Tuesday Evening Chat Transcript … 11-25-03
Posted on November 25, 2003
[Investment Chat]: Ralph Roberts has entered (7:59 pm)
Ralph Roberts: hi guys
Mike Summey: Hi Ralph
[Investment Chat]: Fredrik has entered (8:00 pm)
Mike Summey: Hi Fredrick
Roger Dawson: Hi Ralph
Ralph Roberts: Hi Fredrick!
Fredrik: hello investors
Fredrik: late night over here
Mike Summey: Welcome to the chat, you’re the first one here except for us chickens.
Roger Dawson: Where are you signining in from, Fredrick?
Mike Summey: You’re in sweden…right?
Fredrik: yes
Ralph Roberts: Sweden is good, I loves my Volvo!
[Investment Chat]: espioantic has entered (8:01 pm)
Mike Summey: How’s the investing market there?
Fredrik: have just start looking at real estate investment
Mike Summey: Hi espiantic
Mike Summey: Welcome to the chat.
Roger Dawson: I have a very good friend in Gothenburg who translates my books in Polish for me.
Fredrik: in sweden I dont know
espioantic: The investment market is a bit rough unless one is able to put 50% down on a property.
Roger Dawson: Who has a question about real estate?
Fredrik: ok roger
Mike Summey: My high school sweetheart…the one I took to the prom…used to sing in the Swiss Opera.
espioantic: Do you feel a speculative or ?flip? purchase is an acceptable investment, especially as a mechanism to raise capital for future buy and hold properties?
Fredrik: flipping deals are they easy to start with?
Mike Summey: Nothing wrong with flips to raise capital, as long as you know they are short term investments.
Mike Summey: Our program is designed to build long term income.
Mike Summey: espioantic, where are you from?
espioantic: Chicago suburbs.
Fredrik: do I need some sort of contract to be able to make flip deals?
[Investment Chat]: wrmwthrgrl has entered (8:05 pm)
Mike Summey: Great place. I was just htere.
Roger Dawson: I got started (40 years ago) by buying a new home and renting my old one out. You get better financing that way.
Mike Summey: Hi wrmwthrgrl!
Mike Summey: Welcome to the chat.
Mike Summey: We’re just getting started.
wrmwthrgrl: Hi, Thanks
espioantic: Our market here is overheated like much ofhte country. It seems as though no one is renting. There are lots of choices for people looking for single-family houses.
Mike Summey: After the chat, look at the forums. I just addressed that situation for someone earlier.
Mike Summey: Currently, it is a tough market due to the very low interest rates of the past year.
Fredrik: Hi wrmwthrgrl, espioantic
Mike Summey: Low rates tend to push up prices.
espioantic: Here’s an example of a possible ‘flip’ situation. Let me know what you think.
Mike Summey: Okay
espioantic: A property under study: Bank repo with asking price is $214k (lowest price 4 bdrm in the area). Bank is owed $175k + sales expenses. About $15k is needed for repairs to make it acceptable to rent. Market rental rate for the area would support a rent of $1350/mo. If the property were to be sold upon fixing, it would fetch $240-245k. Due to the low rental rate, roughly $90k of initial investment is needed to make this a break-even property if purchased at $180k. Are there creative ways to negotiate with banks in situations where they?re owed more money than the property is worth on the rental market?
Mike Summey: A few years ago, I bought 12 townhouses from a bank that had over $500,000 in them.
Mike Summey: I bought them for $430,000 and the bank financed $450,000 on them.
wrmwthrgrl: Hi Fredric.
Fredrik: 
Mike Summey: I got $20,000 at the closing to use to get the units ready to rent.
espioantic: Did you negotiate directly with the bank?
Mike Summey: that was an unusual deal, but many of the really good deals are unusual, that’s why they’re good deals.
Roger Dawson: Did the bank list the property with a Realtor?
espioantic: The place I’m looking has a listing agent.
Mike Summey: Don’t be afraid to ask for unusual terms. All they can say is no!
Mike Summey: No problem.
Mike Summey: Listing agents like to make money too.
Mike Summey: If they can help you put a deal together it benefits you both. If they become a stumbling block, they get nothing.
espioantic: The property has only been on the market a few weeks. Are there better times than others in a month or quick-close scenarios that would give me some advantage?
[Investment Chat]: Summer has entered (8:12 pm)
Mike Summey: Hi Summer
Mike Summey: Welcome to the chat.
