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
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
Quote from @Leslie Anne Morris:
This is why E&O insurance was created, but with that said there is risk in real estate
Is this still covered though if gross negligence is proven?
- Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes3y
If I wanted to learn to throw a ball around professionally (or for sports nutrition advice), I'd ask Tom Brady, Stephen Curry, Shaq and Naomi Osaka.
I "personally" would not rely on them to sway my financial decisions one way or the other.
If Tom Brady ever said, hey Scott, Shaq and I have been talking and we think think you should buy apartments in Waukegan in September, I would say, hey Shaq can you comp me one of those new chairs you are hawking--they look great. (not that I even know either of these two men, it's just a made up conversation for illustrative purpose).
That have to stand before the court for doing advertising outside their "Relm of Expertise" on a (I think) what is a non-financial instrument in the USA might not amount to anything other than attorney fees.
I pulled from the internet: Cryptocurrencies are not financial instruments under U.S. GAAP because they do not represent cash or a contract establishing a right or obligation to deliver or receive cash or another financial instrument.
To me it seems like advice on how to beat the Roulette wheel.
But time will tell.
Lets see how this pans out.
And Shaq does hawk some good looking office chairs.
- 3yCollin HaysBusiness MemberProperty Manager · Gatlinburg, TN · Member since 2020 · 3k+ posts · 4k+ votes
Quote from @John Carbone:
Quote from @Leslie Anne Morris:
This is why E&O insurance was created, but with that said there is risk in real estate
Is this still covered though if gross negligence is proven?
insurance isn't usually going to cover gross negligence, as that is getting into more of a fraud/criminal matter.
- Real Estate Agent · Smoky Mountains, TN · Member since 2022 · 1k+ posts · 984 votes3y
Quote from @John Carbone:
Quote from @Leslie Anne Morris:
This is why E&O insurance was created, but with that said there is risk in real estate
Is this still covered though if gross negligence is proven?
Who knows
- 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
It puts an egg on their faces, but I doubt any legal action will come of it.
Can someone sue Frank Thomas and Dough Flutie if "their lady doesn't like it too" when they take Neugenics?
Celebrities push all kinds of random crap they get paid to push. A youtuber/influencer is essentially just another form of celebrity. They all mentioned FTX etc as being paid sponsorsships, so I don't really see how that's any different than Steph Curry sketchily implying that Subway will make me lose weight or Rory McIlroy telling me the new Taylormade driver will add 25 yards to my drives.
Cosmic Vacations4.9174 Reviews - Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
Quote from @Ryan Moyer:
It puts an egg on their faces, but I doubt any legal action will come of it.
Can someone sue Frank Thomas and Dough Flutie if "their lady doesn't like it too" when they take Neugenics?
Celebrities push all kinds of random crap they get paid to push. A youtuber/influencer is essentially just another form of celebrity. They all mentioned FTX etc as being paid sponsorsships, so I don't really see how that's any different than Steph Curry sketchily implying that Subway will make me lose weight or Rory McIlroy telling me the new Taylormade driver will add 25 yards to my drives.
They were equity holders of the company. But regardless, it’s an example of people getting caught in the euphoria and FOMO and no DD was done.
this is widely different than subway or other products. This has to do with fraud, huge difference here.Pretty sure insurance won’t cover when gross negligence is proven.
- Member since 2018 · 15 posts · 4 votes3y
@John Carbone what's the story here? Get burned on a STR ?
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3yNo story, just stating facts. The hype in STR (and LTR) by some is very similar to the crypto pumpers and the tech pumpers in stocks last year. Personally, I can afford to have a 70 percent drop in revenue and still be fine on my STRs.
Quote from @Kevin Nolan:
@John Carbone what's the story here? Get burned on a STR ?
- 3yMatthew CrivelliBusiness MemberLender · MA · Member since 2021 · 1k+ posts · 1k+ votes
In my experience, R.E. agents give way too much advice on how they feel the future will play out. It makes my stomach turn. Right now we are getting an influx of calls of people who are in hot water. They can't sell, the house doesn't qualify for a rental loan, living on credit cards and my score is at 600 because my DTI is shot. Yet I see R.E. agents telling home buyers they can "date the rate" WOW...so much negligence going on and it's not the banks. Our hedge fund has STOPPED LENDING on short term rental, we have STOPPED offering ARM loans, we have a list named "markets of concern". Times are getting tough and the last thing you need is a salesman trying to push you into a bad situation. SMH If you are a buyer, do your own research and under estimate the projected valuation. When someone calls me for a fix & flip loan I go off of comps that are MAX 90 days old. The last thing I want is to see people fold.
