Short-term rentals

[Tom D]

Yes, those residential guys are the bottom of the industry barrel.

And that barrel is rolling downhill faster and faster.

 

[alebrewer]

Yes, those residential guys are the bottom of the industry barrel.

I'm usually the one defending us - it just really happens to be the case that most of us don't know how to do a going concern appraisal. I know I don't.

 

[Larry Phillips]

Please share your thoughts on completing an appraisal with short-term rentals. If you do complete these, do you get your data from vrbo.com or airbnb.com? Is there a different form that can be used other than the 1007?

It is a business appraisal that includes personal property used in production of income. Depreciation for personal property is stratified; a towel may be 1 year, a sofa five years, tables, chairs, beds, bedding, bed clothes, differing time frames. It could be interesting but it requires a different thought process than regular 1007. It may require considerable narrative attachments or a narrative report, depending on the appraiser and client agreement for service. It should be considerably more expensive and time consuming than a regular appraisal.
In essence it is a one unit motel appraisal.

 

[J Grant]

For residential market value lending purpose appraisals Fannie and freddie guidelines are long-term month-to-month or annual leases, not short-term or air nb
If you are doing a UAD lender 1004 form or similar form appraisal, that is what applies.

If the current rents are short term we do not use them; we use market rents from longer-term leases and explain
Short-term rentals are like hotel/motel use, which is not a residential use.

Borrowers can claim arnnb or short-term rental to qualify for their income, but that is a borrower qualification issue, not a property appraisal issue.

 

[WestMichiganCG]

You need a history of profit and loss. I did one recently and it had the same value as an apartment. The management expenses and overhead expenses are very high. I did one where I proved that the buildings highest and best use was apartment and not short-term rental. The other issue is cap rate data support.

 

[mp2277]

STRs are meaningless to value a property.

Meaningless huh? Hummm... There is a large lake that is in two counties. Located on opposite sides of the lake, within sight, are two similar houses. They are in different counties, one allows short term rentals and the other does not. As an investor I can invest in one and hope for around $2500 to $5000 per month rental income. The other will bring me that much per week, maybe weekend during the season. Which one will I pay more for? This is not fictional or far fetched. I'm less than an hour from that lake and see this all the time. Now, after several of the STR properties sell, then you have market data supporting that indeed STR's do affect value.

 

[J Grant]

STR or condos that get good short-term rents get baked into the comp sale prices, and we can explain that it affects value.

However, it still leaves the fact that for the majority/virtually all lenders mortgage residential property appraisals in a UAD form that ask for a market rent survey, the guideline from Fannie and Freddie applies is to use long term rents, not short-term rents

 

[mp2277]

You need a history of profit and loss. I did one recently and it had the same value as an apartment. The management expenses and overhead expenses are very high. I did one where I proved that the buildings highest and best use was apartment and not short-term rental. The other issue is cap rate data support.

Without exception the listings for STR (weekly vacation) rentals state there is a cleaning, maintenance, and booking fee. The person who rents pays those so I challenge your theory. Did you consider up to 4x the income for STR in your HABU analysis. Seems like that would tilt the scales and I'm willing to bet your analysis would die on the table if scrutinized.

 

[TerryRohrer]

deleted

 

[Terrel L. Shields]

. As an investor I can invest in one and hope for around $2500 to $5000 per month rental income.

I don't give a ****. If it draws a premium on a day rate, it will draw a premium on monthly rents too. Further, it would sell for a premium reflecting that. The question remains what about the furnishings?

The problem with STR is you are valuing an on-going enterprise, not a real estate value. STR involve personal property and furnishings. So, are you saying you expect the furniture to be included in a monthly rental? Do you understand why residential appraisers have no business trying to value STR property by income? Surely you don't think these houses on STR are bare and the rents need to bring their own furniture. And these are rented and have to be cleaned between renters - That's another $200 or so in cleaning fees unless you do it yourself.

The last house I appraised with a STR was listed for $1.7 million on a lake. That included a boat dock but otherwise was listed sans furnishings. But it rented for $3,400 a night. Estimated 30% occupancy, but their net was under $100k.