Fredrik: Hi summer
Roger Dawson: Its good to build relationships with the REO bankers, so they call you before they list the property and incur a broker’s fee.
Summer: Hi all
Mike Summey: Summer, where are you from?
espioantic: In what bars to REO bankers take happy hour?
Fredrik: just what I’m up to know 90 banks in 30 days is my goal
Summer: Santa Fe, NM
Roger Dawson: Mike wouldn know that!
Mike Summey: Fredrik is from Sweden…we’re trying to find someone to beat him out on being the fartherest away.
Fredrik: hehe
espioantic: For Rogerqo you have any ideas for negotiating with listing agents? They are often hostile to offers below the average negotiating range (3-5% below asking price for my area).
Mike Summey: Fartherest…that’s hillbilly for a long way.
Fredrik: my goal is to travel to US soon, when I have close some deals with my mentor
Mike Summey: espioantic, I’m sorry but I’ve never met an REO banker in a bar. Most of them are too cheap to buy drinks.
Roger Dawson: The broker is required by law to present all offers. Remind them gently of that. Then tell them that you reserve the right to meet with the seller if the agent can’t get the offer accepted.
espioantic: Do I have legal standing to actually meet with the seller?
Roger Dawson: No, but it challenges them to get the offer accepted.
Roger Dawson: No, but it challenges them to get the offer accepted.
Fredrik: what kind of list are you guys using?
Summer: Is this agent your agent?
espioantic: Areas where the prices of homes are more in line with rental rates are in less-desirable locations. You stated in the book that extra caution must be taken in these neighborhoods and should be avoided if possible. From my analysis, these are the only areas where break-even cash flow opportunities exist. How risky are investments in areas where the median income is below the average for the area? Have you made successful investments in ?shady? neighborhoods?
Mike Summey: I’ve made very low or no interest offers through brokers that started out hostile until I reminded them that by offering no interest, I could pay a much higher price. They get paid based on the price, not the terms.
Mike Summey: I’ve used low or no interest financing to buy in more favorable neighborhoods.
espioantic: Good point. That would obviously work better in situations where the seller has very high equity.
Mike Summey: Right.
Mike Summey: Keep in mind, that you will only be able to make wholesale purchases on a small percentage of the properties you look at.
Mike Summey: You task is to find the good deals.
wrmwthrgrl: In a previous chat session, you were asked about your thoughts on purchasing properties in college towns, renting out to students. Do you think it would work if one of those students is your child. Would you count that childs rental cost in figuring the NOI? Or would you still call this kind of investment speculating?
Mike Summey: That’s why we recommend that you get out and visit neighborhoods and meet people.
Mike Summey: You’d have to count the rent your child would othersise pay someone else.
Mike Summey: And pay it to yourself.
espioantic: How do you feel about investment partnerships? If a friend and I pooled assets and began purchasing properties together, what pitfalls should we avoid?
Roger Dawson: However good a friend, always be sure to get everything in writing.
Mike Summey: Summer, I missed your question about the agent, would you ask it again?
Roger Dawson: Cover every contigency. Remember that if your friend is on title he can do anything he wants with it, including selling his share to someone you don’t like.
Summer: I was just wondering if if was the buyer’s agent that wasn’t willing to submit the offer.
Mike Summey: I’d advise you to seek counsel from a good attorney about the best way to structure a partnership.
Fredrik: someone using Trust?
Summer: I know that many agents want the deal to come inat a high price for a high commission.
Mike Summey: No, buyers agents don’t submit offers, lerrer’s agents do. Buyers agents represent you and they transmit your offers to the seller’s agent to present.
Summer: I see
Roger Dawson: The big argument - is the agent working for the seller or the buyer. Answer: neither. They are working for themselves and want to close the deal any way they can.
espioantic: My friend is a realtor and has been the one responsible for getting me to consider a partnership with him. We both have different skill sets and resources that might make the partnership work. I am very concerned that we won’t successfully to be able to agree on where to place capital.
[Investment Chat]: Jason has entered (8:26 pm)
Mike Summey: Fredrik, in the US, the listing agent has a fiduciary relationship with the seller, while a buyers agent’s loyalty is to the buyer.
Roger Dawson: Hi Jason
Mike Summey: Hi Jason
Mike Summey: Welcome to the chat.
Ralph Roberts: hello Jason
Fredrik: hi jason
Jason: I’m here checking it out
Mike Summey: Is that a check with $$$$ or just a check mark?
