Chat 10-11-04
Posted on October 11, 2004
Welcome to the chat, Ralph Roberts!
[Investment Chat]: Ralph Roberts has entered (7:52 pm)
Jim_FletcherNC: ANyway, we are glad we talked to you before getting the loans
Jim_FletcherNC: Hi Ralph
Ralph Roberts: Hi Jim… Hi Al
Al Lee: As I said, building equity by PAYING into it is not a way to make money in real estate. Building equity by appreciation is
Jim_FletcherNC: We had to put 10% down… but we were able to get that cash out of equity in other income properties
Al Lee: The money you are not paying toward principal can be use profitably elsewhere. It earns NO return when it is sitting in your hous equity
Jim_FletcherNC: I agree
Al Lee: The house will appreciate the same amount if you have large, small, or no cash invested in it.
Jim_FletcherNC: We are running into a wall wih the lending institution we are dealing with… they have a 10 loan limit.
Al Lee: If you are buying in Texas I can get you some lenders that will do many more
Jim_FletcherNC: I guess we could go out and talk to different lenders/brokers about getting some more interest-only loans.
Jim_FletcherNC: Well, you gave us the name of a broker there in Texas (Thanks, by the way!)
[Investment Chat]: Mike Summey has entered (7:55 pm)
Jim_FletcherNC: Hello Mike
Al Lee: Yo, Mike
Mike Summey: Hi guys!
Ralph Roberts: Hi Mike
Al Lee: Ralph, I just sent you an email ten minutes ago
Mike Summey: Al, before we get started, I wanted to let you know that the link onyour site did not work yesterday. Ralph may have already told you that before I got here. If so sorry for the repeat.
Mike Summey: How are you Jim?
Mike Summey: Any trips lately?
Al Lee: I don;t understand. That is how I got here. Which website was it? I got here form the myRentProperty.com site
Jim_FletcherNC: I am doing great, Mike. Thanks for asking.
Ralph Roberts: Thanks for the email, Al
Mike Summey: I’m talking about the link to the radio program.
Jim_FletcherNC: I went out to Denver on Sat. Off to PHX this Sunday. Also had my annual simulator last week. What a meat-grinder that was! Ha ha
[Investment Chat]: Al Lee has entered (7:58 pm)
Mike Summey: I’ve had several email from people who tried to go to www.myRentProperty.com and click on the listen live link, but it didn’t work.
Al Lee: Mike, I just accidentally knocked myself out of the chat by testing the links from both my websites. They both worked.
Al Lee: Oh, the listen live link. I will try it.
Mike Summey: It doesn’t work!
Jim_FletcherNC: Doing any flying, Mike?
Mike Summey: Ralph couldn’t get it to work either.
Mike Summey: Jim, I’m going to NY Friday.
Al Lee: I will look at it. I am sure I can fix it.
Ralph Roberts: and if I can’t get it to work then … <--- modest
Ralph Roberts: 
Jim_FletcherNC: I don’t think I will be able to get up to NY for your event. I was hpoing to get a trip to LGA and then get over to the event.
Mike Summey: Ralph can make a rock swim.
Jim_FletcherNC: lol
Al Lee: Ralph, I have several places you can link to the Listen Live, so I will test all of them.
Jim_FletcherNC: Mike, I have a question about a house we made an offer on
Mike Summey: Jim, I’d offer to take you with me, but I’m fully loaded…boxes.
Ralph Roberts: “Ralph can make a rock swim.” <--- the backstroke
Ralph Roberts: thanks, Al
Mike Summey: What’s your question Jim?
[Investment Chat]: Rob L has entered (8:02 pm)
Jim_FletcherNC: Thanks for the offer, Mike. I will be working another trip though. Don’t give up on me… I would love to go with you and be “radio operator” for you some time.
Mike Summey: Hi Rob
[Investment Chat]: fukun has entered (8:02 pm)
Mike Summey: Hi funkun
Rob L: Hi!
Ralph Roberts: Hi Fukun… welcome
[Investment Chat]: BK in OK has entered (8:03 pm)
Mike Summey: Hi BK
fukun: hello mr. summey, rob, ralph.
BK in OK: Hello all!!
Mike Summey: Now everyone is starting to show up.
BK in OK: MIKE!! Your my hero LOL!!
fukun: just got your book yesterday, halfway there.
Rob L: Al, your ROI and DCR spreadsheets are quite powerful
[Investment Chat]: groute has entered (8:03 pm)
Mike Summey: Thanks BK
BK in OK: You book has changed my life and my future!
Mike Summey: Hi groute
Mike Summey: Thanks funkun
[Investment Chat]: PDK has entered (8:04 pm)
Al Lee: Rob, thanks. I try to improve them from time to time and you can download the newer versins for free from my webstie
groute: Hi there!
BK in OK: I have been trying to remember to chat for months now!
Mike Summey: Hi PDK
Jim_FletcherNC: The house we made an offer on came back in a counter offer “as is”. We found out that the septic system was partially covered over with a concrete slab and is essentially inaccessable to septic servicing. Can we back out of the offer because the septic does not comply with code?
BK in OK: Mike I will get right to it LOL
BK in OK: I just bought a house and found out it appraised for 30K more then I paid
[Investment Chat]: Rob L has entered (8:05 pm)
Jim_FletcherNC: We put down earnest money and we don’t want to lose it.
BK in OK: It will double once all the repairs are made, it is a historic home
groute: Mike, I found a 4-unit in the Los Angeles area. How do I valuate the property to see if it is a good buy?
