STR's

[glenn walker]

You have no idea what you are talking about.

As George stated a STR is a use/occupancy, no different than a longterm rental. When it comes to analyzing the income and expense it is still not any different than a longterm rental. Biggest issue is zoning, building requirements and permitting. My City is in the process of instituting a STR zoning ordinance and they keep running into objections and issues as the cows are already out of the barn and getting them back will difficult.

The biggest miss on STR is the increased wear and tear and maintence. You've all heard about the Dead Hooker Motel we owned and the other Motels. Imagine people moving in and out of your home multiple times a month. Your no longer talking about anything lasting physically for very long. Flooring which may last 5 to 7 years in a normal lease on a STR Airbnb may need replaced every 18 to 24 months. Faucets, toilets, hvac units all being used 24/7. Therefore unless one has some experience owning or managing them it's hard.

The owners always lie when they sell but on schedule D on tax returns their showing hugh repairs and costs. So personally I wouid not do them period there's no money to be made and if you like that stuff go into accounting and tax work.

 

[George Hatch]

The business is heavily management dependent. That includes marketing expenses, managing the Yelp reviews, fending off social media influencers constantly trying to hustle the free accomodation for their instagram feed. All the expensive decor with the short lifespan not to mention what happens when guests are behaving poorly. Maid service, landscaping, pool guy to balance the ph of the pool after the guests done get using it for non-swimming purposes.

If the business goes down for lack of occupancy and the lender comes in to foreclose they're not getting anything that isn't physically affixed to the RE. If a lender wants to count the income toward the debt service requirements then what they need is an accountant to bird-dog the books for whatever the operator will admit to on their tax returns. Not an RE appraiser or even a Business Appraiser.

 

[J Grant]

Fannie and Freddie guidelines for appraisers of residential property are to use long-term, monthly, or annual leases, not use STR. Since the vast majority of lending assignments are URAR GSE bound idk why a res appraise is developing a STR income for a property.

The fact that the GSE and lenders allow STR as part of a borrower's income to qualify them for a loan does not mean the appraiser needs to develop a STR income for the property appraisal. The lender accepts the borrower's tax return /receipts, statements from Airbnb as proof of the STR income. Verifying a borrower's income is a lender's job , not an appraiser's job.

 

[Tom D]

A recent USPAP class i took, the instructor said no residential appraiser should be doing a str rental analysis as a str. That aspect was considered non residential work, for which a cra is not qualified.

In my state you cannot do a mixed use because you are not qualified to do a commercial h&b use. An attorney would rip your residential qualifications in court. I think any regular res appraiser is taking a risk doing that type str rental analysis. Just make one mistake and then the state asks you for your commercial qualifications to have accepted it in the 1st place. It's a big bear trap with your foot in it, if you do a str rental analysis, as a str.

Now, if you just do a regular 1007 rental thingie on it, that is acceptable. And the lender can accept that.

 

[J Grant]

I believe a res appraiser is capable of a STR analysis, the question is whether it is ethical to do it and why a client is ordering one, especially in lending where GSE guidelines require long-term leases to be used.

 

[KHS445]

It all boils down to you are valuing real estate.

The STR is a business which should be valued separately from the real estate, and as I stated earlier it is like any other business valuation in that you base your valuation of the income and expenses associated with that particular business. Whether those expense are greater management, higher advertising, more R&M, including lawn care, wear and tear on FF&E, cleaning, etc. You should be basing your valuation of the STR business on multiple years of Federal Tax Returns, which whether totally honest or not from the owner's perspective is not your problem.

When appraising a STR I provide the client with three values, the value of the real estate, the value of the FF&E and then the value of the business. It is the client's option if they want to assign any value to the FF&E and/or the business. Many local units of government either have STR regulations in place or are looking to add them. One needs to be very aware of the current and any possible changes to the status of STRs.

Earlier this year I had a STR owner tell me if someone pays cash, he pockets the money and then shows on his books that the reservation was cancelled and he retained the security deposit. Thus, reporting half or less of the actual income for that particular reservation.

 

[alebrewer]

The business is heavily management dependent. That includes marketing expenses, managing the Yelp reviews, fending off social media influencers constantly trying to hustle the free accomodation for their instagram feed.

I think that's one of the most overlooked factors. On the one hand, you have leases, which are based primarily on the property and its attributes. OTOH, you have business enterprises whose value lies primarily in their exposure. The folks with better websites, higher SEO scores, better pics of the property, etc. generate more revenue. The folks that 'rent' STR's have generally never seen the property and are basing their outlay on pictures and marketing. STR revenue isn't as much about the property as it is the marketing.

 

[Tom D]

I believe a res appraiser is capable of a STR analysis, the question is whether it is ethical to do it and why a client is ordering one, especially in lending where GSE guidelines require long-term leases to be used.

J grant, did you read the KHS445 post after your post. Certified can do a str analysis? Please tell me you can't, for the existential threat of a mistake and you standing in front of a state board with a res license having done a commercial analysis. I know there are other res appraisers here who think they could do it. Not that you would anyway, being appraiser smart.

 

[J Grant]

J grant, did you read the KHS445 post after your post. Certified can do a str analysis? Please tell me you can't, for the existential threat of a mistake and you standing in front of a state board with a res license having done a commercial analysis. I know there are other res appraisers here who think they could do it. Not that you would anyway, being appraiser smart.

I personally have not done one, for reasons explained. My comment was meant that IMO, res appraisers have the capacity in skills to do a STR analysis, but should not do them for ethical reasons wrt why a client is asking for it.

Idk if a board would see it as developing a commercial analysis -I see it more as a residential value in use issue, which is not the same as MV. I use my home as a partial home office which has value in use to me , but is meaningless to someone who might buy my home. Some res owners use their properties for an illegal use or a use which violates zoning - it is a grey area wrt that and STR in some cases. IT is akin to running a home like a hotel , but that does not turn the property into a hotel -

 

[sputnam]

It comes down to what your assignment is. If your assignment is to determine the market value of a residential property then, your valuation hinges on a proper Highest and Best Use analysis... same as always. If you find that the HABU is use as a typical SFR, then any analysis of the rents that the Client wants is for the purposes of loan qualification, not value. If you find that the HABU is as an STR, then are you valuing the real property only? Or are you developing the value as a going concern. You may, or may not be, qualified or competent depending on the answers.