My community has a local population of 10,000. There are an estimated 10 million tourists to my local community every year.
There are several thousand STR properties in my market In the past 5 years there has been a boom in construction particularly in high capacity (6-10 bedroom) lodges on the lake.
I appraise several hundred STR condos, cabins or homes every year. Fortunately, due to the volume of files in my database over the past 30 years I have been able to document STR gross revenues, expenses, NOI and cap rates just from my own internal files for various sizes of STR properties. I ask for the same P&L statements for my subject's that the buyer's are requesting from the listing agent.
General Question: If two identical floor plan condos in the same project with the same view sell side by side, one is a historical STR and the 2nd has had long term renters and has no history of STR. They sell for similar prices. Is there any "going concern" other than the FF&E? As an investor myself I know that a condo can be furnished and a VRBO account posted within 30 days. Easy to do if you are inclined.
In my market there is a substantial used furniture sales market. The large timeshare projects shed there furniture every 2-3 years to look fresh and these perfectly fine couches, beds, tables, lamps, pictures enter the market. That's what I used on my first STR condo purchase in 2005. So I have good FF&E market value data. Furthermore, with all these condos selling regularly furnished over the years, I can easily see matched paired data on two identical floor plan units, one that sold "turn key" furnished and another without FF&E. Another indicator of what the FF&E is typically worth. I can see how the value of the FF&E could be confusing and a critical issue to someone first trying to value an STR property.
2nd General Question: If there are two 6-bedroom lodges in the same project. First is 2023 construction (C2) with 1 year of STR income data. The second from the same project is new 2024 construction (C1) and has no income history (or FF&E) and they sell for similar prices in 2024 (other than $60,000 RCN of FF&E). The one that had a year of "going revenue" and re-sold for similar to the brand new one that has never been occupied. Does that illustrate that there is no "going concern" here other than the FF&E?
I appraise several hotel/motel properties every year also and we determine if there is "going concern" in every assignment. I took an excellent McKissock course in this years ago if anyone is interested.
In our STR reports we summarize verified historical STR rental income data from our files and provide the client with an idea of what historical income for substitutable properties might be. Our data is best reflected on an annual per bedroom income not so much as Revpar or ADR and occupancy like a normal hotel appraisal would. The changing in the number of bedrooms across a specific project would make the Revpar from a 5-bedroom irrelevant in trying to estimate the Revpar of an 8-bedroom lodge. We combine our market derived effective gross income per bedroom with our market derived multipliers to estimate an income approach value based upon the subject's historical or market derived STR income. In that extra addenda to the report, we also discuss the value of the FF&E and the lack of "going concern" that we have typically seen in our local market up to the present date (based upon the two General Question answers from above).
Sure, I get lenders all the time requesting a 1007 rent sched. No problem. I usually clarify that we will use long term rental income data on that form. I can find long term rental data for a 3-bedroom home that has no garage from my internal office files. Fill out the 1007 with long term rental income data per the client's request but then also have a reconciliation of the two income methods and a final determination that STR is maximally productive and HBU in all the cases I have seen recently. (There was a shift in the early 90s from STR to long term rental as supply exceeded demand in that time period).
The report I just finished this morning for a new construction 4-bedroom had a long term market rent of $2000 per month or $24,000 annually. The market derived STR income data that I had indicates close to $20,000 per bedroom per year or $80,000 annually. Which is maximally productive after deducting a market derived FF&E value?
I feel that by completing my STR income approach with verified STR and expense data, I am providing an extra level of information to the intended user. I reconcile all methods of valuation at the end in my estimate of current market value (without FF&E).
I also tend to throw in the following statement.
"Interviews with market participants (Realtors/Buyers/Sellers/Etc.) indicate that the listing and contract prices of income properties were determined based upon the subject's physical characteristics in comparison to other substitutable units (comps). When asked directly if an income multiplier was utilized to determine the list or contract offer price, market participants often indicated that income potential was acknowledged but that pricing was not directly affected via a multiplier. Lower producing properties often sold for similar prices with the buyers looking at management style and owner vacation occupancy as over riding factors."
I can talk to a seasoned hotel/motel operator in my market and the phrase "3 times gross" is commonly thrown around (not by me). These STR buyers, even though they may own 10 STR properties don't generally use the historical income as a method of valuation. The well experienced STR owners use there own experience to make their decisions. The first time STR investor has no idea what someone is talking about "3 times gross".
We don't normally hang our hat on our Income value and almost always have a final reconciled value from Sales Approach. We just include the STR data for the intended users information.
Well, I'm sure there are a lot of arm chair appraisers out there that can spend hours shredding my thoughts and determining that I don't know what I am talking about. Perfectly fine. I wasn't looking for your advice anyways. Just thought I might share that some difficult appraisal issues can be addressed, questioned and resolved, particularly if you have huge amounts of data.
p.s. "Howdy" Terrell Shields, good to see you are sill "kicking"
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