Is there value in a STVR permit?

Question

I’m looking at flipping a house that doesn’t have a STVR permit. An ordinance was just passed that there will be no new ones issued. The area as a whole is very touristy and lots of STVRs all around. The area this house is in though is more so considered permanent residents and there are some houses with SVTR permits that are grandfathered in. I’ll be looking to market and sell this as a normal house (could still do long term rentals, or live in one part and do STVR on the separate part). Just trying to figure out a value on the house after renovations. Does the fact that it doesn’t have that permit hurt?  I would think not so much if it’s not going to be intended for that use. What are your thoughts?

Michael Baum · Answer

So @Michael Furey, the house is worth what it is worth based on comps in the area. Even successful STRs are valued that way for the most part.

Having said that, in the real world, a STVR permit is a valuable thing. So if it stays with the house regardless of ownership changes, that would be awesome for new owners. But you don't have one and won't be getting one so that point is moot.

You said the house is in an area that is primarily permanent residents so that is how it will be valued.

Are you allowed to short term rent part of the house without a permit if you live in another part of the space?

If it is allowed without restriction, then your remodel could reflect that in the build. You build out essentially with that in mind. Don't sacrifice the SFH living, but make it easier to close off a part of the house for a 1/1 or 2/2 or whatever as a STR. Live in one section, rent the other as a STR. The access to all the cool tourist stuff is a bonus.

Ryan Moyer · Answer

It depends on the market.  You'll probably have to do some research on the market and see if you can pin down if the permit affects pricing in that market, because in some markets it absolutely does.

I'm sure you'll get people telling you these are residential homes, so their priced is based on what a similar home sells for and the permit doesn't factor into that.  And technically that may be true in principle, but is not always the case in practice.

In Hurricane UT where the waiting list for a permit is 10 years, a home may sell for 50% more if it has a permit.  The same exact home, right next door to each other.

Henderson, NV is another spot like this.  One of the only legal STR areas outside of Las Vegas but permits are very limited.  Maybe not 50% there, but easily 25%.  In fact there was a home listed there recently where the listing was very clear that they were listing it at $150k over non-permitted comps and that the home would not appraise but was marked up because of the permit, and it received multiple offers and sold for over asking.  That was just recently, not back when everything was getting multiple offers and selling over asking.

Scott K. · Answer

I can't say about your area, but in my area the HOAs who have banned STRs, their homes have increased by a normal amount these past 3 years, roughly 10%, maybe as high as 15%.The HOAs who have 'not' banned STRs, have seen their values double in 3 years.

Double.

Michael Baum · Answer

Hey @Michael Furey, if you have sales comps at prices with the STVR permit close by then that is where you should price it.

Having the STR permit is nice, but not necessary. An appraiser should just take the house into account and not the permit.

There is always a risk when you make a significant change to a homes layout. Seeing as you are in a neighborhood where most of the homes are owned by residents and not used as STRs, then I would keep it as such.

Get it done and sold. Then look for a STR viable property if that is where you want to go.

My 2 cents on this. You will have to chat with a realtor and see what they say.

Michael Furey · Answer

@Michael Baum makes sense. The problem is that I’m having a hard time coming up with an ARV because the closest comps, have a STR permit. I’m wondering if I can still use those comps at face value or do I need to adjust slightly for that?

Im trying to decide which way to renovate it would be best.  It could be rented as a STR if the owner lived in the main part (main is 2bed 1bath, rented area is 1 bed 1 bath and it’s all connected). Or do I Reno as a SFH as a 3bed 2 bath that’s a decent size and just market it as such?

Again, biggest issue I’m having is ARV. Can I use those comps that have a permit if I sell as a SFH?  On the other hand, would those comps be more reliable for ARV if I renovated and sold it so it could be used as an owner occupied rental?

FYI, long term rentals are allowed.

Is there value in a STVR permit?

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