Future of STR property/business sales

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Future of STR property/business sales

MD/DC · Member since 2024 · 1k+ posts · 1k+ votes

The Realtors among us might be the most informed but I'd like everyone's thoughts on whether as the STR model continues to evolve there will be a way to capitalize on the value of the business portion. While I get that mortgages cover the real property I think there should be a way to get paid for selling a profitable business with an established track record. I've seen retail businesses that are sold with and without property included so why not STR? While I get it isn't brain surgery to start a STR I bet there are folks who would be interested in a turn key situation.

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Collin HaysBusiness Member

Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes

A short term rental is in fact a business. It is a service business, but includes real property. These "businesses" are being marketed daily on MLS to potential buyers. That is why you will often see the rental income history included in the listing; the rental income is a part of the asset.

I own a number of service business locations where I lease. The value of the business is strictly tied to earnings, not whatever fixtures or supplier that the business has. Service businesses can be valued in many ways, but it comes down to what a buyer is willing to pay for the yield. And a service business also means that you are buying yourself a job, at least to some extent.

Short Term Rentals are a service business. You’re buying yourself a job, at least to some extent. And since you are going to be investing in real property as well, the premium is going to be much higher than what one would pay just for a house, and much higher than one would pay for a service business with no hard assets attached.

With a short term rental, you are buying BOTH, and an educated investor is going to know this full well.

Not sure if I clarified anything or muddied the soup 🍲 further.

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
1y
A short term rental is in fact a business. It is a service business, but includes real property. These "businesses" are being marketed daily on MLS to potential buyers. That is why you will often see the rental income history included in the listing; the rental income is a part of the asset.

I own a number of service business locations where I lease. The value of the business is strictly tied to earnings, not whatever fixtures or supplier that the business has. Service businesses can be valued in many ways, but it comes down to what a buyer is willing to pay for the yield. And a service business also means that you are buying yourself a job, at least to some extent.

Short Term Rentals are a service business. You’re buying yourself a job, at least to some extent. And since you are going to be investing in real property as well, the premium is going to be much higher than what one would pay just for a house, and much higher than one would pay for a service business with no hard assets attached.

With a short term rental, you are buying BOTH, and an educated investor is going to know this full well.

Not sure if I clarified anything or muddied the soup 🍲 further.
[email protected]806-672-7102
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
1y
Yet the mortgage that the bank will loan on will only be valued based on what comparable sales of similar houses are being sold for.
Also the new owner will be starting over with their own fresh VRBO and Airbnb accounts.
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Tyler Divin
Property Manager · Chattanooga, TN · Member since 2018 · 178 posts · 134 votes
1y
I think the most comparable situation to a retail business is called STR arbitrage. One person owns the real estate (retail space or STR property) and the other person (retail store or STR operator) rents the empty space, furnishes it, and operates the business (retail or STR) out of the real estate. I have seen on BizBuySell where a STR business is being sold and it's a collection of leases, STR arbitrage, and management contracts. Here is one example...https://www.bizbuysell.com/business-opportunity/turn-key-sho...
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Jon Martin
Member since 2022 · 1k+ posts · 1k+ votes
1y
Given that residential properties are valued based on comparable sales of other homes this is likely not to change. I don't see STR sales of residential homes being enough of a piece of the pie for appraisers to come up with some alternate special way of appraising the property.
That said you can always try to price it on a multiple and sell it that way, but it won't be lendable and the market will tell you if your "business" is priced appropriately.
On a related note, I think there is huge opportunity in repurposing commercial buildings into STRs or hybrid STR/boutique hotels and that is something that could be sold as a business, although that is an expensive endeavor and comes with much more DD and risk than a residential home purpose.
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James Carlson
Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
1y
The difference between selling an STR and another kind of business is how they are typically financed.
My short-term rental investors in Colorado are using a mortgage. Lenders lend only on the value of the home and land (revenues be damned).
In order to sell it as a business, you've got to find a buyer paying cash or maybe using a business loan. (Not sure if the latter would even work.)
But even then, you've got to convince a buyer that your existing operations and existing reviews are so valuable that they should pay tens of thousands more than the real estate market value.
Most of my clients have shown that you can replicate those STR operations and build up Airbnb/VRBO reviews on your own -- and can save those tens of thousands in the process.
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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
1y
I agree with @Jon Martin. This is not likely to change.
Most buyers want to use standard type mortgages to finance the property and do not have nor want to spend additional cash to buy the property over the value of the Real Estate. I have seen some transactions go a bit over appraised value based on FF&E and revenue potential. Any sophisticated investor will not want to pay much over this number because there is likely a similar property on market that can be outfitted in a similar fashion and likely perform reasonably the same.
But another point Jon brought up is in the commercial space, it is totally dependent on proven income to sky is the limit!

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Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
1y
In resort areas, values are determined by income. A 1000 square foot home in downtown Gatlinburg will fetch a multiple of what the same house would sell for in Wilkes Barre.
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- Jules Aton
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  MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
  1y
  Quote from @Collin Hays:
  
  In resort areas, values are determined by income. A 1000 square foot home in downtown Gatlinburg will fetch a multiple of what the same house would sell for in Wilkes Barre.
  
  That is a good point. My STR is at the beach so prices are high regardless.
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