All Forum Posts by: Don Konipol

I recently needed a STR in Phoenix for a 6 week stay. I was (pleasantly) surprised by the number, quality and pricing of offerings (February 1 - March 15). In my previous Phoenix trips the supply was much "tighter"; I ended up paying about $1,000 per month less this time, for a better neighborhood, nicer condo, and the host was willing to negotiate (a little) despite it being high season.

I was in the STR business (as investment only, my daughter ran the operation) 2014 - 2016 in NYC until we were effectively shut down as a test case of their municipal short term lodging ordinances by the City of NY. The attraction back then was that the ROI was well above what one could expect from the combination of INVESTMENT return and BUSINESS return; in other words the ROI exceeded a return for both capital and time.

So, my question is; in GENERAL, has the STR industry matured to the point where any excess return is really just a return for being in a business rather than just a real estate investment? Is the business now just like any other business, where there's a return for capital and labor, but no "windfall". It seems that a lot of wanna bees believe that outsized profits still exist in the industry; but with prices of prime properties up 40% in 5 years, is that even possible?

Quote from @Robert Mitchell:

Quote from @Duncan Hayes:

What exactly are you trying to find out? How to structure the deal? How much to sell for? How to determine payments? 

My partner and I did buy the single family. We are looking to have it rented or LO by May 1st.  You have good points.  All of the above in terms of your questions and any thing you thing we should consider.  We have a framework of either collecting the option fee upfront and having the lease higher which would included the down payment savings for the person(s) leasing.  We would consider selling within a 3yr to 7 yr window at an appraised price for the property.  All costs for the home's upkeep would fall on the leasee under a LO agreement.   Thanks for the input.

Why would a renter enter into such an agreement? Why pay a lot more than fair market rent just to have an opportunity to purchase at “appraised value”?  If the renter was locking in a definitive purchase price, and that price had a chance to be well below appraised value at the time of purchase, then maybe it might have an advantage for the renter. 

Please realize I’m NOT saying you won’t find someone to enter into an agreement like this with - the world is full of people making less than optimal financial decisions. 

Quote from @Jay Hinrichs:

Quote from @Don Konipol:

Quote from @Bruce Woodruff:

Quote from @Don Konipol:

Before MLS went digital, before it went online and was available to everybody, mediocre to bad agents could still close enough deals to make a living if they worked long enough hours, because they had the "keys" to the kingdom. Now, where ADDING VALUE is required, the 90% of the lousy, lazy, and even mediocre agents have no special "sauce" provided merely by being licensed.

Yeah, the 'good ole days', eh? That was when the MLS came out weekly as a paper magazine remember? Kinda like Auto Trader.....And if you wanted to see what was available for sale on the market, you HAD to have a Realtor. Same for sellers pretty much unless they wanted to just advertise in the paper, but then there would be almost zero traffic. So yeah, Realtors were absolutely necessary!

And therefore even a bad one could make some sort of living.....

The classified ads in the major newspapers had a homes for sale area where all the big Realtors would take full page ads to showcase their listings. Additionally, they'd advertise individual home listings in those little 1/8 page columns. Some newspapers had a separate "FSBO" area where the FSBO was guaranteed at least 50 calls Monday morning - from Realtors wanting to list their property.
Previewing homes for Realtors was much more important then, as up u til the beginning 1980s the MLS book didn't even include photos.
Since I was in commercial real estate from the beginning of my real estate career (1978) I was only involved in residential when I personally wanted to purchase a SFR for investment.

I know a lot of people think they can do everything a broker representing them can do, and believe they can save the commission.  Here is my (admittedly biased) opinion after 45 years in real estate 

1. Most people are TERRIBLE at negotiation. 
2. These same people incorrectly believe that they are Great negotiators. 

More than just “leaving money on the table”, people who are inexperienced, lack knowledge, or just plain lousy at negotiating don’t even realize  when they lose a deal that could have been concluded by their incompetence.  And that’s not even considering the emotional “detrimental effect” that comes into play when attempting to negotiate their own home transaction. 

