Chat 8-29-05
Posted on August 29, 2005
Ralph_Roberts: hi JS
Ralph_Roberts: hi bob
Bob_Carr: Hi everyone
Ralph_Roberts: Big Al!
Al_Lee: Hi, Ralph, Bob, JS
Al_Lee: Ralph, did you get the download f the radio show ?
Ralph_Roberts: Al, I should be posting your program soon
Ralph_Roberts: just behind 
Ralph_Roberts: hi Dean!
Al_Lee: Ralph, I didn;t hav etime to edit out all my "uh’s" and
"um’s" and "you know’s", so you have it "raw"
dean: Hi Ralph and everyone
Ralph_Roberts: *) okay, Al
Al_Lee: It might add authenticity, right?
Mike_Summey: Hello everyone
Ralph_Roberts: and here’s Mike Summey <——–
Al_Lee: Hi, Mike
Mike_Summey: How’s everyone tonight?
Mike_Summey: Hi Kim
Kim-OH: Hi Mike!
Kim-OH: Hi Ralph!!!!!!!!!!!!!!
Kim-OH: Hi Al
Kim-OH: Greetings All
Ralph_Roberts: Hi Kim!!!!! 
Al_Lee: Hi, Kim
Mike_Summey: Al, what do you have on tap for this Sunday?
Mike_Summey: Hi Bob, Dean & JS
Mike_Summey: i Rob
Rob_L: Hi, everybody
Al_Lee: Mike, it isn’t planned yet, but September 25 IU will have a very
special guest.
Kim-OH: Hi Rob
dean: HI Mike
Mike_Summey: Roger will be along shortly.
Kim-OH: Al who is your special guest?
Al_Lee: Actually, my very special guest is Roger!
Mike_Summey: Al, Sept 25????
Al_Lee: Yes, Sunday Sept. 25.
Mike_Summey: Hi lina
Al_Lee: Roger likes to talk, too. That is really good for radio!
Mike_Summey: What’s happening Sept 25?
Kim-OH: Hi Lina
Lina: Hi Mike. I have not log on in a long time. Boy is access a lot
easier now. Good job.
Mike_Summey: Al, are you having Roger on the 25th?
Al_Lee: Mike, that is just the date Roger and I agreed on to do the show
Mike_Summey: Hi Justin
Mike_Summey: , glad you like it. Where have you been?
justin: hi
Lina: I have had Mondays busy for a while. Taking a class. So many things
to learn.
Mike_Summey: Anyone have any big news tonight?
Mike_Summey: Lina, where are you located?
Lina: What I would like to discuss is the eviction process. (I’m in
Chapel Hill, NC)
Rob_L: I’ve got sad news. After spending lots of money rehabbing, my prop
mgr put in a tenant, 3 months later he is evicted and it is costing me another
$1000 to clean up after his mess of various stuff….
Mike_Summey: I have my CPA scheduled for September 19th. He said we will
have to post some disclaimer about tax advice at the beginning and end of the
chat to keep him out of hot water with his firm.
Rob_L: I feel crushed after I felt like I did everything correctly 
Lina: Hmm.. seems eviction is the topic tonight.
Kim-OH: Rob, it sounds like your PM or you didn’t screen the tenant very
well, is he collectible?
Mike_Summey: Rob, did the property manager run a credit and criminal
background check on the tenant?
Mike_Summey: Lina, what do you want to know about eviction?
Rob_L: The thing is that the tenant was screened properly and everything
looked good…who would have known that tenant would bring in his brother who
was the troublemaker
Al_Lee: Rob, how thorough a screening did the prop manager do? That
should not happen too often. Everyone can make a mistake, but it is their job to
screen out bad tenants before they get in.
dean: Lina, here in Asheville the magistrate gives a free class on
eviction twice a year. Maybe your city does the same.
Rob_L: Yes, complete checks were done. The tenant had a 650 credit score
and good income and everything…it’s the brother that brought in the pets (I
have a no pet policy) and the brother who caused all the trouble
Kim-OH: Rob, does your lease state that tenants are not permitted to have
others move in?