Mike Summey: Jim, you should be able to get out of the contract is it was returned with a counter different from what you offerred.
Mike Summey: Hi Rob
Mike Summey: Great BK
BK in OK: I don’t know what to do with it? Keep it and rent or sell so I can buy more homes?
BK in OK: I know you say never sell?
Mike Summey: groute, just follow the steps in the book to compute the NOI and then see if you can make an offer that will allow you to purchase it with the NOI.
BK in OK: Also, Ihave done one thing you say not to do e
Rob L: BK, how many in repairs are needed?
BK in OK: I am managing my own properties
Jim_FletcherNC: Thanks, Mike
BK in OK: Ahh, no repairs! All cosmetic!!
groute: Thanks. Do the rules change if the property is 5 or more units?
Mike Summey: BK, I’m an advocate for buy and hold. there are plenty of ways to buy more properties without selling what you already have.
BK in OK: It has a new roof and new hvac
Al Lee: BK. If you are managing your own properties and they are good ones, don;t worry. I will buy them from you when you get burned out!
PDK: Hi, Mike Just listening.
[Investment Chat]: Raleigh has entered (8:08 pm)
Mike Summey: Hi Raleigh
Al Lee: BK: LOL, but that has happened more than once
Mike Summey: PDK are you from Nevada?
BK in OK: Al Lee, Idon’t think I will ever get burned out LOL! I LOVE THIS!!
PDK: Yes, bro!
Rob L: Have you all heard of the 65% rule for determining the MAO or maximum allowable offer?
Raleigh: Hello Mike
Mike Summey: BK, the more you get the more time it will take to manage them and the less time you willhave to make more purchases.
Rob L: I didn’t see any of that in your approaches…
BK in OK: I am worried about all this…. It is almost to easy!!!
Jim_FletcherNC: Mike, do you set a limit (percentage) of how much equity you take out of a particular property to use to buy more properties? (This question is for you too, Al Lee)
Mike Summey: No Rob. Tell us about it.
Al Lee: BK, wait until you have a tenant sic his dog on you when you are collecting the rent, then sue your for harrassing him, or for having the wrong type of lock on the door, or soemthign else you never suspected
[Investment Chat]: raleigh has entered (8:09 pm)
groute: Mike, I know you say that your strategies work anywhere in the country, but finding a reasonalby priced property in LA is difficult. Should I look in other parts of the country?
BK in OK: I am closing on my 5 th house in 6 months??
Mike Summey: PDK are you at home.
BK in OK: Am I moving to fast?
Al Lee: Jim: Take out as much exuity as you can without going to negative cash flow
BK in OK: I know what you mean about people and dogs.
PDK: No, I;m at the office.
Al Lee: BK: not too fast
BK in OK: I have one guy I am going to evict I guess…..
BK in OK: When do you evict?? What is the last straw?
Mike Summey: groute, LA is a tourh area, but there are deals there too. You may want to look a little further out that most people though.
Jim_FletcherNC: OK, Al
Rob L: This is the calculation used by Ron Legrand and many gurus and preached in my RE club as gospel: ( ARV * 0.65 ) minus repairs minus closing costs minus a FUDGE factor will give you the Maximum Allowable Offer
raleigh: I’m starting out and trying to find the best opportunity. Should I go residential or try commercial?
Al Lee: BK: professional property managers keep up with the laws so they can get tenants evicted right and not get sued
Mike Summey: Jim, its not taking out equity, its rolling equity into another property.
BK in OK: I am seeing the wisdom in a prperty manager now.
Al Lee: BK: I learned the hard way decades ago. Mike somehow was smart enugh to start ut using a property manager
groute: Rob L, what is AVR?
BK in OK: So what should I do with the house I just bought and will have 50K in equity in a month? Keep it or sell it? It is almost to big for a rental?
Mike Summey: Rob, that may be true with conventional financing, but in many situations you can pay more than the asking price if the terms are good.
Rob L: After Repair Value
Rob L: They preach about using a morgage broker because they will borrow upto 65% to 70% of the value of the HOUSE
Jim_FletcherNC: Mike, Al: Would you be upset if you found out a house you “thought” was stick-built turned out to be a modular?
Al Lee: BK: if you sell, do a Sectio 10431 exchange so you can avoid the capital gains tax
BK in OK: How soon should I wait till I move into multi fam units?
Al Lee: Section 1031 Exchange
BK in OK: Okay
Mike Summey: Jim, they are easy to spot the difference. Just look for the “thick” wall where the modules join.
[Investment Chat]: Penny has entered (8:14 pm)
BK in OK: You guys want to know what really really helped me out on this?
BK in OK: My brother is my realtor!!!
Al Lee: Jim, I think modular homes can be superior, depending on how they are built. If you are selling, there may be a stigma that reduces the value, but as a rental it might be ex cellent
Mike Summey: BK, I recommend that you make several purchases of single family homes before getting into multi family.
Mike Summey: Hi Penny
Rob L: It REALLY helps to have access to the MLS
Jim_FletcherNC: Mike: Nobody knew it was a modular until the home inspector came.
Penny: Hi Mike.
BK in OK: He has had 5 sells off of me in 6 months alone!!
Al Lee: BK: Wanna be MY brother?
Rob L: For those who are big on property managers, there are a fair number who have been burned. How do you avoid the property manager from overpaying and possibly wiping out all of your cash flow?
Mike Summey: Jim, I like the modulars, but I’ve yet to see one I couldn’t tell was a modular with a brief look.