Don this brings back memories.. when I started in 75. The SF chronicle had classifieds like your talking about and then they had a section for Land out of area. And that could be half a page from Brokers all over CA ( and you know how large CA is) I had a 4 line add every day for about 10 years and an 800 # which again was rare amongst my local competition in the county I was working in.. ( 2.5 hours north of SF ) by about early 90s . classified in the SF paper was a fraction and the out of area land was down to about maybe 3 or 4 adds.. Out of state same thing just a few adds.. But I always followed out of state looking for Oregon Timber deals.. back then many in Oregon thought that CA folks were stupid and would over pay for Oregon property so they would run an add.. Well many of these fisbo's had no clue as to what their timber was worth .. And we scored some massive deals by watching the SF want adds. Just paying what they were asking.. But hey they saved on commish but lost 200 to 500k on timber value .. but you know got to save that commission :) And it was not only fsbo's in those days many realtors had no clue either and would just comp an acreage with timber as a SFR on one acre since that's all a bank would loan against for owner occ.. of course we had alternate financing and a banker that understood timber and or we would pre sell the timber on a Timber deed to the Mill as NO INTEREST NO POINTS. Man I get excited just thinking about those days.. I mean on some of these we literally bought the whole property and home with 100% financing from the mill with zero holding costs.. Just deliver logs to pay the timber deed off etc. this is what I love about RE lots of ways to skin a cat..

Very interesting; those kind of deals are a lot more difficult to find these days because of information availability, especially on line.  I remember what we had to go through to first find out what the procedure was for any locale we were interested in as to how to bid on a tax lien or tax certificate or tax foreclosure - heck even the people working at the taxing authority had absolutely no clue - and then to go down to the property records, look up a property via LEGAL DESCRIPTION,(Lot, Block, Subdivision), check out the correct MICROFISH, then find the section with the correct RECORDING NUMBER, then actually be able to correctly INTERPRET the information found…… I remember the whole thing with driving time, waiting etc taking 4-5 hours to get information on 4 or 5 properties.  Of course if you had a good relationship with a title company they could do it for you, and you’d get the information a mere 2 weeks later. 

Quote from @Bruce Woodruff:

Quote from @Don Konipol:

Before MLS went digital, before it went online and was available to everybody, mediocre to bad agents could still close enough deals to make a living if they worked long enough hours, because they had the "keys" to the kingdom. Now, where ADDING VALUE is required, the 90% of the lousy, lazy, and even mediocre agents have no special "sauce" provided merely by being licensed.

Yeah, the 'good ole days', eh? That was when the MLS came out weekly as a paper magazine remember? Kinda like Auto Trader.....And if you wanted to see what was available for sale on the market, you HAD to have a Realtor. Same for sellers pretty much unless they wanted to just advertise in the paper, but then there would be almost zero traffic. So yeah, Realtors were absolutely necessary!

And therefore even a bad one could make some sort of living.....

The classified ads in the major newspapers had a homes for sale area where all the big Realtors would take full page ads to showcase their listings. Additionally, they'd advertise individual home listings in those little 1/8 page columns. Some newspapers had a separate "FSBO" area where the FSBO was guaranteed at least 50 calls Monday morning - from Realtors wanting to list their property.
Previewing homes for Realtors was much more important then, as up u til the beginning 1980s the MLS book didn't even include photos.
Since I was in commercial real estate from the beginning of my real estate career (1978) I was only involved in residential when I personally wanted to purchase a SFR for investment.

I know a lot of people think they can do everything a broker representing them can do, and believe they can save the commission.  Here is my (admittedly biased) opinion after 45 years in real estate 

1. Most people are TERRIBLE at negotiation. 
2. These same people incorrectly believe that they are Great negotiators. 

More than just “leaving money on the table”, people who are inexperienced, lack knowledge, or just plain lousy at negotiating don’t even realize  when they lose a deal that could have been concluded by their incompetence.  And that’s not even considering the emotional “detrimental effect” that comes into play when attempting to negotiate their own home transaction. 

I’m so sorry. 

Before MLS went digital, before it went online and was available to everybody, mediocre to bad agents could still close enough deals to make a living if they worked long enough hours, because they had the "keys" to the kingdom. Now, where ADDING VALUE is required, the 90% of the lousy, lazy, and even mediocre agents have no special "sauce" provided merely by being licensed.

Quote from @Xavier Soares:

I am trying to get into the world of real estate currently going for my real estate license in Pennsylvania, but I been thinking about wholesaling. Do you need to your real estate license to wholesale real estate from a different state. Please let me know

thanks!!!

Some states have license reciprocality with other states, you need to check. 
Otherwise it depends on if the state the property is located in requires the activity that you’re contemplating to be licensed and of course exactly what you mean by “wholesaling”.

If someone ties up a property with a contract and then proceeds to market that property for sale, that would fit under most states definition of “brokering” and license needed.  if the same person ties up the property and then markets the CONTRACT, not the property specifically, then that is the gray area subject to litigation, with some RE commissions being more aggressive than others in pursuit and enforcement. 

If the wholesaler actually purchases the property themselves and then sells it, that wouldn’t require licensure.  If the wholesaler has already identified the end buyer, forms an LLC with said buyer and obtains a contract under the LLC name, the wholesaler can sell their interest in the LLC to the end buyer, and thereby have no need for licensure. 

