All Forum Posts by: Jason Reed

Andre,

The numbers you are quoting are awesome, however just because it is currently rented doesn't mean that there isn't a long-list of deferred maintenance items. After investing for over 20 years and seeing 1000's of properties, I am still occasionally amazed at the squalor that people will live in, and what owners consider a property in "good condition".

I wouldn't pay a lot of attention to the $24k vs. $30k valuation because the city or county doesn't know the current condition of the interior on most properties. The valuations are inaccurate in a lot of cases either too high or too low. 

Have you actually stepped inside of it?  The line "I am assuming that it needs no work" makes me wonder if you have been inside?  

One thing to note is that there are some properties that are in such poor condition, that even if they gave you the property, it may not be a good deal for you.

I would just be more cautious as to what you're investing in now. I hear buyers using the comment "I am happy to break-even", which I haven't heard since 2007, and it makes me vomit in my mouth. There are a lot of amateurs chasing the profits of their peers right now.

Andrew Johnson's comment holds true, what I saw in 2008-2012, a lot of people that should have been buying like crazy were scared to do so. I had numerous conversations where I had people looking a property that was less than 1/3 of the previous value from 2 years prior, and they still thought prices would go lower. I had one guy that argued with me that his assessed values from the city were still going down, so he wanted to wait on purchasing another place. Within 4 years the property values were above back above the previous highs of 2006. 

One of my investors, who was buying heavily during the Great Recession, was told by every friend and family member that he was crazy to buy Real Estate during that time. If there is a downturn, don't worry, you won't have the competition that you have now. A large percentage of the buyers chase the market, only after they see how well others have done, and they quickly back away when it turns down. The media will help drive the demand down as well, about 6 months after the initial downturn. They are always 6 months to a year late on reporting what is really going on in the Real Estate market. 

Russ,

Thank you!  That is exactly why I love what I do. I can have a positive influence on people's future. I just wish I could have convinced more people to buy in 2008-2012. It was amazing how many people said "prices might go lower"...  

Nicolas,

Good luck to you and your wife!  RE is the best way to grow your wealth! Enjoy the journey.

In 2007, I met Carol at our local REIA. She was 63 years old, living in a $1500 a month apartment in downtown Minneapolis, and beginning to fade financially. She had spent around $30k on getting a "eduction" in Real Estate. I am not a big believer in the bootcamps and "gurus" that often sell their systems like they are doing some sort of highly secret business. So, I felt bad for her, and asked how I could help.

I coached her on buying a duplex and living in one side and keeping her expenses low by renting the other side.  She has since done an outstanding job "house hacking" before the term was even invented. She Airbnb's the unit she lives in for a meager $56 a day, and has a "roommate" in her unit for about 10 days a month. She lives in a great property, across from a park, and has saved tens of thousand of dollars over what she would have paid to stay in the apartment, since her initial purchase. 

When you picture a Grandma, that is doing what many first-time investors fear, you have it right. Sure, she has had struggles like any investor, but the courage she had to make the initial jump is what a lot of people lack.  Don't fear making mistakes, be ready to laugh at yourself, and know that the number one thing that 80 year olds say they regret is not taking more chances in life. 

Matt K has the best advice! I have been involved in or MNREIA for 12 years and the clowns that sell you on their "system" and expensive membership often aren't more than one-step ahead of you.  Matt K is correct that you are better off doing it on your own and losing $15k on your own. I have found, that people that are in the business, will often help you for free. My mentor spent tons of time showing me what had bought and what he was doing for it because he was just excited to show it to someone that had the same interests. He often bought me lunch, and I followed him and saw him make millions of dollars. What he did will blow away the gurus.

Realistically, the biggest thing you need to know is that you make your money when you buy a property, not from the work you do to it. If the mentors you have were as successful as they should be from flipping homes, they wouldn't need to sell you on the Idea of educating you.  I would just meet other people at a Real Estate Investment Association, or even hang out at Home Depot and just talk to people you see there or people you see fixing places that are in the areas you want to invest in. 

I had met two people that had spent $30k and $35k going to bootcamps and paying gurus that were charging them to learn their systems. One of them accumulated a bunch of debt and never bought anything, the other one purchased a duplex with me and lives in one side and has all but $200 of her mortgage paid by the tenant. She Airbnb's her own unit, where she basically has a roommate for $56 a day. She does this and earns another $600 a month.  She does all of this at the ripe age of 74! 

It is the best business for you to make money in, but beware the sharks are always swimming nearby with their hands held out asking for them to "help" you.

First off, find a mentor that is already doing flips in your area. Most investors will be glad to show you what they are doing. Be wary of hard money lenders, they are charging you more than a credit card will. Use them as a last resort. Usaa probably isn't set up to lend to lik a commercial lender will. 

I have found did you have $20k to deposit you can find a small bank or commercial lender that will loan you the rest of the money. You won't get charged as much as a hard money lender will, not even close. 

