Can I sell my STR for more than market value if I have established revenue?

Question

I have a STR that I've owned for 3 years in the Orlando market. I know commercial properties are worth more if they are sold with a tenant in a lease. Does the same apply to a STR (of course there's no lease, but there are reviews and established revenues)?

I have a local property manager that is co-host on the AirBnb listing that will continue to manage the property. At this point everything is on auto pilot and someone could buy the property from me and just collect the rents.

So, as an example that I'm making up for simple math: If the property is worth $700,000 and it's been consistently bringing in $50,000/yr in net revenue, could I sell the property as a business for more than the property is worth (eg $850,000)?

I am aware AirBnb does not allow you transfer reviews; That's another topic for another day. For the sake of the argument, let's say I have figured out how to handle that.

Shawn McCormick · Answer

I've helped a few dozen buyers purchase in this market and we've never paid a premium for future revenue. If you property is generating a solid income and is heavily themed you can be at the top of the market, but not like what you have outlined as in a commercial property. Most agents will price one 5 bedroom the same as another and they will have wildly different qualities of furniture, location and revenue. To the buyers agent and the public, they have to figure out how to justify the price and you will have to prove it. To an appraiser and lender, the furniture has no value and there is no guarantee that all of the bookings will actually show up and pay. The PM could transfer or cancel them or the guests could decide to stay somewhere else once you inform them of the new ownership.

It is a bonus for a buyer to walk into bookings after a purchase and give them some piece of mind that they are getting enough revenue to cover the first couple mortgage payment, but thats about it. I've literally shown hundreds of STR properties and they have supplied me with a P&L maybe 15 times. If you have performance history that is tangible, that helps too.

Best of luck.

Collin Hays · Answer

Market value is determined solely on what you and a buyer agree to. If you can get a premium because future rents are on the books, go for it.

Shane Petersen · Answer

@Bill B.l B. and @Shawn McCormick thanks for taking the time to answer my question and provide your insights. I appreciate and avlue the feedback you've provided. For what it's worth, I did Google search and search the site for this question, but only got irrelevant results. Apparently I'm not searching for the right thing.

I'm aware banks won't recognize the value of the rental income because there is no lease, so my target buyer would be an investor or investment firm looking to pay cash. It sounds like from Shawn's experience that something like that doesn't happen currently, so I'd be trailblazing, if I could get it to work. I have to admit that's a solid deterrent, by itself. I might have a better shot at it if build a portfolio of properties and sell them all together as a business.

@Bill B. for context, the home is in a dedicated STR community, so it's safe to say there's a 0% chance of running into troubles like you mentioned in Oahu or Las Vegas.

Also, like I said, those numbers are 100% made up on the spot. I'd need to sit down and figure out my real numbers over the last 3 years. Out of curiosity, from your perspective, what ROI (or other relevant KPI) would it need to have to grab an investor's attention?

Bruce Woodruff · Answer

I will be the one that disagrees - in part. Of course, it depends on each situation....where is the property, how is the STR market, who is the buyer, etc?

I would certainly try to get a little extra for the future business potential, some people may go for it. I had a positive experience doing this last year, but it was a 1031X buyer who had owned STRs and understood the extra value.

Never hurts to try, I say.....

Dan H. · Answer

No one pointed out that your numbers would not be that good an investment at $700k.  In most markets at high LTV you want LTR rents to be 1% or $7k.  12*$7k is $84k.  STR is more effort.  I would not purchase if net rent was 10% of purchase ($70k in this instance).

I believe others have answered your question but I will point out something that was not outright stated.  In high concentrate STR locations, the price properties sell for (the comps) reflect the STR income potential.  No one is selling potential cash cows in these types of markets for a price that would have the buyer making huge cash flow.  In such markets the sold comps are a reflection of STR income potential.

Good luck

Shawn McCormick · Answer

It's too difficult to narrow down a KPI that would attract someone. When these homes get listed, we get photos and the 'dream of owning your own vacation home' So we have to start with price & location..if those both meet the criteria, then we hone in on weather we want one that has not been taken care of and likely not generating enough income to cover expenses or one that is fully themed and likely will continue to do well if all else stays the same. We rarely get a P&L or a website to figure out if the calendar is full. Depending on the price point and community, any buyer has dozens of choices in each resort. Every investor wants to feel like they got a 'deal', so they gravitate towards the bottom rung of pricing.

So proving value over the dozens of others because you think yours is worth more will not fly. They have a budget in mind when they start looking and if yours is outside the normal realm for say an 8 bedroom, it likely wont' even show up in their search. If you want $850 and their budget is $800 and that is where the bulk of the listings are, that is what they will focus on. Getting an investor to see value in paying a premium is very difficult, even if you show them the numbers to back it up.

Craig Jones · Answer

There have to be thousands of experienced operators scouring the planet for opportunities to buy low and create an outsized cash flow the STR biz.  In any location where that’s possible, it’s quickly reflected in the market price of properties there.

if I had a secret that allowed my STRs to get cash flows that others couldn’t replicate with a similar nearby property, I’d definitely be keeping that to myself 😀

Yiwei Cheng · Answer

I agree that it should be based on market value, not what potential revenue (or past revenue) would be.  For loan mortgage purposes and if it ever gets sold, other people may not use that same strategy.

Andrew Steffens · Answer

Really just reaffirming what has been said here.

In addition to managing 65+ units mostly in the Tampa area I am a broker that buys and sells STR.  There are always a few current STR's on the market and they are all in line with the area comps.  I am not aware of any hedge funds purchasing, most of the investors are mom and pop and will be using financing so the appraisal will be on the value based on comps, not revenue or future revenue.

If your property is above average in condition and amenities and being offered furnished those things could get you a small premium but you will likely not get a buyer paying cash based on a multiple of past/future revenue.

Good luck!

Bill B. · Answer

Pretty sure every time this has been asked the answer is no. First because reviews don’t transfer the buyer could set up the identical home across the street. Second because they can’t borrow the amount over the property’s appraised value, even for the furniture. Thirdly because it could be outlawed like Oahu or so highly restricted, like Vegas, that it’s worth only what the property is worth, or less.

You can click on the magnifying glass in the upper corner and search previous discussions.

Ps. Is that $50k net with an $850k mortgage at 7.5-8%? Nobody’s going to pay $850k cash for a chance to earn $50k (if they run it as well as you.) When they can get $47k guaranteed from the bank. Maybe you could find a VA or a co-host to do all the work for you?

Pps. You could try advertising to your guests. But remind them they’d need 25% of the $700k ($175k) plus the $150k premium you’re asking as a cash downpayment. ($325k downpayment should eliminate the tire kickers.) downside to your plan is you eliminate all the owner occupants as buyers. GL. Let us know what happens.

Can I sell my STR for more than market value if I have established revenue?

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