Chat 1-17-05
Posted on January 17, 2005
Welcome to the chat, Ralph Roberts!
[Seminar Room]: Ralph Roberts has entered (7:56 pm)
Ralph Roberts: hi Roger
Ralph Roberts: oops… he gone already 
[Seminar Room]: Roger Dawson has entered (7:57 pm)
Roger Dawson: Hi Ralph!
Ralph Roberts: there you are… hi Roger
Ralph Roberts: cold enough for ya?
Roger Dawson: It is a might chilly out there compared to California!
Ralph Roberts: yep
[Seminar Room]: JD has entered (7:58 pm)
Ralph Roberts: hi JD
Ralph Roberts: welcome
Roger Dawson: Hi JD
Roger Dawson: Mike and I went out looking at modular construction homes today. Interesting concept. Could revolutionize building methods
JD: Hi how are you doint tonight
Roger Dawson: Where are you from JD?
JD: that has been around
[Seminar Room]: Steve has entered (8:00 pm)
JD: CT
Roger Dawson: Hi Steve!
Steve: Hi guys!
Ralph Roberts: welcome, Steve
Steve: I missed last week but read over the script on the website this weekend
[Seminar Room]: Denise has entered (8:01 pm)
Steve: Looks like all I really missed was Mike new “ride”
[Seminar Room]: Mike Summey has entered (8:01 pm)
Ralph Roberts: Roger, did you see the modular home there where you turn into Tiny Farms?
Ralph Roberts: it sure is going up fast
Ralph Roberts: hi Mike
Mike Summey: Hello everyone.
Steve: Hey Mike
Mike Summey: Anything new tonight other than it’s colder than….
Roger Dawson: Yes, Ralph, I was fascinated. A full two story house built in one day by lifting four huge factory built sections and bolting them together.
Mike Summey: Modular housing seems to be growing inpopularity. I’m even looking into building some as rental units.
JD: it was put together there it was built in another site
Roger Dawson: Yes, that’s right JD
Mike Summey: The modules come fully finished inside and out.
JD: they have done that with decks for a long time
[Seminar Room]: zert has entered (8:04 pm)
Roger Dawson: Hi Zert!
Mike Summey: the only thing that has to be done is the heat & A/C has to be installed and the joints finished once the modules are put together.
Steve: There is a company out of Atlanta that will build any modular structure you want and deliver right to your site.
Mike Summey: Hi zert
zert: good evening everyone
Roger Dawson: Manufactured housing has tried for decades to get away from the stigma of mobile homes, and it looks as though they’ve finally done it.
Mike Summey: Roger, I may have time to take you into one of the modulars tomorrow.
Roger Dawson: I’d like to do that.
Roger Dawson: who has made an offer this week?
Steve: Has anyone made any offers this week?
Steve: Oops, sorry Roger
Steve: (great minds…)
JD: not to labor an issue but Sears back in the 1800 would send you all the lumber precut to size as a kit there are a lot of homes in the midwest that were built that way
Mike Summey: I forgot to send out a reminder notice this morning. Roger is here with me and we have been working all day on the final edits of the new book.
Roger Dawson: I spoke at a convention in Las Vegas this week. Some investors started a discussion on how many offers you had to make to get one accepted and the concensus was about 30
Steve: Does everyone write their own offers or have a realtor handle the paperwork?
Mike Summey: That’s probably true on average, but it doesn’t mean you have one accepted every time you make 30.
Mike Summey: Steve, I’ve always written my own offers.
Roger Dawson: Only use a Realtor if the property is listed already
Steve: Mike, and if the seller has an agent, you present it to him/her?
JD: is there a reason you can’t write an offer to an agent
Mike Summey: I have my own contract that I use. It is a cross between the one the Realtors use and the one that Carleton Sheets ofers in his toolkit.
JD: what do you think of Robert Allen
Mike Summey: Steve, I write the offer, explain it to the agent and offer to accompany him/her when it is presented.
Steve: Good idea!
Roger Dawson: I’ve known Robert Allen for 22 years. He’s a good guy. He has an incredible flair for promotion.
JD: I try to read all his books
Mike Summey: Since my offers are often unconventional, many times the agent welcomes me going along. I always tell the agent that I will present the offer and then leave so he can discuss it with the seller.