Ralph Roberts: Hi Penny!
BK in OK: LOL, it’s great having a realtor you can call at 1 am and have him pull comps
Penny: Hello Ralph, sorry I’m late.
Mike Summey: Rob, instead of managing properties, you focus on managing the managers.
raleigh: Mike, do you suggest becoming a realtor to have access to the MLS
Al Lee: BK: OK then, don;t be my brother. I am asleep at 1am
[Investment Chat]: briefcase has entered (8:16 pm)
Rob L: Also, BK, it’s great to use his lockbox number so you don’t have to wait around for him!
Mike Summey: Hi briefcase
BK in OK: I can’t sleep these days!! I keep reading Mikes book!
BK in OK: YEAH LOL! I can do that as well!!
Mike Summey: raleigh, I think being a licensed Realtor is a negative for an investor.
briefcase: Hi
Rob L: I am looking for a good realtor that will give me his number and work with me! The problem is that MLS properties are highly competitive and deals are slim…
BK in OK: Plus he has great connections, Bankers and Brokers
BK in OK: So mike is it true you have NEVER sold any of your properties?
Mike Summey: Being licensed subjects you to a much higher degree of scrutiny and liability.
Mike Summey: That’s true BK
BK in OK: Mike, aren’t some house just TOO big to rent out?
raleigh: Good to hear…I’ve heard a few “gurus” and they mentioned becoming a realtor. Good to hear that from someone local….I went to Western carolina Univ. so I appreciate someone in that area
Mike Summey: I sold a personal residence over 25 years ago to move to where I now live, but in 32 years I’ve never sold an investment property.
BK in OK: This last one I bought is 3000 sq ft 4 bedroom 3 bath, it’s huge?
Mike Summey: BK, don’t buy the big ones.
Jim_FletcherNC: BK… Mike even mows the lawns at some of his properties
BK in OK: LOL, I know but I knew it was a steal!!
BK in OK: I mow the yards also!!
briefcase: Iwhy don’t you want to buy the big ones
Mike Summey: BK, that doesn’t sound like a bread and butter property to me.
Al Lee: BK, I have a rule that a house can not cost more than $150k and must rent for at least 1% of the price for me to buy
Rob L: I thought you guys never did any of the work and had prop managers take care of them all….
BK in OK: It let’s them know I care and that I am alive and looking after things!
Mike Summey: BK, read the book about buying “steals” in high end and low end properties.
Al Lee: BK: my tenants do not even know who I am. That is how it ought to be
Jim_FletcherNC: Rob L : I was joking about Mike mowing the lawn
BK in OK: I know Mike, I knew when I bought it, I told my wife “it’s not bread and butter” LOL!! She thought I was nuts.
raleigh: where can I find the book “steals”
groute: Al Lee, I couldn’t buy a garage for $150K in LA!
fukun: groute, you in LA?
Rob L: Oh, sorry… 
Al Lee: groute, then don;t buy in LA
BK in OK: My thinking is that I can clean it all up and sell it in a few months, then use the money to buy LOAFS of BREAD and TUBS of BUTTER!!!
Jim_FletcherNC: raleigh: look in Mike’s book to find what he says about “steals”
Mike Summey: Rob, no he wasn’t! I have 3.5 acres near where he lives and I do mow it myself, but only because I enjoy getting out and riding the tractor.
BK in OK: Loaves?
Al Lee: groute, I manage an investor club with about 130 active investors from all over and all of them buy in Texas. Most do not live in Texas. Professional managers do all the work. We always get 1% rent or better
briefcase: how hard is it to get cash out of property just bought and not fixed up yet?
PDK: Median home prices in the Reno area are now over $270K
groute: Al Lee, then where do you suggest? I am willing to buy out of state, but not sure where to go.
Al Lee: groute, the average price for a NEW 3-bedroom, 2-bvath, 2-car garage, central A/C, 1800 sq. ft. house is about $130k
BK in OK: I am in Oklahoma and the prices are great!!
Mike Summey: briefcase, I’m not a big advocate of pulling cash out at closing. All that does is cause you to have a bigger mortgage payment.
Al Lee: groute: go to www.RentHouses.org for more details
groute: Thanks!
Mike Summey: PDK, forget median homes. Look for deals in basic starter homes.
BK in OK: Mike, are 3 4 and 5 unit buildings much harder then say a duplex?
Al Lee: we call them “first-time homebuyer homes”
Rob L: Hey, if any of you want to invest in Jacksonville, let me know and I will love to work with you
Al Lee: easier to lease, easier to sell if you ever want to
Mike Summey: Everyone say hello to PDK. That’s my brother in Nevada and I believe tonight is the first time he has joined us.
fukun: mike, with a very low affordability (11%) in my county, what properties are in high demand?
raleigh: hello pdk
BK in OK: Hello PDK!!!
Al Lee: Hi, PDK
fukun: HI PDK.
Rob L: Hi, Mr. K.
PDK: Good point, the rental market here is hotter than ever due to a thriving economy
BK in OK: PDK - Your brother has helped a LOT of people!!
groute: Is that Jacksonville Florida. You’re not talking swamp land are you?
Jim_FletcherNC: PDK: I have a friend who lives in Reno and he tells me the market there is HOT!
Rob L: I sure am. Superbowl town…another RE booster…
briefcase: Mike, I paided cash for this 2 bedroom home with a basement. Now I need to do a little work thats why I was asking about cash out.
PDK: Hi, every one! Mike is my hero.
