STR-based GRM

[ZZGAMAZZ]

I am new SFREP client working my first Short Term Rental assignment ever, based on 2.6 format.

As I create the top half of the 2-part STR narrative, near bottom of the STR page 1, the text appears word-by-word in the Income section on 1004 page 3 where Market Rent is multiplied by GRM to obtain Income Approach OV.

Is the link between the STR form and the 1004 form intregarl to STR methodology that consequently establishes a short-term-based GRM--which might make sense if it disclosed and if the client is aware of the distinction between that and a typical GRM? [asking because I don't know if it is a software glitch or the industry way to determine a STR-based OV.]

Thanks peers.

 

[sputnam]

Forms, whichever form it is, are to help organize your report. They aren't supposed to dictate the contents of the report and certainly not how you do your analyses. The only reasonable way to do a STR GRM is to convert the annual income to a monthly average. The GRM should be extracted from other STR sales. Alternatively, forget about trying to use some version of the GRM method. Extract the subject's potential gross income, deduct vacancy & credit loss, deduct operating expenses and reserves and use a market extrated capitalization rate on the result.

 

[ZZGAMAZZ]

Forms, whichever form it is, are to help organize your report. They aren't supposed to dictate the contents of the report and certainly not how you do your analyses. The only reasonable way to do a STR GRM is to convert the annual income to a monthly average. The GRM should be extracted from other STR sales. Alternatively, forget about trying to use some version of the GRM method. Extract the subject's potential gross income, deduct vacancy & credit loss, deduct operating expenses and reserves and use a market extrated capitalization rate on the result.

Granted. Yours is a very intelligent and accurate comment...but how does one get past the AMC review master and the MISMO review master and the client review master if a mandatory field in the report isn't populated with data? Do you just indicte "1," for example, and then explain why that section of the form isn't necessarry. And as to my original question: does the concept exist, of Short-term-rental-based Gross Rent Multiplier? [Or is this one of those matters when the AF tells me "Don't worry about it. Just move on." ???

 

[sputnam]

Granted. Yours is a very intelligent and accurate comment...but how does one get past the AMC review master and the MISMO review master and the client review master if a mandatory field in the report isn't populated with data? Do you just indicte "1," for example, and then explain why that section of the form isn't necessarry. And as to my original question: does the concept exist, of Short-term-rental-based Gross Rent Multiplier? [Or is this one of those matters when the AF tells me "Don't worry about it. Just move on." ???

Getting past a software review master or a human reviewer who isn't an appraiser is a different issue. What has worked for me is to be very clear about what I did, why I did it, and the sources of of the data used.

Don't overthink it though, for STRs the Lenders don't always need or want an Income Approach. They do want rental information which they use to help qualify the borrower. Remember that Intended Use and Intended User is a factor in the Scope of Work decision. Of course, you must always consider all approaches to value. If one or more approach is not applicable or is not necessary for credible assignment results, it can be omitted..... as long as you explain.

 

[ZZGAMAZZ]

Getting past a software review master or a human reviewer who isn't an appraiser is a different issue. What has worked for me is to be very clear about what I did, why I did it, and the sources of of the data used.

Don't overthink it though, for STRs the Lenders don't always need or want an Income Approach. They do want rental information which they use to help qualify the borrower. Remember that Intended Use and Intended User is a factor in the Scope of Work decision. Of course, you must always consider all approaches to value. If one or more approach is not applicable or is not necessary for credible assignment results, it can be omitted..... as long as you explain.

Prob the best comment in the entire AF.

 

[Gobears81]

Something that I ran into recently is that not all STRs target the same duration, so the traveling contractors might stay for a few weeks at a lower (daily) rate than what it would be to someone staying for a couple of days. The STRs that operate on a daily basis would probably have more vacancy (and higher cleaning expenses), but they might have higher annualized gross income and a lower GRM, relative to the STR that has a longer average stay, all else equal. If the STR sales that you are extracting GRM data from are from the same market, this might not be an issue.

 

[Tom D]

Are we getting extra for this str income approach analysis, however you do it. I got enough problems when all the2-4 listing are vacant and have no grm rental income. But we make our best effort, based on the available info and our guess. I mean dissection of the data into a congolmeration for a grm number. Preciseness we don't have, and have even less with dat str. Seems like an easy bear trap to put your foot into, for how much.

 

[ZZGAMAZZ]

Something that I ran into recently is that not all STRs target the same duration, so the traveling contractors might stay for a few weeks at a lower (daily) rate than what it would be to someone staying for a couple of days. The STRs that operate on a daily basis would probably have more vacancy (and higher cleaning expenses), but they might have higher annualized gross income and a lower GRM, relative to the STR that has a longer average stay, all else equal. If the STR sales that you are extracting GRM data from are from the same market, this might not be an issue.

On a practical basis., the subject of my assignment is located in a seasonal market where rates vary considerably depending on the rate of tourism. So what if the Effective Date of an assignment is during an extremely slow/low season, or a very busy season. Does the Opinion of STR Value reflect the Effective Date, or should the appraisal determine the current rate, and modify to reflect an annualized rate? The STR form requires the period in question that is annualized after being modified by estimated annual vacancy but the "form" doesn't provide a line item to reflect modified annualized $$$$.

 

[ZZGAMAZZ]

Are we getting extra for this str income approach analysis, however you do it. I got enough problems when all the2-4 listing are vacant and have no grm rental income. But we make our best effort, based on the available info and our guess. I mean dissection of the data into a congolmeration for a grm number. Preciseness we don't have, and have even less with dat str. Seems like an easy bear trap to put your foot into, for how much.

Coincidental that you mention it, because I recently been thinking about how important our service is...to the borrower, the lender, the economy. Just found out that an assignment I completed included an easy peasy straightforward OV about $200,000 above a prior appraisal, which is why a second appraisal was ordered....and damn that $200,000 for the borrower that affects the economy by $200,000 sure AF is worth a hella lot more $$$$ than the appraiser gets paid. Let's change the system so the OV is the basis of our compensation!!!!!!!!!!! There is a position in California that I don't know much about, called the Probate Referee, who is assigned to a Superior Court jurisdiction to provide appraisal services, getting paid based on the amount of the OV. {I think that is the system although not too many people know much about it...]

 

[ZZGAMAZZ]

Something that I ran into recently is that not all STRs target the same duration, so the traveling contractors might stay for a few weeks at a lower (daily) rate than what it would be to someone staying for a couple of days. The STRs that operate on a daily basis would probably have more vacancy (and higher cleaning expenses), but they might have higher annualized gross income and a lower GRM, relative to the STR that has a longer average stay, all else equal. If the STR sales that you are extracting GRM data from are from the same market, this might not be an issue.

I wonder if the annualized $$$$ of the daily rental would be similar to the anualized $$$$ of the weekly or monthly rental when modified by vacancy percentage????