JD: he is talking about another one
Steve: Good point
Roger Dawson: No money down was a great concept when underlying loans were assumable. It’s much harder to do these days. And of course very hard to make the numbers work we way we teach.
Mike Summey: When Robert Allen wrote No Money Down buyers tried to find sellers with very little equity in order to make a deal. Today, no money down deals are much easier made with sellers who have large equities or own the property free and clear.
Mike Summey: No questions tonight?
Steve: Mike, have you ever offered to take over payments for a seller in distress?
[Seminar Room]: DavidinSF has entered (8:18 pm)
Roger Dawson: Hi David
[Seminar Room]: jeff ,fla has entered (8:18 pm)
DavidinSF: hi there
jeff ,fla: hi
Mike Summey: Steve, what I usually do in a case like that is ask the seller to give his/her lender permission to talk with me about the loan. Then I can get first hand information about the status of the loan and discuss the terms under which the bank would let me assume it.
Mike Summey: Hi Jeff & David
Steve: Thanks Mike. The option has crossed my mind but I wasn’t sure of the particulars to make it happen.
Mike Summey: I’ve actually had banks let me assume a seller’s loan, cut the interest rate and pay all the closing costs in order to get me in place of a seller who is about to go into foreclosure or bankruptcy.
Roger Dawson: Of course, one of the big problems of buying from a seller in distress is How are you going to get them out of the property. They probable wouldn’t make a good tenant, so you have to have a firm understand about them vacating.
Steve: I wouldn’t consider renting to them, especially with other tenants in line
DavidinSF: Mike, I have a question for you re: buying no money down vs. putting your own money down. Using your ROI and NOI formulas, it seems to me that if you can put down 20% and gain ROI on it (say 3%), and still get a loan that meets the NOI it’s still a good investment, right?
Mike Summey: You’re smart if you wait until you can take posession at closing, and even then, go inspect the property just before going to the closing.
Steve: Good point, Mike. I do that now on all closings - stop by the property for a final inspection on the way to the closing.
DavidinSF: Ideally, putting no money down helps. But as a beginning investoer lenders want 20% down.
Mike Summey: David, that’s true if you’re comfortable with 3% on your money. With banks only paying 1-2% it may not be a bad deal. Personally, I try to get 10-12% on any cash I put into a deal.
Mike Summey: David, there are many sources of financing other than conventional lenders.
DavidinSF: Thanks, Mike. That was an “ah-ha” moment for me because it was the first time I could see how I could make money on the down payment. Moreover, it really showed me the value of real estate investing beyond the appreciation, tax benefits, etc.
Steve: I personally think you should sit down with as many banks as you can, explain your goals, and negotiate the best terms possible if you have to use conventional financing.
Mike Summey: Personally, I like to get as much seller financing as possible. I’ve been amazed over the years at the number of sellers who were adamantly opposed to providing financing in our initial discussions, but who changed their mind when a contract was presented to them.
Steve: Banking is like any other business - negotiable!
DavidinSF: Mike, if you can make 10-12% of ROI on down payment, are there times where you will put down a larger down payment to get the NOI you need?
Mike Summey: NO
DavidinSF: why?
Mike Summey: I never put any more of my money into a deal than I absolutely have to.
Roger Dawson: Remember the principle of leverage. The smaller the down payment, the greater the return on investment.
DavidinSF: i see
Mike Summey: With cash in the bank, I have options that I don’t have if it’s tied up in real estate equity.
DavidinSF: right. cash is king.
Mike Summey: If you put $10,000 down on a $100,000 property and the property appreciates 5% per year, the appreciation alone gives you a 50% return on your cash.
Mike Summey: On the other hand, if you put $50,000 down on a $100,000 property and it appreciates 5% per year, the appreciation only represents a 10% return on your cash.
DavidinSF: Thanks, Mike. I see the reasoning now.
Mike Summey: Once you have a property or two paid for, you can often borrow agains it and get the money to pay cash for a new purchase, but the effect of doing this is the same as making a no money down deal.
DavidinSF: and that’s the time that you can really accelerate ROI
Steve: Can you pool the equity in several properties to get a revolving line of credit, similar to an equity line on your personal home?
Mike Summey: If you borrow $100,000 against property you already own in order to pay cash for the new purchase, it has the same affect that buying the new property for no money down would have.