Mike Summey: Fredrik, how’s the weather in Sweden?
espioantic: If we don’t go in as partners, we’ll be competitors in the same market with essentially the same goals without the advantage of commingling captial.
Roger Dawson: Summer, in Santa Fe I’d be looking for out of town owners of lower priced properties.
Mike Summey: How about in Sante Fe, Summer?
Fredrik: cold
Summer: I agree. There are many homes owned by out of towners as inv. props.
Summer: And, the weather has been cold at night, sunny days.
Mike Summey: Just a personal preference, but I’d rather own all of a $100,000 investment that half of a $200,000 one.
Roger Dawson: I gree. I’d be very cautious
Mike Summey: I’ve been at this game for nearly 30 years and never had a partner or an investor.
espioantic: Points well taken.
Fredrik: rainy
espioantic: Some potentially attractive purchases are townhome type investments. The numbers look better than for single-family houses. However, with townhome communities come associations and their related problems. You mentioned that these types of purchases should also be avoided if possible due to unknown future special assessments etc. Are there any other reasons that properties partly controlled by an association should be avoided?
Mike Summey: That could be because I’m such a cantankerous cuss!
espioantic: But a cuss with twin engine….
Mike Summey: Right!
Roger Dawson: The big problem is assessments.
Mike Summey: Right!
Roger Dawson: The big problem is assessments.
Summer: Association fee assessments?
Fredrik: what is assessments?
espioantic: Being a maverick must have some attributes. w
Roger Dawson: Those other owners are homeowners, not landlords
Mike Summey: I bought 6 condos 10 years ago in a group of 30. The monthly fee was $35.00. today it is $110.00 and I had very little say in the increases.
espioantic: That increase shouldn’t really be a problem if your rent increases made up for it.
Roger Dawson: Fredrick, with a condo complex you share in all the outside expenses including repainting the outside and doing landscape work. The board of directors determines the assessment to cover these expenses.
Roger Dawson: Fredrick, with a condo complex you share in all the outside expenses including repainting the outside and doing landscape work. The board of directors determines the assessment to cover these expenses.
Fredrik: okey
Summer: I’ve often heard that new develpments or newly converted apts into condos have low monthly fees that will most definitely go up once all of the units/houses are sold.
Fredrik: okey
Summer: I’ve often heard that new develpments or newly converted apts into condos have low monthly fees that will most definitely go up once all of the units/houses are sold.
Mike Summey: Condos and townhomes are often controlled by homeowners associations or condonimium associations that handle the exterior maintenance. These associations can also implement restrictions against renting the units. I just had one do that very thing.
espioantic: The increase in dues is always true!
Mike Summey: Very true, Summer.
Roger Dawson: I owned a condo in Palm Springs where the monthly assessment rose from $360 to $505. It forced the value of property down.
Mike Summey: Roger buys in the high rent district.
espioantic: Ok. It sounds like they are less favorable, even if the economics work out better initially.
Mike Summey: I’m in the mountains of North Carolina and the prices are better here…most of the time.
Roger Dawson: When a developer is building condos, they artificially hold the homeowners assessment down. One it’s turned over to the owners, it zooms up.
Summer: Low monthly fee…great selling point.
Roger Dawson: precisely!
Summer: For the builder that is.
Fredrik: have to leave now, the bed is waiting, much work tommorow
Summer: Good night
Roger Dawson: Good night Fredrik!
Ralph Roberts: good night Fredrik
Mike Summey: These development require a definate amount to maintain and if the developer artifically holds down the assessments, when he gets out, the owners are left with a load of deferred maintenance that has to be done and this pushes prices up rapidly.
espioantic: What about planned communities (you mentioned the golf community in your book that was a disaster) that have quarterly assessments. The conrtrol isn’t as great with town homes, but there are common areas and facilities that need maintenance. I can’t imagine that these are as problematic, right?
Mike Summey: Good night Fredrik, thanks for joing us.
Fredrik: Good night
Mike Summey: I know it is very late in Sweden.
Ralph Roberts: It’s after chicken settling in time heah, too
Fredrik: I will chating more with you guys, I’m a night person
Mike Summey: Great.
Roger Dawson: As Mike says in the book there’s a reason why they are called homeowners associations. They live there and they want to spend money to keep the place looking nice.
Fredrik: but now I have to sleep
Mike Summey: Planned communities are not typically the kind of communities where you find good rental properties.
Fredrik: hehe
Summer: Can you explain that more.
Jason: I have a question..
ason: I have a question..
