Chat Transcript May 22, 2006
Posted on May 23, 2006
Al_Lee: Hi, Mike
Mike_Summey: Hello Everyone.
jim: hello Mike
Mike_Summey: I was working away on something else and almost let the time slip up on me.
Al_Lee: Jim, on the club website there is a link to the Texas A&M Real Estate Center. It has a lot of very useful information and news on it.
jim: just started reading today, thx
Bob_(vegas): Big article in sunday paper……..The market is now a “buyers” market in Vegas
Al_Lee: Bob, all the people who bought there last year have lost all their money in the casinos and now have to sell, right?
Mike_Summey: Bob, I’m seeing a definite shift in the market in my area.
Mike_Summey: Penny
Bob_(vegas): builders are offering big screen tv and buying down the interest rates
Penny: Hi Mike & all.
Bob_(vegas): unfortunately most cant afford to sell because they took all the equity out last year
Leslie: Hi All, long time follower, first time chat
Mike_Summey: Roger is off to South America for a couple of weeks to speak in Bogata
jon: Hi everyone,first timer
Mike_Summey: Leslie, welcome to the chat. Please feel free to jump in any time. We’re all friends here.
Mike_Summey: Welcome to you also jon.
Mike_Summey: Hi pgarvey
Mike_Summey: I tried to get one of my property managers to join us tonight to give you some insight from a professional managers point of view, but she couldn’t make it. Maybe next week. Would you like to talk with a professional manager?
pgarvey: hi, Mike
Bob_(vegas): sure
Mike_Summey: We haven’t had a manager in a chat yet.
Mike_Summey: I’m also working on getting a mortgage broker on night and aa guest from Fair Isaac company to discuss fico scores and how they work.
Mike_Summey: Hi doc
pgarvey: Mike, could we get a property maqnager who knows all the tricks to get our money? That way we know what to look for 
Bob_(vegas): Fico….I love debt score
doc411: Hello!
Mike_Summey: pgarvey, the manager I have in mind handles about 150 units for me.
Mike_Summey: She is one of 5 that I use.
Mike_Summey: doc, leslie & jon, where are you from?
Bob_(vegas): Do you all find Zillow to be conservative on property values?
doc411: I’m in the central Ohio area.
Leslie: I am from Cary, NC
Al_Lee: Mike, I don;t remember if we have ever discussed this, but do you have any Section 8 tenants?
jon: I am from Climax NC
Mike_Summey: Al, I have a few. I only started allowing my managers to accept Section 8 a few months ago. I have not had a good experience with the program.
Mike_Summey: Hi big dog, where are you from?
big777dog: Louisville, KY! How are you all doing tonight??
doc411: I have a question about negotiating.
Mike_Summey: We’re getting several new people tonight. That is good.
doc411: In the audio program, it seems like Roger is advocating misleading people.
Mike_Summey: doc, go ahead with your question. I’ll try to answer it, but Roger is our negotiating expert.
doc411: Well, maybe I can hold off.
big777dog: I have been trying to find a way to get on the chat for some time! I’ve nothing about good things aboout this forum!!
Mike_Summey: doc, in what way does it seem like he is advocating misleading people?
Mike_Summey: big dog, we’re glad you finally made it. Feel free to ask anything you want.
doc411: Oh, it seems like it he was saying we should let on that we have more options than we really have, such as other properties we might be interested in.
doc411: Am I mishearing him?
jon: The market here seems to be soft how about yours Leslie
pgarvey: Mike, have you ever used option-arm to finance a property you are buying?
Mike_Summey: doc, that’s not misleading, it’s a negotiating tactic. You can always have as many options as you want. What you don’t want to do is let the sellers think their property is your only option.
Mike_Summey: Hi Ed
Leslie: We are fortunate to enjoy 100% occupancy on our units. It looks like building is slowing down due to excess inventory.
EdSmith: Hi Mike
doc411: In an absolute sense, I guess that’s true.
Al_Lee: doc, I don’t think that is misleading anyone. It is simply sensible not to give the other side the impression that you must have this deal, whether or nit it is true. If you are desperate for thsi deal you will certainly harm your own position in negotiations.
doc411: Ah, that (not being desperate) I can see myself doing.
big777dog: I have recently started geting into real estate investing! I had a out of state owner who had two houses in Louisville that he was paying on while paying on his home out of state! He offered the homes to me for 28% below market! I thought it was to good to be true and have not pulled the trigger! What should I do???
