Buying an Airbnb property as a business vs a residence?

Question

I am looking at a property that is currently advertised and used as a vacation rental. The seller is trying to sell for 2x the Zillow Estimate based on the fact that it’s an “established bnb”.

First time looking at a property like this but this seems off to me.  Does anyone have experience in this sort of thing? Should I be assessing the property as simply a residential property or as a business?

Bruce Woodruff · Answer

IF the numbers can be verified, then there is obviously more value to a property that has a built-in income stream attached to it. Double? We'd have to see the numbers. And not just the owner's Excel spreadsheet...the Tax Returns, P&Ls, Balance Sheet, Etc....

Anna Patty · Answer

I think it would depend on which market you are in. Some permits for STR don't transfer to the new owner. But if the permits do transfer over and STR permits are hard to come by then the property can go for a premium. We went to look at a licensed and zoned AirBNB listing in Kona Hawaii and the price was high because finding a property that you could also STR was in high demand/short supply. The listing went into contract within a week and above the asking price. But it's risky since the laws could always change. Maui county is trying to phase out 3,000 STR.

But if AirBNBs are a dime a dozen in that area - the premium price doesn't seem to make sense to me.

Marshall Leipprandt · Answer

@Stephanie Brown Look at comps for similar properties in area. If the Airbnb is turnkey and ready to assume ownership, I do think buyers are willing to pay a premium for that - but not 2x. It will be assessed at some point anyway unless a buyer is paying cash and it will be assessed based on residential sales comps in the area - not based off the revenue or pre-tax profit. So if a lender is only willing to lend X on the home per the appraisal and the seller wants 2X, a buyer will be coming out of pocket so much for a down payment that the deal likely won't make sense anymore.

You can 100% think of an Airbnb as a business and analyze it that way, but remember that for a future exit strategy, you may not have future buyers looking at it in that same lens.

And just as a tip - if they are offering it as an "established Airbnb", ask for a copy of their financials. They should be happy to share if trying to prove their valuation. In looking at these financials, you will be able to see that maybe even though cash-flowed $40K a year, they owned it outright and didn't have a debt service payment. Any new owner not buying for cash will have debt service and it could kill all of the cash-flow.

It also sounds like a seller doing one of the classic "The market is crazy right now, let's just list it and see if we can sell it for this crazy price". I saw someone list a home that was probably worth $1.2M for $1.7M and it sat and sat on the market until they pulled the listing. Having a good quality agent who understands your area should help you with vetting out what prices are just insane versus which are worth making an offer on.

Stephanie Brown · Answer

Thank you all for your thoughtful replies.  My intent, I neglected to mention, is to use it as a MFH LTR.  This feedback solidifies my thought that the seller is way off base with the list price but I will keep working at it!

Dan Bass · Answer

@Stephanie Brown

So many questions

How does the city view STR?

Are there comps?

Can this cashflow if the city changed course and you have to have it as a LTR?

Experience level of yourself and that market?

Everyone is jumping into STR since LTR don’t cashflow well.

My worry is if you’re new and we have a downturn when less people are traveling and you’re holding the bag.

Always look for another way out is my advice.

Also…how many other STR are being sold vs 6 months ago?

Is this a trend that people may be offloading in a market?

Jacob H. · Answer

I think they'll have a difficult time selling if they are doubling the price and valuing it based on business income. As others have mentioned, you could just buy a house in the area that is selling at the market value for a residential property, then convert it into an Airbnb. You're making the same amount that the seller is and you got the property at half the price that they are trying to sell theirs at.

Laura Myers · Answer

I would first ask why you are comparing Zillow estimate to the listing price? My experience shows that Zillow doesn't really know how to evaluate homes and never has. How is the priced compared to similar properties nearby? Any "rentable" property will have more value simply due to the fact it can create income. Avoid assessing the property based on what Zillow thinks and take a look at other rentable properties and similarities.

(Also, Maui County isn't trying to phase out 3,000 STR properties. Let's be clear that a particular council member is and it is unlikely it would ever pass however, it's tabled. It includes 7,200 condos which bring in MILLIONS of dollars to the county which is why the Mayor doesn't even support it. It is a much deeper story than one can discuss on a forum and I personally, wouldn't let that deter me from purchasing.)

Bruce Lynn · Answer

Is it important to have an established AirBnB, do they have provable repeat business?  Otherwise why couldn't you buy the house next door for 1/2 price, furnish it, use the same host, or PM etc?   If they don't have repeat business, I don't understand why you would need to pay double is my thought.

How much are the FF&E worth?  How much would it cost to replicate it?

Anna Patty · Answer

If STR rates were $1,000/wk in an area that's a good sign. If you could find a similar residential property (without the premium AirBNB price) in the same area that could be turned into STR that would be more attractive to me. But I think it would depend on how easy/hard/cheap/expensive it is to get the STR permits.

Bruce Woodruff · Answer

It does if you have a hot STR that is bringing in $1000 wk or more....

Buying an Airbnb property as a business vs a residence?

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