Warning for STR Pumpers
Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes
Warning for STR Pumpers
Most Popular Reply
Collin HaysBusiness Member
Property Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votesReal estate professionals are, in many ways, acting as financial professionals. Not unlike a financial advisor. Of course, a real estate agent's job is to sell. An agent is compensated at closing. By their nature, sales people are inclined to point out the good and minimize the bad. Nothing wrong with that.
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer. On the other hand, words and phrases such as "guaranteed", "no risk", "no brainer", "can't lose", and "you can do it from your iphone" could be quite problematic.
We have a client that, in September 2021, purchased a cabin in the Smokies and called and asked us to manage it for them. Of course we were honored, but when we went to the cabin to inspect it, we found that it was going to need about $75,000 of work just to be safe for guests. And the maximum we projected it would rent for was about $35,000 per year. The location is awful and it doesn't have any sort of redeeming qualities, other than just being a decent house in the woods, almost an hour away from attractions, and on a road that you need a 4WD to traverse.
The homeowner became angry with us and said "well the realtor said he thought it would do $75K a year easily." Hmm. That's a problem.
Fast forward today: They've spent almost $100,000 on the property and it's still got bad water. It took them 13 months to get it ready to rent. We finally started renting it in October. As expected, it did around $3000 in October and around $2000 in November. I was surprised it did that well.
Meanwhile, they have about $420,000 tied up in a property that is probably worth less than $200,000, fair market value. Do they have a cause of action against the realtor? I have no idea - I am not a lawyer - but I wouldn't want to be sitting in his shoes right now.
50 Replies
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
I don’t recall seeing any sunshine pumping in these parts. 🤣
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Collin Hays:
I don’t recall seeing any sunshine pumping in these parts. 🤣
What's funny is if there's a STR lawsuit, the Airbnb company is totally confused, we never pay anyone to promote us. LOL :) :)
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
Quote from @Michael Baum:
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
I don’t think there’s an issue for people on forums in your example, but more for people selling real estate with the hype of massive returns that could fall under scrutiny.
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Real estate professionals are, in many ways, acting as financial professionals. Not unlike a financial advisor. Of course, a real estate agent's job is to sell. An agent is compensated at closing. By their nature, sales people are inclined to point out the good and minimize the bad. Nothing wrong with that.
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer. On the other hand, words and phrases such as "guaranteed", "no risk", "no brainer", "can't lose", and "you can do it from your iphone" could be quite problematic.
We have a client that, in September 2021, purchased a cabin in the Smokies and called and asked us to manage it for them. Of course we were honored, but when we went to the cabin to inspect it, we found that it was going to need about $75,000 of work just to be safe for guests. And the maximum we projected it would rent for was about $35,000 per year. The location is awful and it doesn't have any sort of redeeming qualities, other than just being a decent house in the woods, almost an hour away from attractions, and on a road that you need a 4WD to traverse.
The homeowner became angry with us and said "well the realtor said he thought it would do $75K a year easily." Hmm. That's a problem.
Fast forward today: They've spent almost $100,000 on the property and it's still got bad water. It took them 13 months to get it ready to rent. We finally started renting it in October. As expected, it did around $3000 in October and around $2000 in November. I was surprised it did that well.
Meanwhile, they have about $420,000 tied up in a property that is probably worth less than $200,000, fair market value. Do they have a cause of action against the realtor? I have no idea - I am not a lawyer - but I wouldn't want to be sitting in his shoes right now.
- 3yCole SchlackPro MemberRealtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes
Quote from @Collin Hays:
Real estate professionals are, in many ways, acting as financial professionals. Not unlike a financial advisor. Of course, a real estate agent's job is to sell. An agent is compensated at closing. By their nature, sales people are inclined to point out the good and minimize the bad. Nothing wrong with that.
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer. On the other hand, words and phrases such as "guaranteed", "no risk", "no brainer", "can't lose", and "you can do it from your iphone" could be quite problematic.
We have a client that, in September 2021, purchased a cabin in the Smokies and called and asked us to manage it for them. Of course we were honored, but when we went to the cabin to inspect it, we found that it was going to need about $75,000 of work just to be safe for guests. And the maximum we projected it would rent for was about $35,000 per year. The location is awful and it doesn't have any sort of redeeming qualities, other than just being a decent house in the woods, almost an hour away from attractions, and on a road that you need a 4WD to traverse.
