Why Residential Valuations Suck Especially for STR's

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Why Residential Valuations SUCK Especially for STRs

Whether you want to cash out, leverage or sell your property, having a business or commercially valued property can give you a lot more control

Financing on residential 1-4 family properties is a bit more standardized and so is the valuation. That sounds good right? Maybe - but if you really want to get the best return on your investment, it's definitely not. Most investors want to get their cash out of the deal so they can continue to grow their portfolio. To do this with residential properties, you have to get a screaming deal on the property or have a heavy value add situation. Those deals are few and far between and a lot can go wrong, which means your capital remains locked up in the property. Residential valuations are based on comps (comparable sales), which are pretty standard, but on top of that, your rents have to be comparable to those around your property or amenities have to be superior. As far as your business/rental income, it really doesn't come into play until you have two years worth of tax returns filed.

On top of everything in the residential market being super standardized, the competition is heating up, which means... you either go super high end or you make less of a return.

What if you don't want to wait 2 years (or more) to get your money out?
What if your efforts could have much more sway in the property valuation?
What if you want a much better return for your investments?

If you build a boutique hotel, rental community or event venue, you could be into the deal for the same amount but could have a return that is an order of magnitude more!

You'd be valued as a business, not what a thousand other properties are doing in your area. Capital improvements like putting in a pool or a pickle ball court...yeah, you could do that for a single short term rental to be more competitive and get a bit better rents...OR you could put in a single pool and/or pickle ball court for a dozen STRs (heck even a 100).

The point is, you can do those capital improvements once for a far better return.

Furthermore you can scale over time on the same property. Your valuation is based on what you put into the business/property and business income, which you have a heck of a lot more control over. Expanding is far easier than acquiring additional properties and you can leverage the business to do it. The business pays for itself to make more money!