Lina: Are there steps to take, papers to get signed, to help protect me
when eviction is possible?
Rob_L: Then the actual tenant bailed
Al_Lee: Rob, did the tenant hav ea family? Wife, kids?
Mike_Summey: Rob, did the PM inspect the property regularly after putting
in the tenant. I require mine to go back and inspect each property withinn 60
days of renting to see how the tenant is keeping up the inside.
Kim-OH: Rob, the original tenant is on the hook for the damages if you
choose to pursue it
Rob_L: Yes, I have a great lease and others are not supposed to move in
and the tenant had a live-in girlfriend and supposedly a daughter who visits
time to time
Kim-OH: Hi Roger
Roger_Dawson: Sorry to be late, folks!
Mike_Summey: There’s……..Roger Dawson
Rob_L: Yes, he did and provided a 7-day right to cure to get rid of the
pets 1 month after move in
Kim-OH: We missed you Roger
Rob_L: Yes, we will put a judgement of $2300 against both tenants on
lease as damages (good luck collecting I suppose)
Mike_Summey: Rob, you might have had the misfortune of getting a bad one
early in the process. We all get them, but they are the exception, not the rule.
Rob_L: That is why it only took 3 months…we tried to evict as quickly
as possible
Rob_L: It took a little over a month just to get rid of him
justin: After about month and half for looking for a renter, we finally
got someone to put a deposit. This will be first rent house, so hopefully
everything goes well. The property mgmt company seemed to do a good job. Should
I make sure that there is addendum stating that others should not move in?
Lina: That is what I read. The eviction process is expensive to the
property renter.
Rob_L: My skeptical wife is now even more doubtful of what I am doing and
I feel like the wind has been taken out of my body
Mike_Summey: Rob, don’t discount getting a judgement. I’ve collected on
judgements 8-10 years later….with interest. If the tenant ever tries to buy a
home they won’t be able to get financing with an outstanding judgement. I just
collected $1700 from two years ago last month.
Rob_L: I will surely file a judgement…I plan to ruin their credit as
best I can!!!
Al_Lee: Rob, I had a bad tenant from the tiem before I used a proeprty
manager (may years ago) and the property manager I eventually hired evicted him
(and wife) and filed a suit and got a judgement. About 5 years later that guy
trie dto buy a house in Massachusetts and had to pay me the judgement in order
to close. I collecte!
Al_Lee: colected!
Al_Lee: collected!
Rob_L: My house is flea infested, brand new carpet now stinks, doors
cracked, things broken
Rob_L: And this property manager just charges me for everything!
Rob_L: The owner gets hit hardest…easy work for the property manager
Roger_Dawson: I think you got very unlucky here Rob. Pre-screening well
will usually avoid disasters like this.
Mike_Summey: Lina, my rent collection policy is to take out eviction
papers after 10 days. If the tenant wants to stay they have to pay the back rent
and the cost of the eviction. You usually only have to do that once with most
tenants for them to get the message that if they’re going to ride someone it’s
not going to be their landlord.
Rob_L: Next one is going to be HUD all the way!
Mike_Summey: Hi Big D
Big_D!: Good Evening everyone!
Kim-OH: Hi Peter
Mike_Summey: Rob, read #8, "Fear of Bad Experience" on page 242
of the real estate book.
Mike_Summey: Hi Peter
Lina: I have an interest only mortgage on a rental and the rates are
climbing. The house is in an area that historically has only seen slow property
value increases. I’m thinking of switching to a fixed mortgage but it will make
the cash flow very min if not a bit negative. What to do.
Kim-OH: Hi Penny
Penny: Hello Kim
Penny: and everyone.
Peter: Hello all
Lina: Mike, Thanks for sharing how you deal with eviction. I get it. 10
days and papers are in the works. 
Mike_Summey: Lina, I don’t like interest only mortgages … good or bad
times. If you can switch to a fixed rate now and break even, I’d do it. Time
will build cash flow. As the mortgage pays down and the rents rise you will
start to see cash flow.