Mike_Summey: doc, when sellers think you have options, they are more inclined to negotiate rather than taking a rigid position. Just remember, you always have the option not to buy.
Mike_Summey: Hi Daryl
doc411: Absolutely!
Al_Lee: doc, having “other options” is a state of mind. I always have the option to walk away or to look at another property, or to do nothing at all, Never let youself become cornered in yoru own mind
doc411: Okay, I feel comfortable with that.
Mike_Summey: big dog, do you have our Offer Generator program? If you run the numbers through it, you will know if it is a good deal.
Daryl$: Hi Mike I really enjoyed your books
Al_Lee: doc, imagine trying to get a date with a girl on the basis that nobody else will go out with you.
Mike_Summey: Thanks Daryl
big777dog: The out of state owner is somewhat motivated because the home he was living in has gone into pre-foreclosure!! The other house he has listed with a real estate person! What to do??
doc411: lol!
Daryl$: Al yours too
Al_Lee: Thanks Daryl
jacepharm: Hello Mike and everyone
Mike_Summey: Hi jacepharm
jacepharm: Mike, I have been working hard on some of these deals
Mike_Summey: ig dog, situations like the one you describe often lead to great deals. When a seller is motivate you will get a better deal.
big777dog: No I don’t have it!! The problem I am having is I don’t have a way to determine the comps for each property!! Is there a way to get the comps without having to pay for the service??
Bob_(vegas): try www.zillow.com
Al_Lee: Mike, that is so true! I have bought two houses recnetly because the seller absolutely had to sell fast and I had cash. I will be able to refinance each of them at 80% LTV and net mroe than my total purchase price.
Daryl$: Al I tried to email you several times is there a trick to getting through?
Al_Lee: I may even take some typing lessons with some of the money 
big777dog: The real estate in Louisville is still appreciateing at about 3% overall!! The out of state owner said he had appraisels that justify the retail number from which the offer is about 28%! What do you think??
Mike_Summey: big dog, what comps do you need? If you need to, get a property manager to help you estimate rents and expenses. The Offer Generator will use that information to compute Net Operating Income (noi) and then walk you through how to create literally dozens of differnt offers that will all work with the NOI
jacepharm: Mike, do you ever look up property tax records before making an offer on a property?I found a great site www.Njtaxmaps.com which allows me to look up property tax info. I use this info as an indicator on how to structure deals. For ex. if the research pulls up seller that has no mortgage on the property this might be a good indicator if the seller will hold a note on the property vs one that has a mortgage on the property
Al_Lee: Daryl, I get thousands of junk mail messages and have some automated spam blockers. If you will go to any of my websites and click on “email Al” it shoudl get through. Try http://www.RentHouses.org or http://www.myRentProperty.com
doc411: What’s a comp, please?
Leslie: If we own our properties outright and move them into an llc, will a lender allow us to leverage the equity in them? We believe cash is king but….
Mike_Summey: big dog, forget about appraisals. They are for banks. I just bought 2 houses for $62,500 each that both appraised for taxes at more than $103,000.
Daryl$: that what I did
jacepharm: Doc411- a “comp” is comparables in the area that
jacepharm: have sold
Mike_Summey: jacepharm, I use all of the information I can find when looking for properties. Taxes are definitely one of them.
doc411: Oh, I see. Thanks.
big777dog: I’m not sure what you mean?? How do I feel it is the time to pull the trigger if I have nothing to compare it to!! Help??
Al_Lee: big777dog, appraisalvaluation and comparables are useful to me only to establish the absolute top price I would pay. More important to me is the amount of rent the property will bring so that I can compute my ROI–and it must be postive!
Mike_Summey: doc, comp is short for comparable and is a term used by appraisers who compare a property to other similar properties for the purpose of determining value..
doc411: Thanks.
Al_Lee: Daryl, OK, send me an email at al@RentHouses.org and put “from_Daryl” in the subject line. Don;t forget the underscore! That shoudl get past the spam blockers
big777dog: I understand that but I thought a good deal for flipping properties was to purchase at or near 30% below market settle for 10% and give the purchaser 20% in equity!! Am I thinking correctly??
Mike_Summey: Leslie, lender don’t really care what name you hold property in as long as they feel secure in loaning the money. What that means is that you may have to personally guarantee loans on properties in you llc.