Mike Summey: BK, when you get into larger properties, there are many things to deal with that aren’t in single family homes. Common area maint, utilities, etc.
BK in OK: I have a good job a great company, but about my desk I put a sign that says NO 40 50 40
BK in OK: Everyone ask me what it means but I won’t tell!!
Jim_FletcherNC: OK, then dont tell us…………
Rob L: BK, at least your sign doesn’t say “Fire your boss” LOL
PDK: BK, sounds like a big woman.
Mike Summey: briefcase, can you get the money for the fix up and then refinance later to get the cash back?
BK in OK: Everyone knows what 40 50 40 is right???
[Investment Chat]: Roger Dawson has entered (8:28 pm)
[Investment Chat]: briefcase has entered (8:28 pm)
Jim_FletcherNC: Hey Roger
Al Lee: Hi, Roger.
BK in OK: It’s one of Mikes mottos
Mike Summey: About time Roger!!!!!!!!!!!
groute: Hi Roger
Rob L: With the wknd millionaire program, does this mean that someone cannot quit their job until 20 years into the program?
BK in OK: Ah… my brother/realtor is on the phone now!!
Rob L: Hi Roger!
Roger Dawson: Sorry! I’m in Chicago and I had trouble connecting my computer to the internet!
Rob L: I have been listening to your Power of persuasion in my car! I feel like I know you
Mike Summey: Hey everyone, now that Roger is with us why don’t you get some of you negotiating questions answered.
fukun: Hi Roger
raleigh: Just listened to the power of negotiation
Jim_FletcherNC: Roger… you jet-setters live the life!!!
Roger Dawson: Great Rob! Are you talking with an English accent yet?
briefcase: Hi Roger I am in Chicago too!
Rob L: Ha! I wish…it’ll make me sound more sophisticated…
BK in OK: My brother is on the phone now with a list of multi family
Roger Dawson: Hi Briefcase! I’m at the Four Seasons hotel
Mike Summey: Rob, what’s wrong with taking 20 years to retire if you are able to retire with many times the money you would othersiwe have…unless of course you are already 65.
briefcase: Great Hotel I am 30 Minutes from downtown
Roger Dawson: Does BK in OK mean bankcrupt in Oklahoma
Jim_FletcherNC: oh oh
BK in OK: NO LOL!!! B. King
Jim_FletcherNC: sure got quiet
Roger Dawson: BBKing. A celebrity with us!
Al Lee: BK: I looked into buying some properties in OK and could get great prices, but rents were so low they woeul not cash flow. How are you doing in that respect?
briefcase: Mike, How long should you wait before you take the money out?
Al Lee: No, it’s Ben E. King
Mike Summey: When Roger is here you’re missing a great chance to learn negotiating skills. What I’ve learned from him has made me millions.
Rob L: If I wanted to retire “earlier” through real estate, what would I have to do? Buy a lot more property, correct?
BK in OK: Here is what they are at right now, 1 house is 300 rents for 550
BK in OK: 2nd is 300 mortgage rents for 600
Mike Summey: briefcase, you will get the best deal if you can wait a year before refinancing.
groute: Roger, I would like to bring in a partner to purchase a 4 unit bld. How do I structure the deal to buy him/her out within 5 years?
Al Lee: BK, that soudnds OK
briefcase: Mike is that because of seasoning?
Al Lee: sounds
BK in OK: I have 2 duplex that I make double the mort
Roger Dawson: Groute: hard to give you a quick answer. Include and option to buy your partner out at the best price you get them to agree to. To be cont.
briefcase: Roger, What brings you to the windy city?
Mike Summey: Rob, buying correctly is more important that just buying. You can buy a lot of properties that you can’t afford to won after you buy them. Focus on buying properties that will at least break even in the beginning and then let the passage of time and inflation make you rich.
Roger Dawson: Perhaps they’ll agree on a set price now, or the appraised price in 5 years. to be cont
Roger Dawson: Or you can agree that either one can buy the other out. You have them give you a price and if you turn it down they can buy you out for that price, and so on.
Al Lee: regarding buy inout partners. don;t forget to look into tax consequences to both sides. How you do it might make a difference in how much you have to pay
Mike Summey: briefcase, yes, you can borrow a higher percentage after you have owned the property for a year.
Rob L: Mike do you ever worry about the market turning which causes vacancies to increase and possible cause some financial distress? That can happen when someone is highly leveraged…
groute: Thanks Roger and Al Lee.
Mike Summey: Rob, the past couple of years have seen a real slowdown in rents due to the low interest rates that have enabled many people to buy a home.
Al Lee: if the other guy has, say, capital losses from stocks he sold for a loss, he might prefer to get paid as a capital gain that will be offset by his carry-forward losses
[Investment Chat]: Penny has entered (8:37 pm)
briefcase: roger, do you own any properties in the chicago area?
Mike Summey: My vacancies went up to nearly 18% last fall, but by spring things had turned and they are now aroung 6-8%
Mike Summey: that’s the softest rental market I’ve seen in this area in over 25 years.
Al Lee: if he has a lot of depreciation allowance, he might like to get paid rent that will be offset by that expense allowance
Roger Dawson: In Chicago, they are experimenting with 40 year fixed rate loans. If it works Fannie Mae will go nationwide with it. Appeals to some people because it cuts payments by $200 a month, but it takes forever to build any equity.
Rob L: So the key is to make sure you have plenty of cash on hand “just in case” ???
Jim_FletcherNC: Would you all agree that when interest rates eventually rise, rental vacancy rates will shrink?