[Seminar Room]: Doug in CT has entered (8:35 pm)
Mike Summey: Hi Doug
Roger Dawson: Hi Doug!
[Seminar Room]: Rob has entered (8:35 pm)
DavidinSF: I can’t stay for the full hour tonight. Thanks for answering my questions. See you next week.
Mike Summey: I understand it’s winter in CT
Roger Dawson: Hi Rob
Mike Summey: Hi Rob
Rob: Hi
Doug in CT: HI Mike, Yeah — very cold tonight.
Mike Summey: Thanks for joining us David. See you next week.
Mike Summey: Doug, our agent lives in MA and I spoke with him this morning. He said it was miserable there.
Mike Summey: Rob, where are you from?
Doug in CT: We are supposed to get the 20 below chill factor tonight.
Rob: Jacksonville, FL
Mike Summey: brrrr
Mike Summey: Are you finding any deals in Jaxonville.
Rob: I am in the middle of a rehab right now and hopefully will rent it out next month
Doug in CT: Tomorrow I have an appointment to show my single family house that we have been reclaiming over the weekend.
Rob: I want to keep looking for more but my wife is a bit leery and wants me to wait 6 months before buying another one
Mike Summey: Are you showing it via snowmobile?
Steve: Has anyone tried to pool the equity in several properties to get a revolving line of credit, similar to an equity line on your personal home?
Mike Summey: Rob, is the one you are rehabbing you first?
Doug in CT: A history professor is moving to the area from the shores of Lake Erie and he wants a house for his small family, his MAstif and his basset hound.
[Seminar Room]: Penny has entered (8:40 pm)
Rob: Yes, it is my first.
Mike Summey: Hi Penny
Penny: Hi Mike!
Rob: I was going to lease option it but decided to keep it. After rehabbing, I will have put about $40K into it and it appraises for $80K
Roger Dawson: Steve, it can be done, but be very careful of blanket encumbrances because they restrict your options so much.
Mike Summey: Rob, then take your wife’s advice. Getting a little experience helps. but don’t be afraid to buy another one if you can find a real steal.
Rob: We had the money “laying around” so we paid cash for it. Until we find another deal, it is better than paying interest and better than any other stocks/mutual fund
Mike Summey: Rob, what will the property rent for.
JD: rob what kind of money did you put down
Steve: Roger, you mean in case you have to sell one of the properties?
Rob: I heard from my real estate teacher of my club I MAY get $750 for it
Rob: but more like $725…and no mortgage
Doug in CT: This house I am showing tomorrow is out in the Quiet corner of Eastern CT. Very rural out there, perfect for the history professor who needs to read a lot and not be interrupted.
Roger Dawson: Yes, that’s right Steve. All of the properties are tied up unless you can get the lender to release one of them and the equity would have to be in the other properties.
Rob: I know people will say to ALWAYS leverage your money but isn’t it better to pay it off if you don’t “need” that money right yet?
Rob: I can always refinance and use the money for another property, right?
Mike Summey: $725 per month with no mortgage is more than a 10% return before expenses.
Rob: Absolutely! After all expenses, we figure we’ll bring home $600/month
[Seminar Room]: Bruce has entered (8:44 pm)
Roger Dawson: Hi Bruce!
Rob: But everyone in my RE club says, “use a hard money lender”, “don’t use your cash”, “not a good idea”
Bruce: Hi Roger
Mike Summey: Rob, I’d bank the money in a separate account and build up a nice cash reserve before getting into another property. Then you can put a mortgage on the property and get the seed money you will need to make more deals.
Mike Summey: Hi Bruce
Bruce: Hi Mike
Roger Dawson: Rob, it depends what you’d do with the money. If you could find another property and do it again, I’d say save the cash for that.
Mike Summey: Where are you Bruce?
Bruce: Nashville
Mike Summey: Great city. That’s where I’ve been bringing my airplane for service.
[Seminar Room]: JackB has entered (8:46 pm)
Mike Summey: Hi Jack
JackB: Hello
Doug in CT: Have you had a change to take up your new baby Mike?
Bruce: More than happy to take you to lunch or dinner. Always willing to learn.
JackB: hows the new plane?
Mike Summey: Doug, not yet! It’s still in the prebuy inspection.
JackB: what’s up Roger?
Mike Summey: I just got the list the seller needs to fix today at noon.