Al_Lee: flipping? Oh, that is a different story.
Leslie: Our lawyer recommended owning them in an llc. Is that common?
Mike_Summey: big dog, that’s why I asked if you had the Offer Generator Program. It is a tool to help you determine whether a property will cash flow under the conditions that you purchase it.
Mike_Summey: Hi Rolyn
jacepharm: Mike, would you ever buy a property that you had the seller hold a note with a balloon payment in 36/60/120 months? In other words I made an offer on a property where the owner said he would not hold a note for more than 36 months. So I structured the deal where I would pay off the note at 0% interest with a balloon payment at the end of the 3rd year.The property cash flowed and allowed me to see a 10% return on cash…The only problem the note is due in 36 months although I ammortized it over 30 months…your thoughs?
Al_Lee: Leslie, it is common for a lawyer to always recommend some form of entity. That is how they make their money. To a hammer every problem looks like a nail!
RolynProperties: Hey Mike thanks for the welcome.
jacepharm: Mike over 30 years I mean…Not 30 months
Mike_Summey: big dog, we don’t talk about flipping properties here. We are long term investors who want to build a large passive income. You can’t do that flipping properties.
Mike_Summey: Leslie, I hold all of my properties in llcs
Leslie: Al_Lee couldn’t agree more but I thnik the concern is with liability if a tenent gets hurt.
doc411: Mike, do you mention that (llcs) in the audio program?
jim: as a newbie I was wondering what the thought was on purchasing new vs. older homes for rental - is each a balance of good/bad?
Leslie: jim, we have a new one that cash flows nicely.
Al_Lee: Leslie, that is what liability insurance is for. You will need it whether you own them in your name or in an llc
doc411: I was wondering about my liability if I didn’t use some legal entity to shield me.
Leslie: true…
Mike_Summey: jacepharm, naturally you want to try to get as much time as you can from a seller, but I would’nt let a baloon payment stop me from buying as long as I felt the property would continue to cash flow when I refinanced it.
big777dog: I’m sorry! As a new investor, I am trying to get a cash flow to become a long term invertor!! My apologies!!
Mike_Summey: Hi Alan
Alan: Hello Mike!
Mike_Summey: doc, I can’t remember how much we covered on llcs in the audio program.
Bob_(vegas): big dog do the same method but hold it and rent it
jacepharm: Mike, would you use funds from another property to help lower your balance when refinancing?
Alan: Hi Al
Al_Lee: Hi, Alan
Mike_Summey: jim, I always like to purchase properties as new as possible. With that said, I try to stay away from properties built prior to lead paind and asbestos being banned.
Daryl$: Mike , what is your position on consumer debt should you getout before you start investing?
jim: thx Mike, makes sense
doc411: Well, what do I tell a lawyer that I want to do?
jacepharm: Mike when was lead paint and asbestos banned….Good point…
Mike_Summey: big dog, the way to do that is to buy right and hold long term. When you sell or flip a property you cap your profit at that point.
doc411: I’m sorry to ask such a fundamental question. Well, no, I’m not!
Bob_(vegas): I think my ma told me about that once
Mike_Summey: jacepharm, look at the big picture. I wouldn’t use cash from one property if it resulted in a net loss of cash flow.
Mike_Summey: Hi mr24 & elba
Al_Lee: doc, I have done several radio programs on legal entitie3s and real estate ownership. You can listen to the recordings free online. Go to www.RentHouses.org and click on “Streaming Audio” and just browse around. It is a complex topic
Bob_(vegas): elba!!
elba_NY: Good Eveninig Everyone. Mike, Al, Vegas,Penny hi
Mike_Summey: jacepharm, it was 1978 I believe.
Penny: Good evening Elba.
Bob_(vegas): would that be Elba_tx???
doc411: Thanks, Al.
Al_Lee: hi, Elba
jon: Mike,what is your best most favorite technique you use to buy your real estate
elba_NY: Not yet Vegas. That deal went down the drain. we dusted off and will be on the next one soon enough.
Bob_(vegas): One of the units recently purchased in Houston has a renter today…..after 4 weeks
RolynProperties: Holding and renting is great but don’t you guys believe that it’s difficult in certain areas then others?
Mike_Summey: doc, I can’t recommend strongly enough that you get the Offer Generator program and use it to evaluate prospective purchases. some of you who have the program tell doc what it does.