Kim-OH: Al, how is your wife’s recovery progressing?
Mike_Summey: Hi Penny
Al_Lee: Lina: I think you mean that you have an adjustable rate mortgage
with an interest-only option. I have many interest-only mortgages, but all are
fixed-rate, so now that rates are climbing it is no problem to me. That is waht
I recommend.
Penny: Hi Mike
Penny: I did make it in before 9pm
Peter: Yes…if you can get IO morgages 30yr fixed with first 10yrs IO is
the way to go
Al_Lee: Kim, thanks for asking. She is recovering well, but has some
stomach problems, so the doctors are looking at that now. Might be from the pain
killers, antibiotics, inactivity, etc. Might also be somethng worse, we will
find out.
Penny: I’m going to be watching the chat and listening to to weather
channel to see what I missed while I worked.
Peter: I also like the plain vanila 30yrs fixed as that gives you
satisfaction that you are building equity too
Penny: but usually thats all I do anyway, is watch
Kim-OH: Al, yikes but all that stuff can really mess up one’s intestinal
track, when will you know more?
Peter: is any one affected by Katrina here (I guess you wouldnt be here)
Al_Lee: Peter, I agree with you, but you are paying dollar-for-dollar for
the equity you are building. I prefer to keep thos dollars in my control so I
can reinvest in more properties
Lina: I didn’t realize IO mortgages exisited. I will have to borrow out
of my 401K to get the property to cash flow positive if I switch to a fixed. At
least the money I borrow and interest I pay is back to me that way.
Peter: but again if you pay back Principal you end up paying less
interest
Al_Lee: Kim, she had a sonogram this evening and tomorrow we shodl get a
report from the docs
Mike_Summey: Lina, I learned that collection process from a crusty old
property manager I once had. I was in his office one day when one of my tenants
came storming in and he was furious. He didn’t know I was the landlord, but he
was really hot about getting an eviction notice on the 11th of the month. My
property manager, not so politely, told him that he was a property manager, not
a bill collector and that he knew when the rent was due and he didn’t pay or
even bother to call. The tenant paid the rent and the eviction fees and was
never late again in nearly 4 years that he rented.
Roger_Dawson: Interesting article in the LA Times Sunday about how people
are pulling their equity out of properties to live on. Used to be the goal to
have your home paid off by retirement but that’s not the trend any more. Doesn’t
sound smart to me.
Al_Lee: Peter, that means that the dollars invested in paying down
principal are earning a return of the interest rate you are paying, maybe 6%,
7%, or so. I can do much better by using that cash to buy another property.
Kim-OH: Al, I’ll say a prayer for your family and let me know next week
what the tests show
Al_Lee: Kim, will do, Thank you.
Lina: I love that story Mike! Thanks. I feel better about how to handle
evictions now.
dean: Roger, I guess it is ok if you know when you will die.
Roger_Dawson: Only 34.6 percent of people own their homes free and clear
these days.
Mike_Summey: Lina, you have to teach tenants that if they want to borrow
money the will have to do it from someone other than their landlord. That may
sound a bit harsh, but it is business and it works.
Roger_Dawson: Dean, you always have the option of knowing when we’re
going to die, but not many of us want that.
dean: I agree.
Lina: Mike, harsh I am ok with if the deal is fair… to both me and the
rentor as your way is. Thanks again.
Rob_L: Roger, what if you own your home free and clear…are you saying
take the money out to buy more properties?
Mike_Summey: Lina, I made a deal with my banks many years ago … I
agreed to stay out of the money lending business if they would stay out of the
real estate business. ;>
Al_Lee: Big-D, are you in Dallas?
Roger_Dawson: Rob, I think that depends on your age. Real estate
investing takes a few years to start paying off, so you’d only want to borrow
against the equity and invest if you’re say less than 70.
Mike_Summey: Rob, you may have had a bad experience with a tenant or you
may not have the right property manager. Over the years I’ve had to replace
property managers who could not perform up to my standards.