Rob: Mike/Roger, it is even possible that we have the cash on hand to buy another property in full. Should I not touch that and just build the seed money from the current one and take it slow?
Doug in CT: I think celebrating your victories (like finishing the new book) is very important.
Roger Dawson: jackb, I’m in Asheville with Mike, putting the finishing touches on our next book.
JackB: who is printing iy?
JackB: it
Bruce: Mike, next time your in Nashville let me know, hopefully I’m in town.
Roger Dawson: McGraw Hill will publish in May
Doug in CT: Roger, Does Mike have any room for you in that little shack?
Roger Dawson: You can preorder on Amazon already
JackB: any pictures and how many pages?
Roger Dawson: Doug I have my own guest cottage on the estate. I have to dial 9 to get an outside line!
Mike Summey: Rob, I wouldn’t tie up too much of my cash. If you get a mortgage, your tenants will pay it off for you, but if you have the cash, you always have the option of doing so later. In the mean time you have a healthy cash reserve in case of emergencies.
Roger Dawson: Not many picture, about 300 pages. It’s called Weekend Millionaire Mindset.
Doug in CT: Barefoot Summey has come a long way.
Mike Summey: Still barefooted…just got tougher feet.
JackB: how many copies are you going to print?
Roger Dawson: A lot of the book is about how Mike got from the coal fields of West Virginia to where he is now.
Roger Dawson: Jack, that’s decided by the printer. The first book has sold just over 100,000 copies so far.
Mike Summey: Jack, that will be up to McGraw-Hill. With or current book, they are reprinting it almost monthly.
Rob: Mike, at what point did you buy houses when you started?
Rob: at what PACE
Steve: I have to take off. Hope to see you all next week….
Roger Dawson: Bye Steve
Mike Summey: Rob, I bought my first investment property in 1972.
Mike Summey: Goodnight Steve.
JackB: Mike, how did you find it and how did you pay for it?
[Seminar Room]: dean nc has entered (8:53 pm)
Roger Dawson: Hi Dean
Bruce: Mike, Roger, I gave your book to a RE Agent I work with and she has really enjoyed the book. I guess when we close another deal I’ll need to give her the new book.
Doug in CT: I listened to the tape version of “Weekend Millionaire” in my car and visialized Mike as a young kid hauling all that dirt up the hill to make a terrace–I guess it taught him there must be something good in “passive income.”
dean nc: hi guys.. better late than never
[Seminar Room]: zert has entered (8:54 pm)
Mike Summey: Jack, my first property was a commercial building I bought and rented to myself when I was in the sign business. I still own it and it has been rented to the same company for nearly 20 years. I don’t consider it my first rental property, because it was rented to my business. My first rent house was in 1979 and it took nearly a year to find.
Mike Summey: Hi Dean
Roger Dawson: I bought my first house in 1964 for 12,700 with 5% down on an FHA loan. One more the following year for 12,750.
JackB: Roger so you still own them?
Roger Dawson: No, I wish I did. They’d sell for $400K at least today.
Bruce: Roger, any negotiating tips for us tonight?
Mike Summey: The next year after the first house, I bought two. The next year I bought four. As my experience grew so did my ability to find and purchase good deals.
Doug in CT: Roger — too bad you didn’t have a copy of the Weekend Millionaire back then.
Roger Dawson: I thought I’d made a killing when I sold them for $35k each and bought a 16 unit apartment building.
JackB: It seems like alot of houses and apartments are for rent right now in st. louis is it that way this time of year?
Penny: Signing off, need to eat dinner. Goodnight.
Roger Dawson: Negotiating is still the same old story. Tell the other side about all the options you have and how you’re prepared to walk away.
Bruce: Goodnight
Mike Summey: Jack, that’s probably a reflection of two things; the time of year and the very low interest rates of the past few years.
Roger Dawson: Goodnight Penny
Bruce: Guess I should have said Goodnight Penny
JackB: Mike,more people are buying houses?
Doug in CT: Mike and/or Roger, ever heard of or tried to charge “Pet Rent?”
Roger Dawson: Low interest rates and easy credit have turned many renters into buyers
zert: Roger - perhaps you could help the Nat’l Hockey League - ther are going nowhere fast
JackB: is this bad for investors?