Al Lee: Jim, that is the common wisdom
Roger Dawson: Briefcace: No I don’t, I’ve always believed in buying close to home. I live in LA. Phoenix is as far as I got and that didn’t do well.
Jim_FletcherNC: Follow on: Will that make a lot more houses available to investors?
Al Lee: Jim, it shodul make it more a “buyer’s market” so you can get better deals
Mike Summey: Rob, thats one of the things we advocate in the book. Start right from the beginning to build cash reserves and increase these as you acquire more properties. It’s a slow process, but well worth the effort both to protect your assets and to build your banking relationships.
Rob L: Al, how do your investors from outside of TX do so well since it isn’t “near” them, like Roger says?
Roger Dawson: Jim, yes. Current vacancies are caused by the ease with which anyone can buy — a product of low interest rates.
Jim_FletcherNC: Followon 2: If it beocmes a “byuer’s mkt”, what facotirs should we investors keep in mind here at present?
briefcase: What would be the benefit to a investor doing a 40 year? maybe higher price investment?
Al Lee: Rob, professional management! It does not matter where you live if you have good people managing for you. I teach people to be investors, not landlords.
Jim_FletcherNC: (I can’t type tonight)
Jim_FletcherNC: Followon 2: If it becomes a “buyer’s mkt”, what factors should we investors keep in mind here at present?
Al Lee: I have been a landlord (as compared to investor) and it was hard, dangerous work. I wasn’t nearl y as good at it as the pros, either
Mike Summey: briefcase, I like to keep my loans to 15 year amortization if at all possible. I like getting the properties paid for as quickly as possible.
Roger Dawson: Jim, a buyers market makes it easier for you as an investor to buy property but it doesn’t neccesarily increase the number of tenants who can buy. They are affected more by low interest rates which increase their ability to buy.
PDK: How do you select a good manager? Do they have an property managers associations you can go to for information?
Al Lee: PDK, NARPM is one national organization, there are others.
[Investment Chat]: briefcase has entered (8:44 pm)
Mike Summey: PDK, the best way is to interview several in your area and find ones that you have a good rapport with. Then discuss what you expect and what they expect and make sure you are in agreement.
Al Lee: PDK, go to my website, www.myRentproperty.com and go to the Links page. You will find a link there
[Investment Chat]: briefcase has entered (8:44 pm)
Rob L: I have a property that I signed a contract and will use my HELOC to pay cash of $29,000 at prime rate. I will then rehab at 15K. At what point should I refinance?
Al Lee: www.myRentProperty.com (I can’t type either)
PDK: Thanks Al and Mike
Jim_FletcherNC: (Finger Dyslexia!)
Roger Dawson: Briefcase, as an investor, stay away from 40 years loans. Your objective is to one day own the property and that’s hard to do on a 40 year loan. You’re gambling that you’ll be able to refinance later and get a better deal. But it’s hard to imagine you’ll get a better deal than the financing available today.
Mike Summey: Rob, if you can wait a year, you will get a higher percentage loan and usually a better rate.
Al Lee: Just don’t let it happen on final, Jim
Rob L: My RE club members all tell me that I should use a mortgage broker and NOT to use my own money if at all possible….
Jim_FletcherNC: True, AL! lol
[Investment Chat]: briefcase has entered (8:46 pm)
Mike Summey: Rob, if you can deal directly with the lenders, that’s your best bet. Mortgage brokers take a percentage for putting the deals together.
Roger Dawson: Remember that the key to getting rich in real estate is leverage. You want to own as much property as you can with as little of your own money as you can.
Rob L: Then I will tie up my own cash b/c they require 20% down and all that.
Mike Summey: Rob, after you own the property for a year, the higher percentage loan you can get will often allow you to get all of your cash out and end up with a no money down deal that will cash flow.
PDK: Mike - I have to go to a fundraiser, thanks for letting me listen in, it was very interesting.
Al Lee: So long, PDK
Mike Summey: PDK, join us again. You might learn something!
Mike Summey: Tell Mom I said hi!
Jim_FletcherNC: Mike, Roger, Al: What is your preferred mothod of getting equity out of a property you already own? HELOC? Creat a note? ????
Roger Dawson: Most mortgages are resold to institutional lenders. The broker is not coming up with the money. They are buying money wholesale, selling it at retail and keeping the difference.
PDK: Will do.
Jim_FletcherNC: C’ya PDK
Al Lee: Jim: Refi is usually the best. HELOC for your own domicile
Jim_FletcherNC: Refi after owning for a year? 2 yrs?
Al Lee: Jim: if your property has appreciated enough, sure
Mike Summey: JIm, there are several banks now offerring business lines of credit secured with one or more properties. I like this type financing best as it gives you maximium flexibility at minimium cost.
Roger Dawson: The suicide rate amongst mortgage brokers is higher than dentists or postal workers! They gamble when they commit for funds that rates will stay the same or go up. If rates go down they’re in trouble.
Jim_FletcherNC: greater than postal workers? Really?
Rob L: Banks will usually only let you have about 4 properties through them, correct? So you have to go from one bank to another or find a private lender?
Roger Dawson: Hard to believe isn’t it? Postal workers out of shear boredom. Dentists because they’re always inflicting pain.
Jim_FletcherNC: Rob: The lender I am working with now allows 10
Rob L: I understand that if you use owner-financing or take property subject-to, then that solves that problem…
Rob L: Jim which lender is that?