Big_D!: no I’m in philly, home of the birds
Lina: Roger, what do you think about borrowing from my 401K about 20,000
to get my rental converted to a fixed rate and then pay that 20,000 back to
myself?
Lina: Roger, I’m 50 yo this year.
Al_Lee: Oh! "Big-D" is a a nickname for Dallas. Comes from a
Song: "Big D, Little a, double l, a s"
Peter: Al..you are right but I looks more like gamble to me if all your
properties are on IO loan and you dont build equity except the appreciation on
them….I think it is a matter of how you feel about this psychology then doing
the Math
Roger_Dawson: Al, presumably his Big D is anatomy related.
Big_D!: lol!
Peter: Lina…I am also planning to pull money out of my 401K
Rob_L: Roger, I am 35 years old and both my houses are paid off. I plan
to refinance the rental property to buy more houses (if I can get my wife to
believe in my more, that is). But I am not ready to get into debt again with my
personal house…that is too big of a step after my horrible experience so
far…
Roger_Dawson: Lina, you’d have to pay income tax on the withdrawal from
your 401K wouldn’t you?
Al_Lee: Roger, is it safe for me to have you on my radio show? It is a
family-oriented station, you know.
Peter: only catch if you leave your employer or get fired you need to pay
back or else pay taxes and penalty
Mike_Summey: Peter, I agree with you. Financing is one of the areas that
Al & I disagree on. We’ve both been successful so I can’t knock him too
much, but I like getting them paid for.
Al_Lee: Roger, I think you can borros 50% of the value in yoru 401K and
not pay tax
Peter: Roger I think Lina is asking abt taking loan from 401K
Lina: Roger, no… no income tax since it is really just a loan from my
401k, not a withdrawal! The interest I pay, I really pay to myself on the loan.
Roger_Dawson: Any body know if Lina can use a self directed investment of
her pension plan and buy real estate with it?
Peter: Yes Al is right you can borrow 50% from your 401K as long as you
are with same employer….upon leaving the company your loan becomes due and you
get 30 days (am I right?)
Rob_L: Mike, if you like getting them paid off, they why are people
saying get the equity out to buy more houses? I guess just different
strategies???
Mike_Summey: Rob, why don’t you get an equity line of credit to use to
make purchases and then refinance each one after a year or two and repay the
equity line. That is a strategy a close friend of mine used to build a $100,000+
annual income in just 5 years.
Peter: Roger/Lina some big companies does not allow self directed
plan…if you leave the company you can do a self directed IRA (roll over ur 401
to self directed ira)
Al_Lee: I personally think that it is smart to get away from the
adjustable rate and go to a fixed-rate as soon as possible. Greenspan has raised
rates ten times in a row now and that will soon afect the ten-year treasauries,
ergo mortgage rates
Peter: for me I am not allowed to do self directed so I am planning to
get a loan….and moreover the interest I will paying to myself which is a neat
thing
Mike_Summey: Roger, she’s talking about borrowing from her 401K, not
holding real estate in it.
Peter: Mike….I think I am more towards your idea abt morgages…but
what Al says makes total sense to me if I look at it mathematically
Al_Lee: Don’t let mathematics mess up your figuring
Peter: I guess one should go with Math and not with ones feelings…will
have to work on that
Lina: You guys are great. Thanks for all the advice! I have missed not
being here!
Mike_Summey: Rob, does it matter if you have $100,000 equity in 1
property that is paid for or $100,000 equity in 5 propeties that are financed
80%?
Al_Lee:
Mike_Summey: Hi ritchie
Peter: sure I too missed on not being here before
Al_Lee: Mike the difference is that you are getting apprecaition on 5
properties instead of one and you are getting depreciation allowance on your tax
return for five proeprties, not one. Also you are more diversified. A vacancy is
only a 20% vacancy to you wih 5 properties.
Mike_Summey: Part of the problem with not paying off loans is that as
your debt increases, the lenders want to see your equity increease also.