The real crux of the licensure question is of the “wholesaler” is marketing g the property as a third party agent for the seller, or even acting as a “buy” agent for the buyer.  The old stance taken by wholesalers was that they were BUYERS who merely decided to sell the contract THIS TIME. Many states now take the position that the wholesalers using this technique are merely disguised AGENTS, in fact UNLICENSED brokers. 

Quote from @Scott Trench:

I understand that, while it can be done, notes are a poor way to turn a small amount of capital into a large amount of capital, unless one masters the art of turning a non-performing note into a performing one... which is a skillset that likely coincides with dealing with individuals going through some of the worst parts of their lives. 

I think of note investing, rather, as a great way to turn several hundred thousand dollars into several thousand dollars of reasonably high probability income, while having a reasonably high probability of not seeing a loss of principal. 

I'm not sure why anyone would think that this is a great approach with $20-$30K, or how an expensive course could possibly result in material risk/return adjustments for a note investor.

However, I had the (now chiseled into BiggerPockets' Mount Rushmore) great @Jay Hinrichs help me out on my first note (thank you!!). So, that is a material advantage - and perhaps others are willing to pay for a friendly look over the shoulder on the first one with some of these gurus.

Scott, when most people think of making a lot of $ with notes, they’re thinking of the note BUSINESS rather than note INVESTING.  So, they’re contemplating essentially doing what I and @Chris Seveney among others do; i.e. earn significant income from our ability to choose WHICH notes to invest in; to generate a deal flow of likely investment candidates, and evaluate the risk involved vs the possible or likely return.  

There are some circumstances where a lot of money can be made with a particular note purchase or repositioning, but these are fewer and fewer as information in all forms becomes more readily accessible, and more capital becomes available in the note market.  The basics for note purchases is driven by a discount appropriate to the risk and time involved.  I’ve been able to purchase performing notes at significant discounts - well, once in a while - and earn equity like rates of return, or more.  But, these have been commercial properties, where the competition is significantly less. 

The average note return is going to be about 3 - 4 % less, on an annual basis, than the average equity return. But, equity returns will have, on average, a much wider range of return than notes. While it's always possible to lose 100% of your note investment, the probability is that while you might end up with a return close to 0, this would represent your worst case scenario with 97% confidence. The equity investments that seek to double or triple your invested capital over the next 2 -3 years can easily also wipe out your investment entirely, with almost any kind of major downturn. This can to a large degree be combatted with STAYING POWER; but since syndicated deals are mainly sold on projected ROI almost none maintain enough capital in reserve. Btw, a major part of the differential in return between real estate equity and real estate debt investments is the use of leverage for equity investment.

Even in “tough” markets, like now where finding cash flowing properties to buy using 75% leverage may seem impossible, home run deals are out there to be made.  But, it takes experience to recognize them; knowledge to execute the plan, capital to purchase them, and time to make it all work.  

Quote from @Mohamed Youssef:

Beyond simply purchasing rental properties in a self-directed IRA, several lesser-known strategies have proven remarkably effective. I've helped clients implement these approaches with impressive results.

One particularly powerful technique involves using SDIRA funds for private lending rather than direct ownership. A client recently structured a deal providing 65% LTV financing for a fix-and-flip operator at 12% interest with 2 points, all returns flowing back into the tax-advantaged environment.

Another approach gaining traction: partnering SDIRA funds with personal funds to acquire properties too large for the retirement account alone. This requires careful structuring (typically using tenancy-in-common arrangements) to maintain compliance while leveraging limited retirement funds.

For those concerned about UBIT (Unrelated Business Income Tax) from leverage within IRAs, some investors have successfully used options strategies, securing rights to purchase properties using minimal SDIRA funds, then selling those options for profit or exercising them when additional funds become available.

The compliance requirements remain stringent (prohibited transactions can invalidate the entire IRA), but the growth potential justifies the administrative complexity for many investors.

Who's actively using a self-directed IRA for real estate? Any unique strategies you've implemented successfully?

Everything you said is spot on.

I actually utilize the self directed IRA's sister, the Solo 401k. I started my self directed 401k in 2024, with a rollover from a defined benefit plan. Over the last 4years I "paid the piper" and turned my 401k into a Roth.

Interestingly, while 80% of my investments are notes and some passive real property ownership, (many in the form of syndicated investments), I do have an ownership interest in my 401k which would, if the entity owned was a LLC or S corp, trigger the unrelated business income tax. To avoid this, the investment held by the 401k is in the form of shares of stock in a C corporation, which means the 401k collects dividends, a passive income which does not trigger the unrelated business income tax. However, the C corporation must pay tax on its earnings, before the dividend distribution. Fortunately, with C corporation net income taxed at 21% flat, the "pain" is bearable.

