Rental Property Investor · Reno, NV · Member since 2017 · 284 posts · 137 votes
We all know how apartments are valued....cap rates and NOI.
Here's a scenerio that's likely to play out. My partners and I own a couple apartments. All have been long term tenants. We are wanting to try some short term rentals in a couple units that are about to be vacant. We would purchase furnishings ourselves, and delegate management (overseeing bookings, handling cleaners, etc). How would this impact the valuation of an apartment? We are wanting to do this to increase cash flow to us, but it's unclear to me what this will do to the value of the apartment. Does anyone have any experience with this? Ever seen an appraisal that included short term rental income as part of the NOI?
Interesting strategy, I like where your head's at! More cash flow = more NOI and increased valuation. However, if you sell and the valuation is realized that puts an extra complication on the new buyer. They would have to keep the STR in order to keep the NOI they bought.
Might narrow the buyer pool, but for increased cash flow right now I'd say go for it! Of course I'm biased as we operate 3 STRs and 1 LTR, but only because the LT tenant came with the property.
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
4y
I own several apartment buildings and several STR. I've seen a few buildings due same raff we're doing this but never got to an appraisal. I think in 10 years this will have been common long enough that appraisers will ask for 24 months rental history to include it in your favor but fir must buyers it won't matter. I'd put a tenant back in them and trash the furniture.
I don't believe you will be able to count the STR income as income for the property as you will usually need 2 years of renting the unit prior as an STR before you can show the income. But, I am not an appraiser and am not sure if it would or wouldn't count on their side, so I would double-check with one that you may consider using in the future to value your apartment.
I hope this helped and if you have any more questions don't hesitate to reach out!
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
My colleague has STR units in his apartment communities and the bank's appraiser values the property as a pure apartment community and as a hybrid...two valuations. I suspect this is uncommon now but will become more common over time as technology advances, housing costs increase, residential zoning is enforced on STRs, and the lines blur between LTR and STR. I am building a purpose built hybrid apartment/hotel to address this need in the market.
I own several apartment buildings and several STR. I've seen a few buildings due same raff we're doing this but never got to an appraisal. I think in 10 years this will have been common long enough that appraisers will ask for 24 months rental history to include it in your favor but fir must buyers it won't matter. I'd put a tenant back in them and trash the furniture.
Common place in 10 years!
Thanks Luke. You and I talked on the phone about 4 years ago, you offered a lot of great advice on getting my first STR up and running. I had about 3 units at that point, now it's over 200. Anyone reading this, Luke is the real McCoy!
And I completely agree what you're saying, the only constant is change. Excited to see where I'm at (with documented STR income) in 2 years!