Rob_L: Mike, $100K annual in 5 years–that is awesome. Is there a quick
2-sentence strategy that he had? Just buy rentals "like crazy" (and
not get unlucky with bastard tenants)?
Al_Lee: Mike, or your cash flow increase !
ritchie: Hi Mike, thanks. This is my first time.
ritchie: I’ve read both your books, and you have my kind of philosophy
Mike_Summey: Rob, my friend has had some of those bad tenants also. He
finally learned to view that as a part of the cost of doing business and reserve
for it.
ritchie: I’m really worried and annoyed about all the speculators who are
paying rediculous sums and praying for the real estate gods to bring
appreciation
Mike_Summey: ritchie, we’re all friends here and you can ask anything you
want. There are no dumb questions, only people who remain dumb because they are
afraid to ask. Just jump in whenever the urge hits you.
Al_Lee: Rob, Before I learned to use professional managers I had lots of
setbacks with bad tenants. I hav ehad a doberman sic’d on me, a punch in the
jaw, lots of repairs to do, and plenty of lost rents. The most important thing
in my success was that I did not give up. Just too stubborn, I guess.
Lina: Got to sign off now. I’ve been away for the weekend and I’m fading.
Thanks for the support and advice. Good night all.. *harp*
Roger_Dawson: Good night Lina
Mike_Summey: Goodnight Lina, see you next week?
Al_Lee: ritchie, that is why all of us here focus on cash flow
Rob_L: Thanks, Al. Maybe this is God testing me to see if I can go for
the long haul…
ritchie: Here is a repost from the forums:
ritchie: I check the real estate investments section of my local paper
religiously every week. Found an investor who is unloading a handful of
properties. In fact, after a month, his stuff is still for sale. He’s had one
set of offers, but the buyer failed to find financing. The seller indicated a
willingness, in my last conversation, to "be creative". The fact that
he is an investor is helpful. The problem is the props I’m interested in, within
a short drive from my house, appear to be priced at or above retail. I see the
benefit that they are already rented, but in crunching the numbers, I see no way
to break even. I’m certainly NOT interested in taking an interest only loan and
praying for inflation to bail me out. I feel like counting on future
appreciation is speculating, particularly in today’s market. But this could be
an opportunity if I can find a way to make the numbers work. Any suggestions?
From reading the book, my guess is, calculate the noi, and determine how much
can be paid monthly on financing. Then break that into a first and second
mortgage, where the second mortage is 0%. I’m just afraid the seller will laugh.
Of course, as an investor he should understand that there has to be a way to
make money in order for the purchase to make sense. Any comments are
appreciated.
Lina: Definitely! *harp*
Mike_Summey: ritchie, that’s why I don’t speculate. I buy for the cash
flow only and let the gamblers but for the quick short term profit or loss!!!
ritchie: So this guy was suggesting, that the property would "easily
appraise for 10K more" than what it’s priced at
ritchie: and I could get cash back at closing
ritchie: I asked what the lenders think about that
ritchie: Naturally, he wouldn’t put that in the sales contract
ritchie: which has warning signals written all over
ritchie: in my opinion
Roger_Dawson: Getting cash back at closing is not money from Heaven.
You’re just borrowing more and getting deeper into debt.
Mike_Summey: ritchie, if you’re buying from an investor, he should
understand that another investor is not going to pay him for the privledge of
owning the properties. Forget appraisials and make your offer based on noi.
ritchie: I guess I really know the answer to my own question - someone
else wants to be an investor more than I do, because I can wait
ritchie: I agree, Mike
Mike_Summey: You may be surprised at his reaction if you present an offer
asking for significant financing but one that is close to his asking price.
Al_Lee: ritchie: IF the guy recently bought the properties and is now
flipping them the lenders will likely find a "chain-of-title" problem.
That means the titles has changed rapidly and the price has jumped up. It is a
red flag to a lender. That is why slick operators will offer creative financing,
to bypass the due diligense you woule go through with a normal loan
ritchie: He has held them a couple of years
Big_D!: Good night everyone, I ‘m new to the art and have more to learn,
but will be back this is great sfuff. Chow!