Quote from @Chris Seveney:

Quote from @Don Konipol:

Yesterday, I had an earnest young person contact me, telling me that they wanted to “invest” in notes, and asking for my advice.  When I inquired as to how much money this person wanted to invest, they said they had very limited capital but “understood” that notes can be a very profitable business.  I then asked the. To describe the type of “business” they had in mind; they were unsure, but it seemed to be somewhere between brokering notes and syndicating notes.  Of course this person was not really cognizant of either, they were just trying to get a handle of this type of career. 

Because this person took the initiative to contact me and at least thought about an entrepreneurial type activity, I took the time to inform them as to what I perceived as how they could best proceed.  Needless to say they were extremely disappointed that it would take an extensive amount of education in real estate; saving capital (there’s little chance of a “newbie” raising capital without a significant personal investment), and experience in the same or similar fields.  This persons comment to be was to ask if there wasn’t a “faster, easier” way to “get into” this business.  Well…..President Trump DID start with a SMALL $50 million loan from his father…..  Of course Trump had been working for his father from the age of 11; studies real estate for 4 years at the Wharton School of Business, and ran his own business as a teenager owning the washing machines and dryers in his fathers residential buildings.  

People want to be in business “for themselves”, they want high income, wealth accumulation, and “status”.  What most DON’T want to do is put in the time, effort, sacrifice, and capital necessary to achieve that goal in real estate.  And it is at this crossroads where the so called “gurus”; people selling that $20k - $75K “mentorship’s” live.  They promise it’s all achievable without studying and understanding real estate principles, real estate law, and real estate finance; without personal capital to invest; and without experience.  Since this is patently untrue, the failure rate of people who buy into these programs is astronomical.  

In my 45 + years in real estate, I have observed some people who were successful after buying into one of these mentorship programs.  But, these were people who already had education/knowledge, capital and experience. What they lacked was CONFIDENCE, they were scared to move forward, and going the group route somehow emboldened them.  

 My path was similar to Chad, and when I got started I had managed in todays dollars over $1B+ in real estate for work. 

What people are told many times is they can 2x or 3x their money with notes which is rarely the case. For those starting with $20-$30k , you can make 10-20% on a note, so that is $2-$6k per year. Can you grow it faster (yes as I did), but I got lucky and am an outlier like Chad. But everyone wants to get rich quick.,

This is why I see people who will say "i want to buy a note and make 12%" and want the perfect note and sit on the sidelines for a year waiting for that opportunity intsead of buying  a note at 10% which OMG the $400 difference is going to break you - when you get started education takes precedence over profits in my mind, yes you want to be profitable but will you learn more giving up $400 on a note or spenidng another $2500 on some course?

Glad you shared this Don, as I am always told I am too pessimistic, but I am more a realist. 

I think the thinking that real estate is something you can “do” with just buying into a guru mentorship and nothing else is, of course, prevalent for all aspects of RE investing, not just notes. 

Sometime ago someone asked me what I did, or how I went about, obtaining “success” in the real estate field.  I thought the question was somewhat disingenuous as there are so many people so much more successful in real estate, those people having obtained multiple levels far above the space I occupy. All the questioner had to do was read a biography of these successes; but then I realized THEY seemed “out of reach”, while my more modest success may have seemed more “achievable”.  The think I remember about this conversation was the second I told the questioner that the foundation of my real estate knowledge was the three undergraduate courses I had taken in real estate principles, real estate law, and real estate finance, as well as the two graduate school courses in real estate finance and real estate development, his eyes fogged over and he immediately lost interest.  After all, almost all “gurus” constantly harp on how formal education is worthless.  Now, while courses in DEI studies may be useless, my real estate, finance, accounting, marketing, history, civics, urban planning, etc courses all had value for my real estate career.  

on another note we are seeing a lot of “how do I syndicate deals” type questions.  Maybe 1 in 10 people asking the question have sufficient experience and knowledge to even consider sponsoring deals.  Of these, fewer still have the capital to invest necessary to pass investors requirements  for having the sponsor commit personal capital to any syndicated deal they invest in.  While I have observed some people lacking in experience and knowledge successfully syndicate deals, usually through heavy investment in promotion, “creative” massaging of their “resume”. and “slick” marketing, the end result never was a happy experience for those investing in these syndications.  Even sponsors experienced in real estate will run into trouble when they syndicate a deal in a type of property they’re unfamiliar with. 

Bottom line is that if you lack the expertise, experience but have capital you can still successfully invest in real estate, notes, etc.; but, you need a competent, experienced and honest “guide”.  These are not the gurus selling mentorship’s, they’re the sponsors of syndications with long records of success, fund managers, and experienced brokers.