Jim_FletcherNC: I am happy to say that airline pilots are NOT suicidal… not very good with $$$, but definitely NOT suicidal
Mike Summey: Rob, when you get more than 5 loans…someone told me recently that the number is now up to 10…you are considered an active investor and your loans are not marketable on the secondary market. When this occurrs, you have to deal with banks who plan to keep the loans in their protfolio.
Al Lee: Jim: we are happy to learn that, too
Jim_FletcherNC: It’s a finance co here in Asheville area…
Roger Dawson: Be careful of buying a property subject to existing financing. Most underlying financing these days has an acceleration cause in the event of a sale.
Rob L: Roger, yes, I understand that…it is unlikely they’ll do that if payments are made on time all the time and interest rates are still low, do you agree?
Jim_FletcherNC: Will the acceleration clause be in the boilerplate somewhere near the no early penalty clause?
Rob L: a.k.a. due on sale clause
Roger Dawson: Jim, presumable although I don’t know what a no early penalty clause is. That like Santa Claus?
Mike Summey: So much time is devoted to discussing institutional lenders, but a huge percentage of real estate sales are financed by the sellers or by third party individuals. there is a world of opportunity when you are dealing with sellers who have a low or no mortgage.
Al Lee: If you have a 6% loan and prevailing rates go to 10% and you have violated a term of the loan by transferring the property, the bank will have all the reason theyneed to call the note.
Jim_FletcherNC: *Early pay off penalty… a close cousin of Santa’s
Mike Summey: Some real estate gurus advocate buying “subject to” existing financing, but it has too many potential downside for me.
BK in OK: Okay gang, my brother just called, he found me a Tri Plex that has been up for 3 days a 79K
BK in OK: Going to look at it right now!!
fukun: mike, do you advocate rent to own?
Roger Dawson: When a lender excercises a due on sale It doesn’t mean they want to be paid off. It usually means they want to charge you points for transferring the loan.
Jim_FletcherNC: Mike, do you find that the percentage of sellers who finance is lower now with the present market?
briefcase: What are the pitfalls of seller financing
BK in OK: Mike & Roger, it was GREAT to finally be in the room with you!! You have really changes my life and my future with your book!!
BK in OK: My dream would be to see you two in Person one day!!
Roger Dawson: Thanks BK. Good luck.
BK in OK: What is the closest to Oklahoma you ever come?
BK in OK: Dallas?
Roger Dawson: Texas!
groute: BK in OK: Are you looking for a partner? I am willing to fly to OK to check it out .
fukun: roger, if you buy it subject-to, do you call the lender in advance to see the requirements of assuming the loan?
BK in OK: I haven’t needed a partner yet but will probably need one when I move up to large units?
Mike Summey: fukun, no I’ve never been involved in a rent to own deal. We had a Realtor in this area who for years sold properties for 10% down and financed the purchases on contract for deed. He kept taking the houses back and reselling them over and over. When he passed away recently, he had over 150 of them. I tried to buy them all from his estate, but they wanted to continue the same way he had been selling and I wasn’t interested in that.
Roger Dawson: Fukum, yes that’s the smart thing to do. They are some ways around due on sale clauses but they’re not exactly above board and they involve some risk.
BK in OK: I can fly down to Texas almost any time!! When will you guiys be there?
groute: I’m willing to do large units also.
fukun: thank you mike & roger.
BK in OK: Groute where are you at What state?
groute: Los Angeles, CA
Roger Dawson: I’m speaking at the Anatole Hotel in Dallas next Sunday, but it’s only open to members of their association.
fukun: roger, i have been told that people try to get around due on sale by using living trust and/or corporation… what do you think of that?
[Investment Chat]: zert has entered (9:02 pm)
[Investment Chat]: briefcase has entered (9:02 pm)
Mike Summey: fukun, I’ve assumed several loans that had due on sale clauses, but my credit is impeccible and in most cases, the bank would rather have me on the loan that the person they had before. I haven’t always beenit this position and years ago they would probably ahve laughed at me.
BK in OK: I meet people all the time from CA who come here to retire!
Mike Summey: Hi zert
Jim_FletcherNC: Mike, AL, Roger: Do you find that the percentage of sellers who finance is lower now with the present market?
Al Lee: Roger, if you like, I will meet with you. My radio broadcast on Sunday is preempted by a football game.
zert: good evening Mike and everyone
BK in OK: Well next time there is a seminar in Dallas that either of you are at I would love to attend!
Al Lee: Jim, I don’t use seller financing much
Mike Summey: Jim, if anything, the percentage is higher now.
Roger Dawson: Re owner financing. Not many risks for the buyer, but a lot for the seller. Be sure that you have enough equity in the property that you would want to foreclose if the buyer defaults.
Jim_FletcherNC: OK… good
BK in OK: Goodnight all!! Mike once again, thank you for your book and your wisdom!
BK in OK: gottal go look at a tri plex!!
Rob L: Al, do you strictly use your spreadsheet to make your decision on a house (of course, assuming good location and stuff like that)
Mike Summey: Thanks BK, goodnight and Happy Investing!
Al Lee: Rob, that is more-or-less correct. I can almost compute in my head whether a proeprty is going to cash flow by now, but the spreadsheet is my proof
Mike Summey: Jim, with interest rates being so low on deposits and the stock market being so volitile, sellers are much more prone to finance than they were when their money could earn 6-8% in CDs.
zert: last week, I asked about assuming a home equity loan that is on a peoperty that is available, are there any risks associated with this?
Mike Summey: zert, I’ve never heard of a home equity loan being assumable.
