Income Approach?

[CVal]

Hello,

I have a single family property with a remaining lease term of about 21 months. According to FNMA, an income approach should be included if needed to produce credible assignment results. The income approach would be tough to pull off. I have rental data, but no vacancy or grm data. I'd probably have to search 2-4 family property, and go to neighboring towns. I'm wondering what most are doing. I'm leaning towards not including it, but my mind is stuck on including one just because it is leased.

Thanks in advance for your thoughts.

 

[J Grant]

Rather than do an income approach to value, perhaps instead provide in report an income and expense statement, that shows subject returns cash flow or at least breaks even during term rented , making it viable to hold for that time period .

 

[Addie]

Make sure you use a hypothetical condition that the owner has fee simple interest. As of now (as-is) the owner has leased fee interest. So you would be lying if you say the owner has fee simple as-is. Or you can do as-is and state leased fee and figure out the discount for that bundle of rights if your client would rather know the true value as-is and not a hypothetical value fee simple would be.

 

[bnmappraisal]

an income approach should be included if needed to produce credible assignment results

(my bold) ... key word is "IF"

I think that's the question you need to answer. IF it is NOT needed/necessary ... IF it IS ...

I wouldn't be looking at 2-4 unit properties, as this is not the same type buyer/renter, etc

 

[Meandering]

Make sure you use a hypothetical condition that the owner has fee simple interest. As of now (as-is) the owner has leased fee interest. So you would be lying if you say the owner has fee simple as-is. Or you can do as-is and state leased fee and figure out the discount for that bundle of rights if your client would rather know the true value as-is and not a hypothetical value fee simple would be.

Depends on the wording in the lease. Here, the RE leases from an agent have a must vacate upon sale clause. So while no a full fee simple estate, a sale can be completed as fee simple prior to the expiration of the lease, because the lease becomes invalid upon sale. But, that is also predicated on proper notices in writing and any local over riding laws.

Vacancy can be judged by DOM plus a few days for painting and repairs on annual leases.

Holding costs including insurance and taxes may or may not impact value, depending on similar considerations of comparable sales of investment properties. It is something that should be compared amongst and against the comps to determine the ratios acceptable to local investors.

.

 

[Pittsburgh Pete]

Conceivably leased fee value and fee simple value may be identical. Bottom line is whether the lease is at market, above market, or below market. If no rents are available survey some real estate agents to try to determine market rent and its reasonableness. May end up being somewhat arbitrary but 21 months could impact value.

 

[George Hatch]

It's almost a guarantee that if you don't include a rent survey and 2016 that some clerk will stip you on it after the fact, if only to show they were there.

I wouldn't bother with seeking out SFR GRMs, except to project them for the comps based on their respective market rents and in support of the more readily available rates from 2-3 unit properties.

The bigger wrinkle with this one might be marketability. Value notwithstanding, how marketable is an SFR in this area that's tenant occupied for another 2 years? If there's a discount to apply it will more likely come from that than from whatever lost rents might be attributable to a below market rent that only has 21 more months.

 

[J Grant]

Hello,

I have a single family property with a remaining lease term of about 21 months. According to FNMA, an income approach should be included if needed to produce credible assignment results. The income approach would be tough to pull off. I have rental data, but no vacancy or grm data. I'd probably have to search 2-4 family property, and go to neighboring towns. I'm wondering what most are doing. I'm leaning towards not including it, but my mind is stuck on including one just because it is leased.

Thanks in advance for your thoughts.

Imo 2-4 income properties are not comparable to SFR. Assuming it is a MV purpose appraisal, who is likely buyer for subject? '''

A) An owner looking for occupancy but willing to wait 21 months for it? Perhaps then income approach not needed for credible results, the buyer wants to occupy, they may or may not expect a discount for waiting 21 months and that might be determined by an income and expense statement...are they making money, losing money, or breaking even for the 21 month wait period ?

Or B) a buyer looking to acquire the subject as a SFR rental to keep leasing out ? If this is the typically motivated buyer identified , then imo income approach could be needed for credible results as it is essentially an investment property.. I don't know who your client is or if this is a refinance or purchase but I will tell you that for SFR, lending and fannie even if the subject is rented and thus an investment property, clients only ask for an income expense statement and rental survey to see what market rents are, they don't ask for an income approach to the property.

 

[Jerry Bone Jr]

Hello,
I have a single family property with a remaining lease term of about 21 months. According to FNMA, an income approach should be included if needed to produce credible assignment results. The income approach would be tough to pull off. I have rental data, but no vacancy or grm data. I'd probably have to search 2-4 family property, and go to neighboring towns. I'm wondering what most are doing. I'm leaning towards not including it, but my mind is stuck on including one just because it is leased.
Thanks in advance for your thoughts.

If the purpose of the appraisal is to form an opinion of Market Value, then the Income Approach is probably not needed.

 

[Deleted member 152047]

The real question is; who is your buyer? It sounds like you will be pulling sales of owner purchased properties. The market for owner occupants could be significantly different from the investor market for the property. How many owner occupants are going to be able to obtain financing, or have the willingness, to hold onto a property for 21 months before they occupy the property? IMO, I don't think the question is whether to include the income approach, it is whether to make a property rights adjustment to the SCA.