Freedom Capital Funding, LLC523 Reviews - Member since 2019 · 7k+ posts · 4k+ votes3yI like this post.
Quote from @Matthew Crivelli:
In my experience, R.E. agents give way too much advice on how they feel the future will play out. It makes my stomach turn. Right now we are getting an influx of calls of people who are in hot water. They can't sell, the house doesn't qualify for a rental loan, living on credit cards and my score is at 600 because my DTI is shot. Yet I see R.E. agents telling home buyers they can "date the rate" WOW...so much negligence going on and it's not the banks. Our hedge fund has STOPPED LENDING on short term rental, we have STOPPED offering ARM loans, we have a list named "markets of concern". Times are getting tough and the last thing you need is a salesman trying to push you into a bad situation. SMH If you are a buyer, do your own research and under estimate the projected valuation. When someone calls me for a fix & flip loan I go off of comps that are MAX 90 days old. The last thing I want is to see people fold.
- Lender · Asheville NC · Member since 2016 · 469 posts · 317 votes3y
As far as realtors, I imagine this is covered somewhere in that pile of paper I am signing in the title office at closing. But for sure, the gurus on youtube / tiktok would do well to consistently display disclaimers somewhere. For the most part, we're adults that are responsible for our choices. :)
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3yUnfortunately in the real world that just doesn’t always hold up in courts.
Quote from @Gerald Pitts:
As far as realtors, I imagine this is covered somewhere in that pile of paper I am signing in the title office at closing. But for sure, the gurus on youtube / tiktok would do well to consistently display disclaimers somewhere. For the most part, we're adults that are responsible for our choices. :)
- Investor · Cape Coral, FL · Member since 2017 · 39 posts · 35 votes3y
I'm a licensed agent in MA, and have stopped working with investment clients for this reason (don't want to get sued for my opinions, financial cases, advice or conjecture). We have too many unsophisticated and unaccredited people entering the real estate market, and it does raise the risk factor for suits when things don't go as planned. I think the celebrity pumpers of various get rich quick schemes have significant legal exposure if the market continues to shift -- those who've lost will organize suits against them.
I think STRs will hold up where there are a lack of alternative options for short term housing, and where there are year round vacation attractions, assuming the area is not saturated with STRs. I think the people that buy an 80s furnished house and rent it out, will have to invest more to compete with more modern/desired rental offerings. The easy money has been made. - 3yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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.
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.
FTC will one day crack down on the wholesale gurus who promise rich's with no money just like they did on the fix and flip guru's who were touting 40k a month flipping houses etc etc. - Investor · Member since 2021 · 591 posts · 695 votes3y
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
- Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3y
Quote from @Leo R.:
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
there’s an “app” for that 😂
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Carbone:
Quote from @Leo R.:
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
there’s an “app” for that 😂
hahahaha
first year is guaranteed rent LOL
I think this is also reason why all these new tech company collapse , who the world need to buy car with carvana , buying home with bitcoin token and all abracadabraa lol - 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Quote from @Carlos Ptriawan:
Quote from @John Carbone:
Quote from @Leo R.:
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
there’s an “app” for that 😂
hahahaha
first year is guaranteed rent LOL
I think this is also reason why all these new tech company collapse , who the world need to buy car with carvana , buying home with bitcoin token and all abracadabraa lolTo be fair, I bought/sold my last two cars with Carvana and it was WAY better than going into the dealership and spending 4 hours with some idiot salesman that knows less about the car than I do. And technology could certainly in the future make the god-awful real estate closing process a lot more bearable.
Who needs the internet to listen to music, right? We already have the radio.