The homeowner became angry with us and said "well the realtor said he thought it would do $75K a year easily." Hmm. That's a problem.
Fast forward today: They've spent almost $100,000 on the property and it's still got bad water. It took them 13 months to get it ready to rent. We finally started renting it in October. As expected, it did around $3000 in October and around $2000 in November. I was surprised it did that well.
Meanwhile, they have about $420,000 tied up in a property that is probably worth less than $200,000, fair market value. Do they have a cause of action against the realtor? I have no idea - I am not a lawyer - but I wouldn't want to be sitting in his shoes right now.
I dont feel its agents saying as much as these STVR Guru's selling books and mentorship. having owned STVRs in multiple states the for the last 20 years the one thing I learned is its not easy or guaranteed. Some years you make money some you don't, just when you think you have it figured out VRBO or Airbnb change something and suddenly your bookings aren't coming in. If you look at it as a fun investment that you can use and enjoy and it hopefully breaks even, I think they are great.
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Cole Schlack:
I dont feel its agents saying as much as these STVR Guru's selling books and mentorship. having owned STVRs in multiple states the for the last 20 years the one thing I learned is its not easy or guaranteed.
Agreed. Anyone saying it's "easy" or "guaranteed" hasn't been investing in STRs very long. I remember when I started buying tech stocks in early 1998 - right before the NASDAQ went parabolic upwards, and I thought I was Warren Buffett. Everything I touched - and everyone else, was going up, up, up. "New normal". "Old investment rules don't apply any more." Life was good. Want a 20 percent return? Toss your money into a good mutual fund. It's easy!
Two years later, thing crashed. As it turns out, strong balance sheets mattered after all. It took the NASDAQ 15 years to recover to its early 2000 high.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @Michael Baum:
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
Your Question: "I just wonder how far it would go"
Lawsuits like that are subjective, that's why they become lawsuits. Typical lawsuit takes a year and a half and cost each participant around $50,000 even if it wasn't your fault. You don't know that it wasn't your fault until the judge or jury says it wasn't your fault, not until.
However, most lawsuits settle and you lose only 6 months and $25,000 in legal fees plus the amount you settle for. Somehow that isn't a very comforting consolation. It just takes one person to name all involved parties and their spouses and suddenly, tah dah, well, there you are in a lawsuit.
(That is one reason I suggest people don't do Partnerships as a legal entity, they should do Joint Ventures instead.) IMHO
I know you already know this, but I write for the "lurkers" who never post.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Account Closed:
Quote from @Michael Baum:
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
Your Question: "I just wonder how far it would go"
Lawsuits like that are subjective, that's why they become lawsuits. Typical lawsuit takes a year and a half and cost each participant around $50,000 even if it wasn't your fault. You don't know that it wasn't your fault until the judge or jury says it wasn't your fault, not until.
However, most lawsuits settle and you lose only 6 months and $25,000 in legal fees plus the amount you settle for. Somehow that isn't a very comforting consolation. It just takes one person to name all involved parties and their spouses and suddenly, tah dah, well, there you are in a lawsuit.
(That is one reason I suggest people don't do Partnerships as a legal entity, they should do Joint Ventures instead.) IMHO
I know you already know this, but I write for the "lurkers" who never post.
I have one big company I ask for a lawsuit because they don't deliver promises of quality. It's LTR.
Before going that route they sent me a cheque.One I agree with the original poster is in this industry there are just too many stories where companies or people that suppose to do DD, don't do anything.
- 3yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
There will be a decent amount of losses in the STR segment.
Logical Property Management4.9458 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
There's no threat to most people on BiggerPockets. We're sharing opinions and experiences for free with no financial skin in the game. If you hear me say something positive about short-term rentals, that's no different than reading advice from a book, magazine, or news article. Paid endorsers are a different story, particularly if they are paid significant amounts.
The DIY Landlord Book4.7248 Reviews - Investor · Lancaster, PA · Member since 2022 · 74 posts · 104 votes3y
Just remember, as the say in crypto..."this is not financial advice, DYOR". LOL.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Collin Hays:
Quote from @Cole Schlack:
I dont feel its agents saying as much as these STVR Guru's selling books and mentorship. having owned STVRs in multiple states the for the last 20 years the one thing I learned is its not easy or guaranteed.
