Weekly rental units - Comparable Rent schedule

[Yimmydatulip]

I have a condominium I am appraising and I am attempting to complete comparable rent schedule, however, the subject (and comparables) are rented on a weekly basis and the rental charges vary greatly depending on time of the year being rented (from $1000 a week to almost $5000 a week during peak season). How do I go about completing a rent schedule for this condominium?

 

[CANative]

Annualize the rent.

 

[incognito]

Annualize the rent.

The problem is that rents vary as much as 75% between in season and off season. Vacancy also ranges from 0 to perhaps 50%, depending on season. Rental rates can vary significantly between a weekly and a monthly and even multi monthly occupancy. You never really know what you will actually get! Management fees and rental fees of 40% would not be uncommon at all for weekly, lower for multi week stays. Cleaning and turnover costs on weekly can add to that cost. Other Florida issues are that generally short term rentals require sales tax, and with Tourist taxes, that can be as much as 15%!!!

Yes, "annualize the rent" is the proper answer, but the task can be daunting!!! For the additional $50-$75 you got for the OIS and Rent Schedule, you will spend several hours doing it properly!

 

[CANative]

The financially feasible aspect of developing a rental rate opinion on a vacation home was not the question. lol

But still, it's just an opinion. Do the best you can and explain the strengths and weaknesses in the data. I've done it a few times. I didn't really like it but I managed to get the job done.

 

[Peter LeQuire]

There are (in most short term rental settings) substantial management expenses associated with short term rentals - around here, 40% is an often heard rate. That management fee is in addition to the expenses of cleaning, linens, furniture replacement and the rest.

A residential comparable rent schedule for this sort of property - IMNTBHO - should reflect the rent after, at least, management expense, because that is the money available to meet the other expenses. Others may think otherwise.

 

[Howard Klahr]

Due to variances in seasonal dates, it is not appropriate to annualized the rental rate. Some properties may also have shoulder season dates with different rates as well while others are more fixed in their time frames. Differences in services and amenities need to be addressed as well. This is part of why seasonal rental rates are not annualized. That would be like analyzing the average daily rate for a hotel. It is not proper methodology for analyzing the subject property.

In regard to reporting just the "net" rent rate - that is not appropriate either. Especially since certain expenses are calculated as a percentage of gross rent and those rates will vary from property to property. It is not an appropriate comparison.

The proper way to convey the information is to use a narrative comment rather than a misapplication of a form that was never intended to be use for that purpose.

 

[CANative]

The proper way to convey the information is to use a narrative comment rather than a misapplication of a form that was never intended to be use for that purpose.

That's essentially what I proposed. But if they hold a gun to your head for some sort of point dollar amount (or more likely a range) then I don't see why you can't provide that in the narrative.

 

[incognito]

How do I go about completing a rent schedule for this condominium?

Clearly the SCOPE of the OP's assignment is to complete a rent schedule (presumably form 1007). This means the OP is being asked to provide an estimate (opinion) of MONTHLY income. Granted, there will be a substantial amount of narrative required (as I suggested by stating that this could be a "daunting" task), but ultimately the clients requirement will be presentation of a monthly income estimate. This could be done by performing an undiscounted (at todays rates anyway) monthly cash flow analysis, as it would be easy to calculate the variable and fixed direct expenses month to month, and obtain a yearly income (not really a NOI) and divide by 12. I see no other method available to meet the clients requirement credibly than to average all 12 months income estimates into a monthly figure. Again, monthly rents could (and apparently do) range greatly from season to season, but the SCOPE is to provide a monthly income....

Presumably, the ultimate use of this monthly income estimate is to plug it into a residential Operating Income Statement form, which just takes the monthly income estimate, and converts it right back to an annual income anyway...

 

[PropertyEconomics]

The problem is that rents vary as much as 75% between in season and off season. Vacancy also ranges from 0 to perhaps 50%, depending on season. Rental rates can vary significantly between a weekly and a monthly and even multi monthly occupancy. You never really know what you will actually get! Management fees and rental fees of 40% would not be uncommon at all for weekly, lower for multi week stays. Cleaning and turnover costs on weekly can add to that cost. Other Florida issues are that generally short term rentals require sales tax, and with Tourist taxes, that can be as much as 15%!!!

Yes, "annualize the rent" is the proper answer, but the task can be daunting!!! For the additional $50-$75 you got for the OIS and Rent Schedule, you will spend several hours doing it properly!

There are 52 weeks in a year ... there are peaks and there are slow times ... there are high occupancy weeks and high vacancy weeks ... building a spread sheet based on historical occupancy would not be a daunting task at all ... and result in an "annualized rent" based on historical information.

If the appraiser doesnt have historical information ... then I suggest they request it and not complete the appraisal until they do have the data.

A bit time consuming but not a daunting task. In my opinion, this is an assignment where an appraiser can truly be an appraiser ... working with data, vacancy rates, overall rates or GRMs ... a fun assignment really. If renumerated for your time a good assignment .. if not renumerated sufficiently .. an assignment Id pass on.

 

[JRS at OBX]

Another issue to mention is owner usage. I wouldn't buy a weekly rental in a resort area if I didn't plan on using it a little bit. In my area, we have a 3 month season which is June, July and August. The mid July week is more expensive than the first week in June. If an owner reserves 1 week in July for personal use, then the yearly income is skewed.