Can I value a short-term rental on the Fannie Mae 1004 form?
The Fannie Mae (“FNMA”) 1004 form was created to secure loans with real estate only collateral. Many times, STR properties include FF&E, and intangible assets. Utilizing STR comparables without isolating the real estate only component could be considered misleading and a violation of the Uniform Professional Standards of Appraisal Practice’s (“USPAP”) Competency Rule. If the highest & best use conclusion is for owner occupancy or traditional rental, then the 1004 may be utilized. In this scenario it is important to complete a detailed highest and best use and to very comparable sales utilized have the same highest and best use. The FNMA 1004 or 1025 forms were not created for business operations or going concern appraisals. Additionally, the acceptance and completion of a STR appraisal would need to satisfy the Competency Rule within USPAP.
What are some factors to consider in the valuation of short-term rental properties?
In appraising properties operating, or with the ability to operate, as a STR, the following may need to be considered:
- Permits / zoning associated with current operations. In some cases, a STR permit may be needed to legally operate as a STR. It is important to determine if the permits are readily available, or if the possession of a permit creates added value (intangible).
- FF&E. Most often STR properties are furnished by the property owner and often transfer with these furnishings. FF&E is generally considered a non-real estate component and would need to be analyzed within the subject and any comparable sales.
- Intangible Assets. The income generated from a STR operation may be directly correlated to the present management operations. For example, a “Superhost” classification many create higher occupancy and higher daily rental rates. This additional income is not real estate specific but a result of the management operations in place. As stated above, the possession of a permit might also be applicable in a non-real estate component.
What type of license is needed to value a short-term rental property?
The type of license required to value a STR property depends on a thorough highest and best use analysis. In order to adequately appraise any property operating, or with the ability to operate, as a STR, a detailed highest and best use analysis must be completed. If the resulting conclusion from short-term operations is considered maximally productive over owner occupancy or traditional rental operations, then the value of the business operations associated with the STR use must be analyzed. This value would need to analyze any intangible assets, furniture, fixtures and equipment (“FF&E”), and goodwill associated with the income production. Analyzing the total business operation associated with a STR would be best served by a licensed certified general appraiser.