Agreed. Anyone saying it's "easy" or "guaranteed" hasn't been investing in STRs very long. I remember when I started buying tech stocks in early 1998 - right before the NASDAQ went parabolic upwards, and I thought I was Warren Buffett. Everything I touched - and everyone else, was going up, up, up. "New normal". "Old investment rules don't apply any more." Life was good. Want a 20 percent return? Toss your money into a good mutual fund. It's easy!
Two years later, thing crashed. As it turns out, strong balance sheets mattered after all. It took the NASDAQ 15 years to recover to its early 2000 high.
Buffet and Charlie Munger are in party mode currently after the FTX/BlockFi/Gemini crypto crashes.
He said all these crashes happened because people wanna be rich overnight without doing anything. - Austin, TX · Member since 2013 · 152 posts · 104 votes3y
Quote from @Collin Hays:
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer.Actually, Realtors have a fiduciary duty to their clients
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
Quote from @Carlos Ptriawan:
Quote from @Collin Hays:
Quote from @Cole Schlack:
I dont feel its agents saying as much as these STVR Guru's selling books and mentorship. having owned STVRs in multiple states the for the last 20 years the one thing I learned is its not easy or guaranteed.
Agreed. Anyone saying it's "easy" or "guaranteed" hasn't been investing in STRs very long. I remember when I started buying tech stocks in early 1998 - right before the NASDAQ went parabolic upwards, and I thought I was Warren Buffett. Everything I touched - and everyone else, was going up, up, up. "New normal". "Old investment rules don't apply any more." Life was good. Want a 20 percent return? Toss your money into a good mutual fund. It's easy!
Two years later, thing crashed. As it turns out, strong balance sheets mattered after all. It took the NASDAQ 15 years to recover to its early 2000 high.
Buffet and Charlie Munger are in party mode currently after the FTX/BlockFi/Gemini crypto crashes.
He said all these crashes happened because people wanna be rich overnight without doing anything.It's not exactly the same and it's on a smaller scale, but there are some in the STR world who tout the same horn with comments like "you can do it from an app anywhere in the world" and "it's so easy I have the secret sauce to show you" until it isn't.
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3yThe vast majority of agents have nothing to worry about. But if you are out there doing YouTube videos pumping this stuff and your show is like a rock star concert pitching this stuff, insurance companies will have an easier time proving gross negligence and your policy could very well be moot.
Quote from @Nathan W.:
Quote from @Collin Hays:
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer.Actually, Realtors have a fiduciary duty to their clients
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Carbone:
Quote from @Carlos Ptriawan:
Quote from @Collin Hays:
Quote from @Cole Schlack:
I dont feel its agents saying as much as these STVR Guru's selling books and mentorship. having owned STVRs in multiple states the for the last 20 years the one thing I learned is its not easy or guaranteed.
Agreed. Anyone saying it's "easy" or "guaranteed" hasn't been investing in STRs very long. I remember when I started buying tech stocks in early 1998 - right before the NASDAQ went parabolic upwards, and I thought I was Warren Buffett. Everything I touched - and everyone else, was going up, up, up. "New normal". "Old investment rules don't apply any more." Life was good. Want a 20 percent return? Toss your money into a good mutual fund. It's easy!
Two years later, thing crashed. As it turns out, strong balance sheets mattered after all. It took the NASDAQ 15 years to recover to its early 2000 high.
Buffet and Charlie Munger are in party mode currently after the FTX/BlockFi/Gemini crypto crashes.
He said all these crashes happened because people wanna be rich overnight without doing anything.It's not exactly the same and it's on a smaller scale, but there are some in the STR world who tout the same horn with comments like "you can do it from an app anywhere in the world" and "it's so easy I have the secret sauce to show you" until it isn't.
It's in LTR mode too.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Carbone:
I’ve mentioned over the past few years to be careful how you pump and promote short term rentals to people in search of real estate. As I said before, when people take loses, they file lawsuits at anyone associated.
Different industry, but all the celebrities and athletes who associated with the FTX crypto exchange are now having to lawyer up for being an ambassador and pumper on their.
promote wisely.I also want to put a strong emphasis on what John said.
In 2020 there was a "fund syndication" that was investigated by SEC as it promotes real estate with fraudulent mechanisms and is suspected as a ponzi scheme. The list of promoters and auditors included in the accusation keeps growing including someone with last name of "Rockefeller".
Just saying if you promote something (especially if it's your own fund), the SEC may get into you.