Roger Dawson: Zert, did the lender say it was assumable?
Al Lee: Risk of seller financing to the buyer: you may not do the due diligence that a mortgage lender wouel require and may buy a lemon
Jim_FletcherNC: Al Lee: regarding the interest-only laons we talked about earlier. After 10 years, what is your strategy? Refi? ?????
Mike Summey: Punt!
Rob L: By now, I am sure you guys have leads flowing in to you such that you don’t have to market any more. But for those without the connections yet, what are the top ways you are finding seller’s with lots of equity?
Rob L: I know there is never ONE sure way…but there is probably a top 5 ….
Al Lee: ten years is a long time. I will likely refi before then, but may just pay the higher payment, It isn’t all that high.
Jim_FletcherNC: Mike: When you say sellers are more prone to carry financing, is that AFTER you have met with them and “explained” how it would work for them?
Al Lee: rents will be higher ten years form now, too
zert: the Home Equity is as a 2nd Mort, haven’t received word from the lender. However in looking at the numbers there must be a strange amortization
Mike Summey: Rob, make offers! Make offers! Make offers! Ask for seller financing in the offers and see what turns up. All sellers will say they want cash until they are presented with an offer.
[Investment Chat]: Jason and Audrey has entered (9:08 pm)
Mike Summey: Hi Jason & Audry
Jason and Audrey: Hey
Roger Dawson: Hi Jason and Audry!
Jason and Audrey: Hey Roger
Al Lee: Roger, did you get my earlier message?
Roger Dawson: Al, no I didn’t.
Al Lee: I said that my radio broadcast next Sunday is preempted by football. I would like to meet with you for coffee.
Roger Dawson: Al, was Mike a good guest on your show this weekend? Was it a really big shoooow?
Al Lee: Roger: He was terrific. I intend to post the show on my website for streaming audio listening on demand. I will send Ralph a coy so he can put it on your website, too. Mike is a terrific guest.
Jim_FletcherNC: Mike, when you say make offers, are you making a “verbal” offer or is it in a Letter of Intent? What is the vehicle you use to make the offer to a seller?
Roger Dawson: Al, let me get back to you. I don’t have my flight schedule with me. I know that I’m tight on time going in, but maybe we could meet before I fly back home.
Rob L: I’ll be very curious about the “offer generator” software you mentioned last week…I think multiple offers using letters of intent is awesome.
Mike Summey: Jim, I use a lot of letters of intent advising that if my offer is acceptable it will be immediately reduced to contract form.
Al Lee: Roger, no problem. I will email Mike with a messag to pass to you as I don;t have your email address
[Investment Chat]: Penny has entered (9:11 pm)
Al Lee: I suppose it is on the website and I never looked for it
Roger Dawson: Al, my Email is RogDawson@aol.com
Al Lee: Now I have it. Ask and ye shall receive
Jim_FletcherNC: Thanks, Mike.
Roger Dawson: WB Penny (that’s cybertalk for welcome back)
Mike Summey: Roger, I think you should meet with Al if possible.
Roger Dawson: I’d like to meet him
Al Lee: Roger, I can be flexible since I won;t have the broadcast to do
Al Lee: Hope you’re not disappointed
Roger Dawson: I want to meet you! Everything they say about you can’t be true!
Mike Summey: I find that most people are very reluctant to ask a seller for financing. Why?
Jim_FletcherNC: Mike: Once you have made the offer in a Letter of Intent, do you make an appt to sit down with the sellers and explain how seller financing can benefit them?
groute: Rob L: Did I miss a beat? What “offer generator software” are you speaking of?
Mike Summey: Jim, if possible I like to meet with the sellers before sending a letter of intent. That way I can find out more about therie circumstances and structure a better offer.
Rob L: Can you also use as for seller financing for MLS properties?
Al Lee: Roger, I have sent an email to you.
Mike Summey: groute, that’s something we are working on the won’t be ready for a while. It will let you input all the variables and then produce a wide array of offers that will work with the NOI.
Roger Dawson: Remember that sellers can get money out by putting a first on the property. Your note to them is in second position. This is the no money down formula that Robert Allen teaches.
Mike Summey: Rob, you can ask for seller financing from anyone…even banks that are trying to sell REO properties.
groute: I’m chomping at the bit for that piece of software! Are we speaking 2004 or 2005?
Rob L: Mike, who is programming that for you? I work with a team of developers who are top-notch and low cost.
Mike Summey: groute, hopefully by year end. We’ll announce it when it is ready. Right now it is going through testing.
zert: Roger - could you expand on that please?
Mike Summey: A grat no money down technique is to get a small (20-30%) first mortgage so you have money to give a seller and then ask for seller financing forthe balance.
Jim_FletcherNC: The seller must possess a large amount of equity, right?
Mike Summey: Right
fukun: mike, what you ask for seller finacing from banks(REO), do they need proof of funds?
Roger Dawson: Zert the property is free and clear but the sellers want some cash out. They take out a mortgage to get cash and carry back the balance to you on a second. The seller gets cash the buyer gets no money down. To avoid the due on sale clause the buyer applies for the first loan with the seller.
Mike Summey: Over half of all the real estate in America is owned free and clear.
zert: thanks
Jim_FletcherNC: Is that SFHs or ALL real estate?
Mike Summey: If you can fog a mirror, you can qualify for a 20-30% first mortgage loan.
Mike Summey: All real estate.
Jim_FletcherNC: wow!
Roger Dawson: Got to leave you now! Great being with you!
