What do you think it’s worth?

Question

Hi there, thank you in advance for reading this and sharing your insight.

I am a licensed real estate broker in Washington state.

How do you evaluate a short term rental deal?

What specifics do you look for?

What metrics are most important to you? If selling a short term rental (our own) how do you go about establishing value?

Some of the basics about our specific property are as follows:

-Permitted short term rental (almost 4 years of history)

-Guest favorite with outstanding reviews

-7 properties of similar size out of close to 400 listings in our city (Tacoma, WA)

- annual revenue of $121,000-$137,000 the last 3 full years.  This year we have over $100,000 in bookings with more real estate on the calendar still available.

-NOI averaging $71,000 + per year-we have renovated and reinvested in the property to the tune of about $12,000 per year.  The property has been well maintained. what do you think it is worth?

What else would you want to know as a buyer?

Thank you for reading this and sharing your insights!

-Taylor

Judy Wensloff · Answer

Hey Taylor!

I'm licensed broker-associate and STR PM in CA.

As Andrew indicated, the bottom line is you are still selling a single family residence, not a business. I believe other than hard money, the only kind of loan product that will allow using rental history is a DSCR loan. However even in those scenarios, that will help a buyer qualify, not necessarily add value. Things for you to know as the seller when evaluating offers.

If your numbers look really good and will support a new mortgage it will be a highly desirable property. If they don't support a new mortgage, then you will have to sell it based on appreciation (a harder sell usually).

A few other things to know, depending on what platform your future bookings are on they aren't completely, or easily transferable. You haven't indicated whether you self manage or have a manager, but you are going to want to research this and know it well if you are going to use future bookings in your negotiations (I don't recommend using it in advertising, consider it a disclosure). Ultimately if management of the property changes, the guests have the option to re-book, the don't have to.

The reviews mean nothing unless the buyer uses the same management company as you. The new owner will have to start their own listing with their own reviews.

You will also have to know if your TOT permit is transferable, or if the new owner will have to re-apply, this differs by County.

Also have a thorough P&L to hand out, it is always so appreciated for buyers to get the whole picture. Most of them will be quite savvy.

They will also want a way to verify the income you are claiming. Either a print out from the management company, a print out of applicable tax form, or print out from the platforms used.

I think Andrew covered what buyers are evaluating, I am just offering some things to have ready to hand out in a packet so it easy for buyers to evaluate the deal.

Best of luck, based on these numbers it looks like a great property!

Andrew Steffens · Answer

Hey Taylor, Im a licensed broker and PM in FL.  To become a true expert in the STR space it does take years of experience but right here on this forum is a good place to start.  I will briefly answer your questions below:

To evaluate a deal you need to derive the annual income, and the value of the property.  There are tools such as AirDNA that can help you surmise the approx annual income of a property.  If a house brings in $100k annual income potential and value(cost) would be $500,000 than yield is 20%.  If a buyer puts 20% down and the annual net profit is $20,000 than the cash on cash return is 20% also.

The STR market is competitive so I am looking for the best opportunity for the clients budget.  The most important things nowadays in my market is location, finish/furnishing (i.e. nicely renovated and decorated), and amenities (i.e. putting green, heated pools, etc).

Most important metrics are net ROI and approx appreciation for given zip code.

Value of a SFR will be based on the comps.  You can't tack on extra value for single family for past profits like you can for multi family.

Sounds like you have a nice performing property but its worth the same as any similar house on the market.