The case is still going on these days. - Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Account Closed:
Quote from @Michael Baum:
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
Your Question: "I just wonder how far it would go"
Lawsuits like that are subjective, that's why they become lawsuits. Typical lawsuit takes a year and a half and cost each participant around $50,000 even if it wasn't your fault. You don't know that it wasn't your fault until the judge or jury says it wasn't your fault, not until.
However, most lawsuits settle and you lose only 6 months and $25,000 in legal fees plus the amount you settle for. Somehow that isn't a very comforting consolation. It just takes one person to name all involved parties and their spouses and suddenly, tah dah, well, there you are in a lawsuit.
(That is one reason I suggest people don't do Partnerships as a legal entity, they should do Joint Ventures instead.) IMHO
I know you already know this, but I write for the "lurkers" who never post.
I have one big company I ask for a lawsuit because they don't deliver promises of quality. It's LTR.
Before going that route they sent me a cheque.One I agree with the original poster is in this industry there are just too many stories where companies or people that suppose to do DD, don't do anything.
I don't think most people have anything to worry about.
The likeliest candidates for lawsuits are 1. those teaching wholesalers, and 2. those that promote using Subject To and Creative Financing as though it's Willy Wonka's candy store.
Then the gurus come on Bigger Pockets and do a promo or two to grow their following. I don't think it will be the "groupies" that follow them that will sue because they couldn’t get things to work, it will likely be people who sold their house to them and get the regulators involved.
There is a perfectly legal and legit way to do Subject To and then there is the "they don't know, what they don't know group". People, even gurus, can teach the wrong thing because "they don't know". However, saying "I didn't know" doesn't seem to impress the judge. - 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @Nathan W.:
Quote from @Collin Hays:
I wouldn't go so far as to say that a real estate professional has a fiduciary obligation to a buyer.Actually, Realtors have a fiduciary duty to their clients
Good find. Makes sense.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Account Closed:
Quote from @Carlos Ptriawan:
Quote from @Account Closed:
Quote from @Michael Baum:
I wonder how that would work. Someone comes here and lays out a plan. We all comment, tell them how it could work etc. They move forward then fail.
There is so much subjective stuff that affects success. You could be the biggest a-hole with the personality of cactus.
I just wonder how far it would go.
Your Question: "I just wonder how far it would go"
Lawsuits like that are subjective, that's why they become lawsuits. Typical lawsuit takes a year and a half and cost each participant around $50,000 even if it wasn't your fault. You don't know that it wasn't your fault until the judge or jury says it wasn't your fault, not until.
However, most lawsuits settle and you lose only 6 months and $25,000 in legal fees plus the amount you settle for. Somehow that isn't a very comforting consolation. It just takes one person to name all involved parties and their spouses and suddenly, tah dah, well, there you are in a lawsuit.
(That is one reason I suggest people don't do Partnerships as a legal entity, they should do Joint Ventures instead.) IMHO
I know you already know this, but I write for the "lurkers" who never post.
I have one big company I ask for a lawsuit because they don't deliver promises of quality. It's LTR.
Before going that route they sent me a cheque.One I agree with the original poster is in this industry there are just too many stories where companies or people that suppose to do DD, don't do anything.
I don't think most people have anything to worry about.
The likeliest candidates for lawsuits are 1. those teaching wholesalers, and 2. those that promote using Subject To and Creative Financing as though it's Willy Wonka's candy store.3. fund promoters, including STR fund promoters
be careful here guys sec gonna get yaaaaaa if any of the promoters conduct fraud. - Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
Theres one client in Chicago who has sued 2 differant realtors (differant times/properties) claiming they gave him bad number projections. He lost both lawsuits. I saw him at a meetup guy seemed like a tool.
I always make sure to say this is market I project but never say its a forsure thing, I also like to have clients send me their numbers and I audit it rather then run the full analysis for them. But overall just working with good people who you trust and they trust you back while always being honest is the best way to avoid these type of lawsuits.
- Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes3y
I was very glad to see this post. STRs are taking a pounding, lending wise. Lenders are cutting their STR specific programs. Those who take them rarely use STR historical data and base the loan on long term rents, usually with greatly reduced LTVs to debt cover. With DSCR rates in 8-10%, for a new investor, there are going to be newbies who get burned. Under write very conservatively folks if anyone is wanting to buy properties for the STR specific approach in this market.
- Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes3y
This is why E&O insurance was created, but with that said there is risk in real estate
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