Jim_FletcherNC: Is the trend going up or down? (because of lo int rates)
Ralph Roberts: good night, Roger
Rob L: Bye, Roger, thanks for coming
Jim_FletcherNC: Take care, Roger…. Keep the shiny side up!
Al Lee: So long, ROger
Mike Summey: Jim, I’m and investor. Most people would think that I was highly leveraged, but 60-70% of my properties are owned free and clear.
groute: Bye Roger
Al Lee: I need to go tuck the kiddies in, too.
Mike Summey: Bye Roger.
Mike Summey: Have a steak for me.
Rob L: Mike, that’s after 20+ years of paying them off, right?
Jim_FletcherNC: I have several free and clear… i just want to purchase a lot more properties
Mike Summey: Right
Al Lee: Goodnight
Jim_FletcherNC: Good night, Al… Thanks for all you good advice
Penny: Have one for me also Roger. Goodnight.
Penny: Goodnight everyone. Thanks.
groute: Mike, When will the next Chat take place?
Jim_FletcherNC: I think the day I make my first purchase geting seller-financing will be a day for celebration
Mike Summey: Jim, use your free and clear properties to obtain a revolving line of credit and then use it to buy properties. Once you get a property fixed up and rented, obtain a mortgage and pay back your line of credit and keep doing this over and over…unless you can get seller financing in the beginning.
zert: I’ll drink to that!!
Mike Summey: groute, we’ll annouce the next chat by email. I know it won’t be next Monday as both Roger and I are on the road.
Rob L: Mike, do you recommend I buy that $29,000 property in cash and get 100% cash flow? Then use that property as a line of credit for the other ones later on using that approach?
Mike Summey: Good chance for the 25th.
Jim_FletcherNC: Mike: We plan to do that… the only glitch is the properties we have free and clear are in calif… but we are looking at getting those lines of credit through some Calif lenders
groute: This has been my first session. It has been very informative. I look forward to the next session
Mike Summey: Rob, $29,000 is not enough of a credit line to do much with. You will probably have to wait until you can acquire more equity.
Rob L: I have a $168K HELOC on my primary residence as well
Rob L: and 800+ FICO score
Mike Summey: groute, thanks for joining us. We do these chats to help our readers and we do them for FREE.
Jim_FletcherNC: Mike: in your book you say offering an all-cash deal will sometimes get you a great price on a property… how do you lay that offer on a propsective seller?
groute: Thanks again and Good night all.
Rob L: good night, groute
Mike Summey: Some real estate gurus charge for everything, but we try to give value instead. Neither Roger nor I need to sell books and tapes or boot camps to make a living.
Jim_FletcherNC: good night groute
Mike Summey: goodnight groute
fukun: night groute…
Rob L: We appreciate that, Mike (Roger)
Jim_FletcherNC: Mike, I think I can speak for all… we all appreciate everything you and Roger offer here in the chat. Thanks!
zert: I’ll drink to that too!!
Mike Summey: Jim, when I can’t find out about a seller’s motivation, I will often make two offers at the same time. One with a low price for cash and another at a higher price with very low or 0% financing by the seller.
zert: Seriously, thank you Mike, Roger, Al and everyone else that supports these, they are a great educational function
[Investment Chat]: nickky6 has entered (9:31 pm)
Jim_FletcherNC: Ok…. thanks
Rob L: Mike, do you minus out the repairs first?
Mike Summey: The seller’s reaction to these offers gives me a better idea of their circumstances.
nickky6: hello everyone, hope I am not too late
Mike Summey: Hi nicky
Mike Summey: You’re late.
Mike Summey: We’re just wrapping up.
nickky6: Sorry.
nickky6: I am new
nickky6: can I still ask a question?
Jim_FletcherNC: I take it that the cash price is really low, and that the the higher offer is about at the “1%” of range you talk about
Mike Summey: We’re glad you joined us, but in the future if you can get in early we’re happy to take your questions and give you all the help we can.
[Investment Chat]: nickky6 has entered (9:33 pm)
Mike Summey: JIm, make the range as wide as you can and stay within the NOI. How the seller reacts will let you know which direction to proceed.
Mike Summey: go ahead nicky
Jim_FletcherNC: Well, Mike, I am going to let you go. Thanks again for your help. I take it you are feeling better this week. you sounded kinda rough last week.
Mike Summey: I’ll take one or two more question then I’m going to go eat.
nickky6: Does anyone know about investing in the bridgeport conn. area?
Jim_FletcherNC: oooooooo high prices!
zert: I have read the chap on making offers 3 times, I think that I need to read it again because every offer has numerous possibilities
Mike Summey: nicky, I think we had some people from that general area in earlier, but we are wrapping up and most people ahve already signed off. Sorry!
nickky6: Oh, okay.
Jim_FletcherNC: Mike, have a safe flight to NY City. Take care and will talk to you when you get back. C’ya!
nickky6: next time.
Mike Summey: zert, there are as many ways to buy properties as there are combinations of properties and people.
Rob L: Thanks for all your help today. Have a great dinner. I’ll see you all next time!
Mike Summey: Goodnight all.
nickky6: good night
zert: it is really startint to sink in
Ralph Roberts: Night, Mike
Jim_FletcherNC: Good night!
Mike Summey: It’s been fun and we’ll catch you again soon.
fukun: good night
Jim_FletcherNC: Thanks, Ralph
zert: hopefully by next chat, I will have made my first purchase
Mike Summey: goodnight all
Ralph Roberts: Chat transcript will be posted shortly.
zert: night everyone, thanks again
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