Negotiating buying in service VR

4 Replies

I am looking to buy another VR. This property [SFR] is already in service as a successful VR. Looking for advice on how negotiate buying an in-service Airbnb.

I figured a starting point would be the Comps for the property itself, then furniture. The part I am unsure of is, how much should/would you pay for acquiring the current operations?

I had a similar situation just recently. I ended up splitting the current rents with the seller. Neither of us were terribly happy about it, but it seemed to be a fair and equitable way to sort it out.

Mike

@Aaron T.

I wouldn't pay a huge premium over what the place is actually worth. I know Homeaway / VRBO doesn't allow someone to take over your account so you have to start over with a new account and no reviews. Not sure what Airbnb allows. It would be helpful to see that a particular property and location was successful as a VRBO. But you have set one up before and can surely do it again whether the house you want to buy is currently a VRBO or not.

I would think the bank is only going to approve the loan on what the house is worth based on comps and I would not overpay for any property.

What if they banned VR's in your area after you bought it and you paid a premium  based on it already being a cash generating VR?

So I would approach the value on what the comps say plus any furniture / equipment that is included given that this stuff is used.

Originally posted by @John Underwood :

@Aaron T.

I wouldn't pay a huge premium over what the place is actually worth. I know Homeaway / VRBO doesn't allow someone to take over your account so you have to start over with a new account and no reviews. Not sure what Airbnb allows. It would be helpful to see that a particular property and location was successful as a VRBO. But you have set one up before and can surely do it again whether the house you want to buy is currently a VRBO or not.

I would think the bank is only going to approve the loan on what the house is worth based on comps and I would not overpay for any property.

What if they banned VR's in your area after you bought it and you paid a premium  based on it already being a cash generating VR?

So I would approach the value on what the comps say plus any furniture / equipment that is included given that this stuff is used.

John, you and I seem to be on the same thought process. I did not know if anyone was paying anything different for a successful in service unit, so I turned to my VR peers for their thoughts.

Thanks for the info on taking over an account. I was hoping I could, but did not put any research into it up until this point. I will check with Airbnb. 90+% of my VR guests come from Airbnb.

If VRs were banned, I could use it as a annual rental and cash flow. Tampa is friendly to VRs and UBER and the such, so I don't think the VR market will go away anytime soon.

@Aaron T. interesting question. I have a slightly different view on this. I am not advising you to pay a premium of course (lol), but I do believe as the market becomes more mature, there is obviously a value, as a goodwill, or an intangible asset, built by renting a property as a STR.

Even if you can't transfer the account, there is at least the value of the "proof of concept", possibly a website, a list of previous guests, a tested pricing model, the furniture, the knowledge of the demography of the guests, etc.

As a seller, if a traditional property shows a gross cap rate of 5% with a list of comps and you are showing a net 10% or more, why not monetizing it? 

For my last property, I went with a new email address, a new airbnb account and set it up in a way that worst case I can hand that email to the buyer. As @John Underwood mentioned, airbnb/vrbo don't support change of ownership, but at least on airbnb you can change your ID (so it's like allowing change of ownership) and you can have a screen name. So basically there are some work arounds, and it's not excluded that when there is demand, they may implement the "sale of property" feature.

Now add this to the fact that the capital gain tax is killing us here in Cali (I don't like the restricted 1031 process when selling) I am setting up my property/business in a way to be able to sell the RE property (at regular market/comp price) together with a "sale of business" (which will represent the STR value) in some sort of reasonably taxed format (1099/consulting) . So this gives you some tax optimization flexibility as well.

BTW what I am sharing may be new in the form, but the fact VR properties sell for more is not new at all. When the city of Anaheim stopped issuing new STR licenses, (before the unexpected ban), a house with a good STR record would sell for $750k with furniture, guests, etc (turn key) while appraised hardly at $450 as a RE property. That's an extreme disproportionate mark up, but I would value the business at least for a 2x or 3x the EBITDA of the STR business. For instance if a property's regular rent is $3000 per month and STR is bringing $6000, that's roughly a $36k EBITDA per year which maybe valued as an additional sale value of $100k on the property. Hope that makes sense.