Selling Home for STR - Is There a Ratio of Projected Income to Sales Price?

[Bret Ceren]

Hi, BiggerPockets Community! Considering selling a home for short-term rental (STR). The HOA doesn't prevent it, so that's already cleared. There are a couple in the direct neighborhood I can find on various sites. Rabbu projects average annual revenue to be $47k. It is a great home and wonderful location, perfect for this investment model. Is there a general rule of thumb for translating that revenue into a sales price? I know what I would do for my market if it were a long-term rental in valuation, I don't know how investor buyers do it for STR. If there's a general/marginal rule of thumb that is used that I can do to start, that would be helpful. Thanks!

[Michael Baum]

Hey @Bret Ceren, I did a survey last year (I think) where I spoke with 10 lenders. Banks, Credit Unions, direct lenders, portfolio..pretty much the full mix of of lenders any of us would use.

They all said the same thing. A working STR is worth what other homes (just homes, not STRs) are worth in the area. IE-Comps. There is no additional valuation for the STR business.

In the end, past performance is not an indicator of future success.

It sounds like you have an "estimated" revenue and not actual revenue going back a few years? Just because Rabbu or AirDNA say that it will make X doesn't mean it will. There is so much that goes into a successful STR beyond the very basics.

Now, projections can help for people using a DSCR loan. I don't have a lot of info on what lenders do for that but I am betting a noob that wants to start a STR will have a more difficult time than someone like @John Underwood and @Collin Hays would have.