Short-term rental (STR) properties like Airbnbs have two key sources of value: the property value itself and the business value created by operating it successfully. Understanding how these are assessed is crucial for STR owners looking to sell or refinance. Here’s a clear breakdown of how STR properties are valued under traditional appraisals and DSCR loans, compared to commercial income approaches, and how you can capture the business value in a sale.

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1. Property Valuation: DSCR Loans vs. Commercial Income Approach

How DSCR Loans Determine Property Value

Debt Service Coverage Ratio (DSCR) loans are popular with STR investors because they focus on the income generated by the property to approve financing. However, when it comes to determining the property’s value, DSCR loans use traditional residential appraisal methods:

• The property’s value is based on comparable sales (comps)—nearby homes of similar size, features, and condition, whether they are STRs or not.
• The appraised value does not increase based on how much cash flow the property generates.

Example:

• House A: Generates $60,000/year as an Airbnb.
• House B: Identical home, used as a primary residence.
• If local comps value 3-bedroom homes at $400,000, both House A and House B will appraise for $400,000.

What STR Income Does: While STR income doesn’t increase the home’s appraised value, lenders use it to show the property generates enough cash flow to cover the loan payments (Debt Service Coverage).

How the Commercial Income Approach Differs

In commercial real estate, the income approach directly determines the property’s value based on its cash flow:

Formula: Property Value = Net Operating Income (NOI) ÷ Cap Rate

Example:

• A property generates $60,000 in annual NOI.
• With a market cap rate of 6%, the value = $60,000 ÷ 0.06 = $1,000,000.

Unlike DSCR loans, commercial lenders tie the property’s value directly to its income, which can lead to significantly higher valuations.

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2. Understanding the Business Value of an STR

While residential appraisals focus on the property itself, the success of a short-term rental could potentially add separate business value. This includes tangible and intangible assets that drive the property’s income.

What Makes Up the Business Value?

• Furnishings & Decor: Fully furnished spaces ready for guests.
• Future Bookings: Pre-booked reservations that provide immediate cash flow.
• Repeat Guest List: Loyal guests who rebook consistently.
• Operational Systems: Processes for check-ins, cleaning, and dynamic pricing.
• Amenities: High-value features like hot tubs, smart-home tech, or game rooms.

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3. How to Sell the Business Value Separately

When selling an STR, the property value and business value can be structured as two separate components:

1. Real Estate Sale: The home is sold at its appraised market value using a standard residential purchase agreement.
2. Business Sale: The STR business assets are sold separately through a Bill of Sale.

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Example: Valuing and Structuring the Sale

Let’s assume the appraised property value is $500,000. Here’s how you could value and price the business assets:

Business Asset	Value
Furnishings & Decor	$20,000
Future Bookings (Discounted)	$7,500
Guest List & Operational Systems	$5,000
Special Amenities (e.g., hot tub)	$2,500
Total Business Value	$35,000

Total Transaction Value = $500,000 (property) + $35,000 (business assets) = $535,000.

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Steps to Finalize the Sale

1. Real Estate Sale Agreement: Standard purchase contract for the appraised property value.
2. Bill of Sale for Business Assets: A separate agreement listing:
   • Inventory of furnishings and amenities.
   • Transfer of future bookings.
   • Guest contact list and operational systems.
3. Payment Terms:
   • Full payment for business assets at closing, or
   • Seller financing for the business portion (e.g., $35,000 over 2 years at 6% interest).

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4. Final Takeaway

When selling a short-term rental property:

1. Your STR Home Value: The home’s value is determined by traditional appraisals based on comparable sales—not its rental income.
2. Your STR Business Value: The business assets—furnishings, bookings, and systems—can be sold separately through a Bill of Sale.

But here’s the key: The total price ultimately comes down to what a ready, willing, and able buyer can get a loan for (property value) and what they are willing to pay above that for the business assets.