Short-term rentals

[BRCJR]

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.

Sounds like SML. I also believe you have two different market participants in your scenario. How does your "average" for the season work out on an annual basis?
What is the OPEX for one versus the other?
Also, if it is SML you have a different clientele. The south side of the lake draws clients from Greensboro and Winston Salem. The north side of the lake is more Roanoke, Lynchburg and maybe Charlottesville.

 

[Terrel L. Shields]

o. How does your "average" for the season work out on an annual basis?

So, as a banker, how would you view a report using STR as a basis for value when only a cert. residential license for an FRT?

 

[BRCJR]

So, as a banker, how would you view a report using STR as a basis for value when only a cert. residential license for an FRT?

If the appraisal was conducted as a STR it would have to be completed by a CG or it would not be acceptable for our use. We consider that a lodging facility not a residential tenant occupied unit.
We would expect to see the real property value, the FF&E valuation along with the business value as separate opinions.

 

[Fernando]

In SF, ST rentals have to be register with the city. Has to go through planning and input from the neighbors.
I don't know all the terms and regulations but appraiser needs to know the laws and how it can affect subject.

 

[WestMichiganCG]

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.

One of the recent ones I looked at. It had a 57% vacancy rate which is decent. I used the actual income the building was getting in my analysis. This one was economically feasible but penciled out similarly to an apartment. We get requests for these all the time. People want to finance a significant amount on a single-family home without the history to prove the viability. I don't do them without a minimum of a years' worth of financial history.

 

[George Hatch]

Except as a going concern - a type of valuation very few residential appraisers are familiar with.

I don't do assignments that include valuing the going concern.

Hospitality properties in particular. It's common for them to finance in a good year but fail outright if they run into a couple bad years. Plus on the smaller operations there's always 3 sets of books; one for the lender, one for the IRS and the real one which nobody has access to but the owners.

I don't get involved with the branded gas stations for the same reason.

 

[Fernando]

With many tenants coming in and out at a ST rental, liability and damage issues are main concerns.
They're a different class of rentals.

 

[George Hatch]

If you have sales of properties being purchased by these operators then you don't really need a 2nd approach to value. Sales comps are sales comps. Inclusive of the personal property and business interest.

Same with SFRs being occupied for board/care or congregate living. In our state the licensing goes with the operator, not the facility, per se. The new operators have to qualify to hold a new license for the facility. The effect on the value of the realty is that it has a demonstrated history of qualifying for the license.

 

[WestMichiganCG]

If you have sales of properties being purchased by these operators then you don't really need a 2nd approach to value. Sales comps are sales comps.

I wouldn't appraise a VRBO without doing an income approach.

 

[George Hatch]

I've never run an income approach on those. The lender is never getting a marketable business interest anyway. Or the FF&E. All they're usually going to get is the realty interest. After the business has gone dark for 6-12 months and they've kicked out 3 sets of squatters.

Even liquor stores and markets are more transparent. But all RE is local so maybe YMMV.

I just appraised a commercial stable. It's vacant now but even when they're operating there is no profit margin - those buyers are buying a job, not a passive income.