Mike Summey: Jack, that’s correct. The extremely low interest rates have enabled many habitual renters to qualify for home loans.
Roger Dawson: I would never allow pets inside my rentals.
Roger Dawson: Striking and shutting out players should not be an option in sporting leagues.
JackB: it seems like alot more people are getting into investing, is this good or bad?
Mike Summey: Doug, I allow pets, but my tenants have to put up an additional security deposit for each pet and enough of the deposit is nonrefundable to allow for the carpets to be professionally cleaned even if there is no pet damage.
Roger Dawson: JackB more investors because the options like bank accounts and stock markets don’t look so hot right now.
Mike Summey: Jack, it’s a sign of the times. The better the stock market does the fewer people will be investing in real estate.
Rob: Would you say the BIG monthy rents are from the commercial/multi-unit properties?
Mike Summey: Rob, BIG per unit rents are from these properties, but I’d rather have $10,000 per month coming in from 10 - $1000 per month rentals than from one $10,000 per month unit.
Roger Dawson: I don’t know much about commercial but in multi-units the cash flow goes up dramatically the more units there are at the location.
Doug in CT: I get it, Lot’s of little checks is safer than one big check that might suddently stop.
[Seminar Room]: george has entered (9:05 pm)
Mike Summey: The temptation to buy large multi-unit propeties is great, but keep in mind that if something happens that causes the property or the area to sudden become undesirable, a large multi-unit property might drage you down with it.
Rob: One goal of mine for a long time is to make $30,000/month by year. What would be a good plan of doing that?
Mike Summey: Hi george
george: hello y’all
Mike Summey: Where are you from George?
george: San Jose, CA - but I buy RE nationwide
Mike Summey: Good deal.
Roger Dawson: Rob is that 30K monthly goal gross income or net?
Rob: I’d like to say NET
Roger Dawson: Then you’ve got to realize that it’s going to take some time. That’s about ten houses fully paid for.
Roger Dawson: Very doable, but it’ll take a few years.
Mike Summey: Rob, having a goal like that is key, but set a realistic timeframe and don’t be discouraged by setbacks. Just keep at it little by little and you’ll get there. Just remember, a mouse can eat an elephant if you give him long enough.
Rob: Then I can work backwards…I want to come up with something achievable from what you have seen is doable
Rob: I have the desire, it’s just a detailed plan that is not clear to me
george: Where do you live Rob?
Rob: I am in Jacksonville, FL
george: What’s the avg home there?
george: ie. price
Mike Summey: Rob, set your goal and then break it won into doable pieces. You can celebrate the accomplishment of each piece as it occurs.
Rob: Median home is $150 - $180
Doug in CT: I hear Jacksonville, is a hot market
Rob: Yes it is hot…
Roger Dawson: It’s like plate spinning. Get one up in the air and keep an eye on it while you’re working on getting the second one up.
Mike Summey: Rob, you’re familar with the 80/20 rule aren’t you?
Rob: Pareto principle
Doug in CT: But then give the plates over to a professional plate spinner to manage as you several going.
Mike Summey: with big goals, you will find that 80% of the goal is often accomplished in the last 20% of time allowed.
Rob: Yes, I understand that. I also wanted to get into flipping properties, owner financing and lease options to generate money quicker
Rob: In the meanwhile, let the rents continue to grow for the ones I want to keep long-term
george: One thing you could do to speed up your cashflow is what I did initially - Buy at wholesale, then sell at retail while carrying the 20% note. You would have to do that with quite a bit of properties though to get to $30,000/month. I built good cashflow from that - but it is all taxable unlike rental income
Rob: George, that sounds like owner financing…
george: yes
JackB: I will chat with you next week, Good Night all
george: it is easy to build up passive income fast though
Rob: I know the weekend millionaire approach is to hold and not sell, but selling does accellerate money coming in, doesn’t it?
Bruce: Goodnight Jack
Mike Summey: Look at the example on page 4 of our book that shows you how to reach a million dollars by doubling a dollar 20 times. You will notice that $786,432 of the million is reached with the last 2 doubles.
Mike Summey: Goodnight Jack
Rob: One of my strategies, is to buy subject to existing financing and then use owner financing to generate some upfront cash and a monthly cash flow
Roger Dawson: Goodnight everyone. I need to leave you now.