Cosmic Vacations4.9174 Reviews - Realtor · Gatlinburg · Member since 2020 · 1k+ posts · 957 votes3yI’ve sold my cars to those places, but I’d never buy one from them. Unfortunately those stocks may go bankrupt, even though in theory their model does seem efficient, just poor execution
Quote from @Ryan Moyer:
Quote from @Carlos Ptriawan:
Quote from @John Carbone:
Quote from @Leo R.:
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
there’s an “app” for that 😂
hahahaha
first year is guaranteed rent LOL
I think this is also reason why all these new tech company collapse , who the world need to buy car with carvana , buying home with bitcoin token and all abracadabraa lolTo be fair, I bought/sold my last two cars with Carvana and it was WAY better than going into the dealership and spending 4 hours with some idiot salesman that knows less about the car than I do. And technology could certainly in the future make the god-awful real estate closing process a lot more bearable.
- New to Real Estate · Member since 2020 · 220 posts · 107 votes3y
Even when you do you’re own due diligence the variables are great. Tough to nail down a case for that.
- New to Real Estate · Member since 2020 · 220 posts · 107 votes3y
My advice to anyone wanting to build in Sevier County…
- Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes3y
To be a successful real estate agent you need to be an expert in the current market and area, you don't NEED to be an expert in what the market is going to do in the future, and most realtors aren't..quite the contrary.
Anyone who relies on a realtor for strategic advice is being foolish. That is the investors job.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Ryan Moyer:
Quote from @Carlos Ptriawan:
Quote from @John Carbone:
Quote from @Leo R.:
It makes me laugh when I hear gurus (or people with no RE experience) talk about STR or LTR as "passive" or "easy".
Sure, it's "passive", until the tenant calls you at 2 am to tell you the finished basement is flooded, you discover the house is basically built on top of a subterranean river, and you spend the next 6 months excavating 30 tons of water-logged clay from under the house (by hand) to create an industrial-scale sump system (true story)..."passive", lol.
Any real investor knows this is a tough game that brings some hard knocks.
there’s an “app” for that 😂
hahahaha
first year is guaranteed rent LOL
I think this is also reason why all these new tech company collapse , who the world need to buy car with carvana , buying home with bitcoin token and all abracadabraa lolTo be fair, I bought/sold my last two cars with Carvana and it was WAY better than going into the dealership and spending 4 hours with some idiot salesman that knows less about the car than I do. And technology could certainly in the future make the god-awful real estate closing process a lot more bearable.
Who needs the internet to listen to music, right? We already have the radio.
So in 2001, when people are crazy about Internet , there're actually 30% real inventions that change how people live, but 70% are crappy it-seems-line-an-invention-but-it's-not that the whole purpose is just to scam people by introducing new idea. I guess 30% component in ARKK/ARKF is really just a scam, while 70% could bring value to humanity.
New technology can be adapted very quickly when there are regulatory changes that's accepting the new reality, for example, the acceptance of GPS to be used by everyone between 2005-2010 this help google maps,yelp,apple maps a lot ... so we can track business in real-time ; the acceptance of local gov. to accept digital signature, so yes Docusign is extremely useful. The invention of some wireless chips from Marvell/Broadcomm is super huge in way that all the app business is possible. While company like Amazon could gain unprecedented business by having its own delivery service. Carvana doesn't really invent anything, in fact it's actually backward because you can't test drive the car prior to purchase, free 7 day trial is not testing the car, you are already in pressure not to return the car.
In real estate invention, what works and what doesn't work :
- all these digital signatories is enhancing the speed of business, YES
- having discount brokerage seems like a good idea as most people is shopping via real estate website anyway
- real estate website with all those statistics.
what doesn't work:
- replacing Property management with a piece of software, does not work and will not work
- expecting regular Joe to operate Hotel-like business/STR in the middle of the city simply doesn't work
- replacing traditional Due Diligence with a piece of software, would not work.
- expecting the city not to regulate STR, is beyond comprehension (this is like the most common thread in BP which I found very bizarre).
- RE companies like the compass that's introducing weird tech inventions when selling homes; their investment making RE seems like a tech is so weird and huge mistake I guess. - Real Estate Agent · Knoxville, TN · Member since 2020 · 54 posts · 42 votes3y
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.
Unfortunately, this happens in the Smokies...
To all the investors out there- Use Air DNA, drill down to the property level to find comps, make sure you're tethering yourself to data (multiple objective sources!), and verify opinions. Your agent should never guarantee returns. They should be providing objective data. Also, find an agent that's actually investing in your market. Ask them to share their story and their experience so that you have a point of reference. They should: 1. Be a subject matter expert in the areas of experience/knowledge you lack 2. Be successful in doing what you're interested in doing. 3. Be willing to show you the ropes.
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