All Forum Posts by: Mark Reitman

We are out of the Pigeon Forge/Gatlinburg area and in other markets now. 

@Dan H. I spoke to that nuance, stating that you'd have to change the nature of the HOA'ed development into a predominantly STR area, like the Smokies and I'm guessing the other areas you mentioned. So, to convince all those homeowners to allow them, you'd have to convince enough to sell at current market value before the HOA is changed.

Not to mention, @Bryce G.'s math is way off... $164K in revenue would translate to ~$110K NOI and hospitality investors are looking for closer to 10% cap rate which, even if the income approach were used (it won't be), the valuation would be around $1.1M; not $2.6M. Much less of a windfall for the perceived quality of life risk.

Nope. No one is going to pay $2.6M for a house, simply because it's a STR, when they can pay $880K for the identical one in the same neighborhood.

If you want to increase the value substantially, you'd have to buy out most of the subdivision and turn them into STRs, but you'd still be competing with other neighborhoods and you're asking most of the current owners to move out. Or you can purchase the type of property where you can physically convert it from a CMA-valued asset to one valued on Cap Rate.

This premise is correct for buildings of more than five units. However, it's completely incorrect for single family homes. SFHs are valued using the comparative market approach meaning, regardless of income, it's compared to the physical attributes of nearby recently sold homes. You can see this simply by recognizing that about 30% of single families already show income, in the form of long term rents, and neither those rents nor the NOI are even acknowledged in an appraisal.

Not only is the small percentage of STRs (1% of homes currently?) not going to change that dynamic, but you can already see this in high STR locations. This is included in an appraisal on a property in Gatlinburg, TN, where ~90% of the homes are STRs:

"The sales comparison approach to value was given primary weight with some consideration to the cost approach due to the age of the subject property. THE INCOME APPROACH WAS NOT APPLICABLE IN THIS REPORT." (caps are mine)

I have three other appraisals, in the same market, essentially saying the same thing, so it isn't a one-off appraiser.

Any lender will tell you the same thing which would leave as the buyer pool cash buyers dumb enough to pay more for the exact same house than another simply because it's renting as an STR.

@Kayla D. If this is in the city of Chicago and they're staying over 28 days, the city considers you a landlord, them as a tenant and the city is very tenant friendly. So I would definitely recommend you do the same due diligence as you would for a traditional 12-month tenant and have a strong lease agreement.

@Bruce Woodruff If you look at most professional STR/real estate photos, the walls and other things are straight. It looks like this photographer shot down, handheld, from eye level, making them crooked and not the best way to highlight the space (look at the edges of the pics especially). The rooms are also darker, with the lights and window views too bright. Someone using a tripod could use HDR or another method to balance that out, making the rooms show brighter without blowing out the light areas. I'd get it reshot.

Here's an example where everything is straight and they balanced the light and dark areas: https://www.airbnb.com/rooms/5...

Hey Bruce, two things stood out for me:

1. All nights are listed at $129. If that's the rate for a weekend, it probably needs to be less on weeknights. If it's rented every weekend, maybe it could be higher Fri/Sat and then lower Sun-Thur. PriceLabs is well worth the small investment. You can set a base rate which it will then use to set rates for each night individually, based on current market demand. From there, PL has a ton of other customizations you can add as well.

2. I think professional photos would be a huge help and worthwhile investment.

@Garfield M., Airbnb is a good source for midterm stays too. We have four STR units in another market (Charlotte) and constantly receive requests for midterm stays. I think it would be similar here. You just need to be aware from a legal perspective, as it legally becomes a landlord-tenant relationship after 28 days, in Chicago, and the city is very tenant friendly.

Chicago is pretty restrictive. Here's another helpful thread on the topic here: https://www.biggerpockets.com/...

Hey @Charles Cathey, I agree with @Darryl Matthews about the neighborhoods but, before digging into those, I'd highly recommend beginning with the city's regulations. Between the city and most condo restrictions, which are both pretty tight, you'll want to learn what you CAN do before figuring out where you'd like to do it. The guidelines might also guide you to the type of investment or strategy you choose.