Doug in CT: So the fact that the big doubles happen at the end is the encouragement to stay with it, patiently building the portfolio of properties, hitting singles, not home runs.
george: Mike & Roger, Just want to say I really enjoyed your book
Mike Summey: George, the problem I have with selling is that you cap your profits at the time of sale. When you hold, the longer you won the property the greater the profit margin becomes.
Mike Summey: Roger is tired and has to go to bed. Damn, getting old is tough.
george: I agree - but I used it initially to get some cashflow quickly to pay bills. Now I hold on to my properties
Mike Summey: Thanks George.
Rob: Mike in order to make the most money later on, you have to try to PAY OFF the properties in full, right? Not use interest only for the entire period……
Doug in CT: What time to you shut off power to the carriage house where Roger is holed up?
Mike Summey: Rob, when I buy new properties, I try to finance as much as possible and the let the tenants buy the propeerty for me. By taking this approach, you have very little cash flow in the beginning, but over time other people are contributing to your retirement. Today about 75% of my properties are paid for, but I didn’t pay for them.
george: Mike, do you have any tips on identifying good property managers?
[Seminar Room]: speedy1906 has entered (9:20 pm)
Rob: Mike, so all your mortgages were paying off principle and let your tenants pay it off….
speedy1906: hello everyone
george: hi speedy1906
speedy1906: Hello George
Mike Summey: George, I’d recommend that you write down all the things you want a property manager to do for you and then interview several using your notes to address all of the issues. After the interviesw use your best judgement to select one. It’s much like hiring an employee after studying the resumes of several and conducting pre employment interviews.
Mike Summey: Hi Speedy, where you been all night?
speedy1906: all over I guess
george: great, Mike, thx for the tip - I’ll try that
speedy1906: I have a question.
Rob: George, chapter 6 of Summey’s book talks about that too
Mike Summey: What is it speedy?
Bruce: Mike, do you own any properties in Nashville?
speedy1906: How is the process go for doing a principle reduction note
Mike Summey: I’m going to have to go in a few minutes so if anyone has a burning question get it off your chest now or wait until next week.
george: Mike, are you available for partnerships on really good deals?
Mike Summey: Speedy, are you referring to a Direct Principle Reduction Loan (a 0% loan)?
george: for Multiunit buildings
dean nc: goodnight all…
speedy1906: Yup the kind you talk about in your book
Mike Summey: George, I don’t do partnerships. No reflection on you or anyone else, I’ve just never had a partner of investor in my life.
speedy1906: which I have your autograph
george: any tips on section 8 rentals?
george: avoid them or embrace them?
zert: Doug/CT how are your properties in Buffalo going?
Doug in CT: Hi Zert, I am located near Hartford, CT.
speedy1906: I want to make an offer doing a Direct Principle Reduction Loan (a 0% loan) and I want to sound that I know what I am doing
Mike Summey: Speedy, I find that these type loans are more attractive to older people wanting to want to trade real estate equity for an income stream to supplement their retirement. With a 0% loan they can sell their house for more money and not have to worry about interest rates dropping a couple of points and having the loan paid off early. Only a fool would pay off a 0% interest loan early.
[Seminar Room]: zert has entered (9:29 pm)
Bruce: goodnight all
Mike Summey: George, I don’t like Section 8, but my friend Carleton Sheets swears by them. I guess it is all based on the experience you have had with them.
[Seminar Room]: zert has entered (9:31 pm)
speedy1906: I am in that situation. Is there any resources on the web for this. Do I need the note certified
zert: Doug - sorry I got you confused with another person from CT
Mike Summey: Well, everyone, I’m going to have to walk Roger down to the guest house. You know how it is when you get old and feeble. I’d hate for him to fall down on the wlak.
george: hehe
speedy1906: bye
george: Good luck Mike
Mike Summey: w
Doug in CT: Zert, I am excited about maybe being at 100% fully rented out very soon. It has been quit awhile (6 mo.) since I have been there.
Doug in CT: Don’t forget his cane Mike,.
Ralph Roberts: good night, Mike
Mike Summey: Goodnight all. I’ll talk with you next week. w
zert: very nice you must be happy
zert: good noght Mike thanks as always
Doug in CT: Goodnight Mike, Thanks again.
george: Thx Mike
Ralph Roberts: chat transcript will be posted anon … good night all
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