a lender asking for a 1007 rent schedule for a property in a development near Walt Disney World. The neighborhood is attached SFR set up for short term (weekly) rentals. Does form 1007 lend itself to this application?

 

[Abester]

What do you think?

 

[444nutman]

I have received a request from a lender asking for a 1007 rent schedule for a property in a development near Walt Disney World. The neighborhood is attached SFR set up for short term (weekly) rentals. Does form 1007 lend itself to this application?

Did you do the prior inspection or are they asking you just for the 1007 on a property you have not inspected? The second thing if you are in Davenport and the lender wants you to prorate the weekly rental rate to a monthly rental rate do not do that because it is misleading. Those houses are vacant 20%-60% of the year depending on which management company you talk and how honest they are. You also have management fees, and higher maintenance fees for housekeeping and what not. The time you take vacancies and upkeep fees out of the prorated monthly fee you end up around what the MLS monthly rentals are being rented. I had to beat a lender over the head with facts with prorated weekly vs. a typical monthly rental.

 

[Wm. Hattaway]

No inspection has been done. It is currently a request for a 1004 appraisal with the additional form 1007 rent schedule to also be completed in a development of short term rentals. When I explained to the lender the nature of short term rentals and why this type of rentals could be misleading on the 1007 form he replied that other appraisers had used this same form for these same types of rentals and extrapolated the information into monthly rentals. As this raised a red flag in my mind I decided to pose the question to the forum.

 

[Mztk1]

Too much work unless they are paying you $300+. You have to get the yearly income of your comps. That is difficult. I've tried up there in Davenport with those houses as well. 55% vacancy was the reply back than, and the management was, if I recall, 42% of the net if furnished. Plus, the last time I did one in the World, the weekly rental rate was $3,000 for the Brits and Americans and $5,000 for the Asians. Asked why, and the management company said the Asians are willing to pay more and we advertise higher rates in their countries. So then I needed the percent of Brits vs Asians in the last yearly rent cycle. I am doing it off the top of my head, but I think it was like 75% Amer/Brits, and 25% Asians. That made my yearly potential gross income $182,000.

The trouble is, the 1007 is to estimate potential gross income, but the PGI of $15,167 per month is quite misleading without filling out the operating income statement. Based on the numbers, the EGI is $6,825 and the NOI is some number below $3,960 per month (that doesn't count typical expenses).

Any 1007 report I'd do in that area would comment on the maximum effective income for vacation rentals in the area in the comments section of the 1007 report. You don't want to give the impression that a house with less than $48,000 of yearly income, not taking into account typical expenses, has a market rent of $182,000 per year.

 

[Wm. Hattaway]

"Any 1007 report I'd do in that area would comment on the maximum effective income for vacation rentals in the area in the comments section of the 1007 report. You don't want to give the impression that a house with less than $48,000 of yearly income, not taking into account typical expenses, has a market rent of $182,000 per year."[/QUOTE]

Good point. This is why I felt the 1007 would be misleading on its own as the request as sent to me did not ask for an operating expense form along with the 1004 and 1007.

 

[Scott FL]

"other appraisers had used this same form for these same types of rentals and extrapolated the information into monthly rentals"

A report prepared to reflect weekly rental income as monthly rental income could be used by the broker to submit a loan application to a lender that would in turn rely on that monthly rental income to qualify the borrower for the loan.

Fannie and Freddie do not purchase loans that rely on weekly rental income as a basis for borrower qualification.

Other institutions may not care about weekly rental income. Certs 10, 13, 15, 23 and 25 may warrant enhanced consideration during report development.

 

[Couch Potato]

It is my opinion that using form 1007 and "monthly" rates on such a property results in a misleading report. It does not accurately describe the rent received. It gives the mistaken impression that rents are consistent over the year and it does not properly describe the vacancy rate.

"Other appraisers" do many things. Many "other appraisers" fail to accurately describe the property as a short-term rental in a resort. "Other appraisers" fail to note in their report that such properties are not acceptable to FNMA. "Other appraisers" give the impression the property is a typical "second home" even when it is strictly an investment property. The foreclosure rate is very high in short-term rental neighborhoods. Be very, very careful.

 

[Michael Tipton]

It sounds too much like a condo hotel. The fee offered isn't worth the potential liability. Pass it on to a Certified General.

 

[Couch Potato]

It sounds too much like a condo hotel. The fee offered isn't worth the potential liability. Pass it on to a Certified General.

Unlike a condo hotel, it is a single unit residential property. Yes, it is very similar and does function as a "one unit hotel." The major difference is that it can also function as a typical single family residence. In fact, many older short-term rental neighborhoods transform into typical SFR occupancy as they become less competitive as rentals due to age. By contrast a condo hotel can only be refurbished to compete with newer properties, it's not useful for full-time residents (except maybe an assisted living center?)