Mike Summey: Shoot!
Jason: Explain that to Summer then I’ll ask
espioantic: Thanks for the time everyone! I have to go pick up my car at the service. Long drive to NE tomorrow.
Summer: goodnight
Ralph Roberts: see you later, espioantic
Mike Summey: Summer, most planned communities have restrictions and other governing rules that add to cost without annind a single square foot of livable floor space. Most renters want a roof over their heads, not a country club.
Roger Dawson: Good night Espioantic
Mike Summey: Goodnight espioantic.
Summer: Thx. Makes sense
espioantic: Oh…and thanks for the thought provoking book. I hope you guys get a lot of mileage out of it!
espioantic: Bye!
Roger Dawson: Thanks
Mike Summey: It became the # 1 best selling real estate book on amazon.com today.
Summer: Congrats!
Ralph Roberts: that’s truly impressive
Ralph Roberts: It was #1 out of 14,284 the way I checked it.
Summer: You’re up Jason…
Jason: It may just be me but I’d think that a homeowners association would expect you to run the complex the way they want it run, ignoring the fact you have to make a profit in the property.
Mike Summey: Good observation!
Summer: From my experience, the homeowner’s association is compirsed of homeowners.
Summer: In my dev. I own my home and want to buy other props, so I am very involved in the HOA, board meetings, neighborhood watch, etc.
Mike Summey: Just want to let everyone know that our new audio program will be released on December 8th by Nightingale-Conant.
Jason: I was thinking more of an apartment complex–we had one in my complex in Tallahassee
Ralph Roberts: who, naturally, are more concerned about their home than anything else
Roger Dawson: A planned until development (PUD) is a more attractive proposition. You own the land under your property and a percentage of the land around it.
Mike Summey: Summer, how many renters in your neighborhood?
Summer: I would say about 30%
Summer: Maybe a little less
Roger Dawson: With a 100 condo building you only own the space inside your unit and 1 100th of the total building.
Mike Summey: Is that due to the developers selling units surrounding a golf course or ski resort as “investment” units?
Summer: No
Mike Summey: Often, developers will do this and the units are put on weekly or daily rentals.
Roger Dawson: A good friend of mine, Susan Berman, is a top realtor in Santa Fe.
Summer: I recognize the name.
Summer: From ads.
Mike Summey: Has anyone bought a property and used owner financing?
Roger Dawson: Give Susan a call, she’ll give you some great insights into the Santa Fe market.
Mike Summey: I think that will be a growing trend for the future.
Summer: No, the area is in high demand so the resale is quick, however most of the houses are brand new and bought from the developer.
Summer: Thank you, I will do that.
Roger Dawson: Why is that, Mike?
Summer: Busy working on my mastermind group and mentors.
Roger Dawson: When interest rates go up many first time buyers will be forced out of the market and become renters.
Mike Summey: Because as the baby boom generation reaches retierment age, more and more people will be looking for retirement income and converting real estate equity into an income stream is going to be a growing trend.
Summer: I’m actually toying with the idea to start a REIG here since Santa Fe doesn’t have one of its own.
Roger Dawson: I’d encourage it. They can be wonderful for getting ideas for success and answers to problems.
Mike Summey: We’ll soon have all of the real estate investment groups on this website along with links to their websites or their contact information.
Mike Summey: Probably before Christmas.
Ralph Roberts: That will be a good resource.
Mike Summey: Well guys, unless there are som more questions, we may as well end this chat and plan for the next one.
Summer: French & French, a trusted name in town.
Summer: A Long Island girl, just like me.
Mike Summey: Any preferences as to time?
Summer: Thanks again. I’ll give her a call
Roger Dawson: REIGs are also great for locating reliable property managers and repair people.
Summer: This time worked well for me, Mike.
Mike Summey: They have many benefits.
Mike Summey: We’ve enjoyed it too.
wrmwthrgrl: Got to run. By the way Roger, I used your flinching technique and your “not splitting the difference” technique this past weeken, buying tickets at a football game. They both worked.
Summer: Thanks for a good chat.
wrmwthrgrl: Thanks for sharing those in the book!
Roger Dawson: Great, glad to hear it!
Mike Summey: We’ll keep you informed on the next chat time.
Mike Summey: any last comments?
Roger Dawson: Good night everyone!
wrmwthrgrl: Goodnight all!
Ralph Roberts: good night all
Mike Summey: Goodnight
Summer: Goodnight.
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