Vacation Rental

[Deleted member 142783]

A family member owns a 4plex in Newport beach (Carona Del Mar) CA. It has been on a month to month long term rental agreement for the last 20 years. It is located on a street of multi family properties, although is on the corner surrounded by high end SFRs. All four units have been completely renovated, and now have been switched to weekly vacation rental. It has been tow years now the property has been producing income as vacation rental- the net income as a long term rental was annually $96,000 now vacation rental is $144,000 annually.


My question: due to this property being an income producing property, and the income being 50% higher as a vacation rental, is the sales comparison approach the best approach, using other 4 plex properties that are long term month to month? This does not seem to be accurate due to the current income production.

Is there a link to any information on vacation rental appraisals? Would this be an assignment for an AG?


Thanks for the help!

 

[Rich LeMond]

Does the City require a permit for vacation rental, and levy special taxes etc? If so, then it's really a commercial enterprise and you'll want an AG. I know in my City, you can't rent for less than 30 days without a hospitality license. Although AirBnb is rampant.

Otherwise it depends on the market, is this is a common use? If so then the income potential should be reflected in the price of any comps sold vacant. If not, the appraiser may lack enough data to give credit to the higher income, they won't be able to get away with making a huge upward across-the-board adjustment like that.

 

[NachoPerito]

The management fees for vacational rentals are really expensive, much more expensive than for apartments. Fees for cleaning and advertising are also expensive.

 

[Rich LeMond]

I also lived in NB for many years. I know the vacation rental market is awesome in the summer, then for the rest of the year the unit either sits empty or gets rented out to college kids who trash the place.

 

[Webbed Feet]

A family member owns a 4plex in Newport beach (Carona Del Mar) CA. It has been on a month to month long term rental agreement for the last 20 years.

Was it month to month, or long term? It can't be both. Not that it matters much as far as your questions, it's just you are an appraiser and should know this. Do not confuse length of tenancy with contractual rental periods. Annual leases with payments by the month are not "Month to Month" tenancy. Month to Month tenancy is not long term.

It is located on a street of multi family properties, although is on the corner surrounded by high end SFRs. All four units have been completely renovated, and now have been switched to weekly vacation rental. It has been tow years now the property has been producing income as vacation rental- the net income as a long term rental was annually $96,000 now vacation rental is $144,000 annually.

Net or gross rents? Or, what is the most profitable?

My question: due to this property being an income producing property, and the income being 50% higher as a vacation rental, is the sales comparison approach the best approach, using other 4 plex properties that are long term month to month? This does not seem to be accurate due to the current income production.

Is the Sales Comparison Approach the best approach for what? What is being sought? Is there an assignment? What are the assignment conditions? Is there a definition of value at play and what is it?

Is there a link to any information on vacation rental appraisals? Would this be an assignment for an AG?

What's the assignment?

Thanks for the help!

If whatever is being asked for, is being asked for by family members, you are very wise to consider recommending they seek real estate advice from someone else.

 

[Tim The Enchanter]

A family member owns a 4plex in Newport beach (Carona Del Mar) CA. It has been on a month to month long term rental agreement for the last 20 years.

Was it month to month, or long term? It can't be both.

And if it started as a year lease, but then 1 month at a time for another 19 years, what else would you call that?

 

[CANative]

misread original post. never mind.

 

[Webbed Feet]

And if it started as a year lease, but then 1 month at a time for another 19 years, what else would you call that?

Again, don't confuse the contract with the length of tenancy. Once the agreement becomes month to month, that is all it is. Just because a tenant stays for years doesn't change the fact either the landlord or the tenant can end the agreement upon short notice. Therefore, it no longer is a long term rental agreement.

 

[Rich LeMond]

Unless the local municipality has rent control.