Be patient and learn from someone that is already successful,and last but not least don't pay thousands of dollars for boot camps. You can find someone that may at most tell you to Help them with their flip for free, and the knowledge you gain will change your future,

I am surprised I made so many people become so upset. If people read what I said, I don't have anything against Airbnb, I am just seeing some investors that are relying on it. The wife and I have spent several vacations in VRBO units in different parts of the country, and we even have thought about doing ourselves.  So, the backlash about being against the Idea of Airbnb on my part isn't necessary. I am not a Luddite, nor do I have anything against Airbnb, I just think it will be targeted because of the clout that hotels have, and the potential tax revenue that the city will lose.  Two other examples that I have seen where big business and the government get in the way of what the market is calling for are:

1. In the neighborhood surrounding the University of Minnesota, there are zoning rules set up that limit the number of people that can live in each unit. In a duplex, there are only 3 unrelated people that can live in each unit, despite the rule many owners have built additional bedrooms and had 5 tenants living in the space. The cash-flow is awesome for the owner until a neighbor, or an upset tenant tells the city. The city then fines the owner. If they are caught a second time they lose their license, and need to sell the building. 

In this case the market is is "calling for something" as James Carlson refers to the market for Airbnb, but the city and the neighbors shut it down. The sad thing is that multiple new apartment buildings have been built in the same area, and the owners are allowed to have four students living in a two bedroom apartment. Once again showing that the rules often are changed for big business. 

2. Watch the movie Tucker and you will see how big business and government can get in the way of something that is great. 

Finally, to the uneducated person from South Carolina, I am not in Canada, and we are much more advanced in Minnesota than you may know, and I am not being negative. I am just trying to help advise people to see what may happen and not to count on something that may only last a short-time. I advised people not to take ARMs prior to the 2008 crash. I also advise people to look at zoning in an area vs. how a building is being used so they don't get burnt if the city tells them that they can't lease or use a building in the way they intended. Maybe I should have titled the article "The possible death of Airbnb?" Sorry, next time I'll go all positive.....

I have had a number of investors that have been excited to take advantage of airbnb with their rental properties and their own homes. Numerous clients of mine and aquaintances have already cashed in on airbnb. Properties that would normally bring in $1,200 a month are now receiving that in a matter of days. To further the frenzy, the Twin Cities will host the 2018 Super Bowl, nothing seems sweeter than getting $10,000 or more for one week's rent in February in Minnesota. 

I am all for capitalism and this is exactly what makes America great, however don't plan on cashing in on airbnb for the long-term. Despite the thousands of ecstatic owners that have used this great platform to earn new wealth, there are those that are being hurt by it. Airbnb directly injures hotels business. I know, you're not shedding tears for Paris Hilton and her pals, but owners that are currently cashing in on airbnb are already feeling their wrath. 

New York City, recently adopted legislation to ban any rentals shorter than 30 days. Airbnb spent $10 million fighting the legislation and then dropped a lawsuit after the city promised to only pursue the property owners and not Airbnb. In February, the New York Post reported that Hank Fried and a Real Estate Broker, Tatiana Cames, were collectively fined $17,000 for 17 violations. They are required to pull their Airbnb listings and will have the $1000 violation increased to $5000 each and then $7,500 each for a third violation. 

Similar bans have happened in Colorado, San Antonio, and Santa Monica. Hotels are the big ugly Gorilla that will cause problems for Airbnb, but they aren't the only problem that is surfacing. In Minneapolis, in 2010 the city collected $61 Million in revenue from the extra tax that they add to hotels. Couple this with the additional tax revenue that will be aversely affected by Airbnb, and the same folks that govern rentals will be looking to kill Airbnb because of the lost revenue. Restaurants, are losing revenue, along with downtown areas, as many of the Airbnb units are removed from the more densely populated areas. Once again, this will hurt large cities revenue sources.

Finally,  in large cities and vacation areas, voters will push Airbnb out of their communities. Politicians will respond to home-owners that vote, and many of them will complain about the tenants that are in the short-term Airbnb units. As a rental property owner, I know that it can be difficult to deal with tenants that are loud or disruptive to neighbors, this issue will be out of hand for many airbnb owners. After all, what are the consequences for a tenant that is in the property for two days, and then leaves the morning after they have kept the neighbors up all night. 

I am not against Airbnb, but I feel the end of this great revenue source is near.

Duplexes often offer the highest ROI vs any single family properties. You can often obtain a duplex for a slight premium over a sf in the same neighborhood. The rents are close to double that of a sf residence. I believe it is a bit of a fallacy that sf homes appreciate faster than a duplex. If that was true, with compounding the sf home would be worth multiples of what a duplex is, and that is not the case. We may eventually see duplexes increasing at higher levels than sf homes due to the rental demand. I could go on and on about duplexes, but I will end with one more: the opportunity to invest in them is more likely than any other multi-unit because of sheer numbers 13k duplexes in Minneapolis vs 954 4 Plexes in the city....