Al_Lee: Ciao, Big-D
ritchie: Mike, just to get a feel for his position, I suggested something
with a TBD total price, but 80% conventional and 20% seller financed (adjusting
the rate as you describe in the book until the numbers balance)
ritchie: He indicated he does not have that much in it to be able to
offer 20%
Mike_Summey: Everyone wants to get-rich-quick … me too! The problem is,
it just doesn’t happen. for every situation where someone made a ton of money in
real estate overnight, there are thousands who lost everything trying. Just be
patient, take you time and do it smart. Wealth does not happen overnight, but
bankruptcy can.
ritchie: the 80/20 would eliminate PMI
Rob_L: Mike, $100k in 5 years is pretty quick to me! How did he do it?
Just buy and hold and rent?
Mike_Summey: ritchie, try it at 40% conventional and 60% seller financing
and see what happens.
ritchie: right. My strength comes from the fact that he needs to sell,
but I don’t have to buy.
ritchie: Mike, won’t he balk?
Mike_Summey: Rob, that’s what he did. He bought several properties using
his equity line to secure conventional financing and then refinanced as soon as
possible to repay the equity line and keep using it to buy.
Mike_Summey: ritchie, you’ll never know until you try, will you?
ritchie: I guess not
Mike_Summey: ritchie, let him make his own decisions …don’t assume
anything and by all means, don’t make his decisions for him without even giving
him the opportunity to make them.
Penny: Goodnight everyone, need to run.
Penny: bye
Al_Lee: Bob, you’ve been pretty quiet tonight.
Bob_Carr: Just listening & thinking Ak
Bob_Carr: Al
Al_Lee: Thinking can get you in trouble.
Bob_Carr: I hear you
Mike_Summey: I got booted out! Sorry!
ritchie: everyone seems so quiet
Mike_Summey: Hi Larry
ritchie: Can anyone comment on offering to buy props that are at risk of
foreclosure?
ritchie: that is, if you cold call the owner, what do you say?
ritchie: And any times for finding an onwer that has vacated the house?
ritchie: tips, that is
Mike_Summey: ritchie, if a property is clsoe to foreclosure, you can
often get a good deal by buying it before it actually goes into foreclosure.
ritchie: ok
ritchie: There is a house in my neighborhood, of all places
Al_Lee: ritchie : be srue you inspect it carefully using a professional
inspector and check the title before buying. people who are about to lose the
house don;t take good car of it and there may be more reasons they are not
making the payments than they let on. There is soemtimes a major problem with
the house and that is why they can;t sell it and are letting it go back to the
bank
ritchie: vacant
Mike_Summey: ritchie, banks will often negotiate with you prior to
forclosure if you can get the owner to give them permission to discuss their
loans.
ritchie: ok
ritchie: as of today, the info I’ve gotten from the bank, is it’s not an
REO
ritchie: that’s all they would tell me - they suggested I try to find the
owner
ritchie: but they can’t give me any info
ritchie: the house is vacant
Mike_Summey: ritchie, it won’t become and REO until after it goes through
the foreclosure property and the bank acquires it by bidding in the loan at the
foreclosure sale.
ritchie: sure. Which actually spells opportunity for me
dean: Good night everyone, Thanks
Mike_Summey: ritchie, the bank can’t give you any additional info without
the owners permission.
ritchie: because I am not competing with a herd of investors
Roger_Dawson: Good night everyone!
ritchie: good night, Roger
Al_Lee: Goodnight, ROger
Mike_Summey: Just FYI … we will not have a chat nex Monday and that is
Labor Day.
ritchie: The bank guy suggested hiring a service to locate the owner
Al_Lee: Time for me to go tend to home matters. See you all next chat
Mike_Summey: I’m going to have to sign off as well. I have some things I
have to get done before bedtime. Goodnight all.
ritchie: good night, thanks
Ralph_Roberts: Transcript will be posted shortly.
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