Alan: Research vacancy rates with PMs
Daryl$: Al I always listen to your radio show on sundays I’m bummemd (but still learn something) when a repeat comes on. Thanks for doing the show.
Al_Lee: Daryl, thanks for listening
Daryl$: I feel like a sponge good info
Mike_Summey: jon, I don’t really have a favorite. Well, I guess I do…whatever works is my favorite. Since every property is different and every seller is different, you could potentiall have as many ways to buy as there are combinations of properties and people.
Mike_Summey: Are any of you reading my newspaper articles?
doc411: Mike, I got it. That’s a sweet little piece of software. It’s already setting my mind a little more at ease.
Penny: Mike, yes
jon: Mike thx
big777dog: Mike, I think I understand that, but I do not have the immediate cash available to do that! I was looking for an option to gain a few thousand and then determine my investing options!!
doc411: I’ve been practicing with the Offer Generator and really like the way it accommodates all kinds of tweaking.
Penny: Great tips & encouragement.
Penny: Gets better every week!
elba_NY: Not that often Mike but I do catch up.
Al_Lee: I read them, Mike
doc411: I read the latest after I signed up for the e-mail notifications here.
Al_Lee: You sparked me to talk abut income vs. wealth on last week’s show
Al_Lee: I did give you credit, though.
Mike_Summey: Sorry! Had to step away for a minute. Mother Nature called.
doc411: lol
big777dog: Who’s Mother Nature?? (lol)
elba_NY: :p
EdSmith: Mike, any tips or encouragement for getting started ? I live in the SF Bay area where it’s a bit more challenging (or so it seems).
Mike_Summey: big dog, there are so many ways to buy with little or no money down that I would hate to see you sell good properties just to generate a little cash.
Al_Lee: Don’t sell the goos that lays the golden eggs
Mike_Summey: Ed, you’re right! It is very challenging there. My recommendation would be to look further out where there is not so much pressure on the market.
Al_Lee: Ed, I have about 50 member sof my investor club who live in yrou area. They buy in Texas, though. That is what I recommend.
doc411: Mike, when you say that you didn’t have money when you started out, what do you mean?
big777dog: O.K.! What for example would you do with this situation!! The out of state owner is still having good dialogue with me!!
EdSmith: Thanks Mike and Al. Appreciate it.
Mike_Summey: doc, just that! I had very little money and not that great credit when I started. That’s probably why I made offers for a full year before I got one accepted.
Mike_Summey: big dog, make him an offer that will work for “you” and see what he does.
doc411: Oh. That’s encouraging to hear. My family and I are pretty strapped.
Al_Lee: When I bought my first rent house my salary was $615/month. My first tenant had a salary of $1,200/month.
big777dog: Mike, let’s say I do and he accepts!! What next??
Mike_Summey: doc, this is not a get rich quick proposition. building wealth takes time, patience and persistence.
doc411: I have those! Just not much (any) money to fiddle with.
Mike_Summey: big dog, if you make an offer that will work for you and he accepts, you go down to the local tavern and celebrate, then get the deal closed before he changes his mind.
EdSmith: *) good answer Mike
Leslie: time kills all deals. get him to sign before the beer
Mike_Summey: When I say make an offer that will work for you, I mean one that you know you can handle if it is accepted.
big777dog: MIke, house number #1 is $150,000 and House #2 is $306,000!
Mike_Summey: big dog, do the numbers scare you?
jon: good thinking leslie
big777dog: Mike, this amount of money is alittle overwhelming!!
Al_Lee: big777dog, how much rent witl the $306,000 house bring in? Can you make it cash flow?
big777dog: Mike, the numbers are not overwhelming if I have a atrategy that I can follow that assumes I understand the risk involved!!
elba_NY: welcome bk
bk_in_ok: Hello mike
Mike_Summey: big dog, if you aren’t comfortable, why not try to buy the one for $150,000 and let someone else have the bigger one. Give yourself some time to learn and get more comfortable before biting off too big a chunk.
Mike_Summey: Hi bk
Mike_Summey: Hi Sandy, I didn’t see you come in.
bk_in_ok: Not sure if you remember me or not. Roger thought the BK meant I was broke
Mike_Summey: Bk that sounds like Roger.
bk_in_ok: I am up to 30 units in 2 years!!
bk_in_ok: I buy every bread and butter I can get my hands on
Mike_Summey: bk, that’s great.
elba_NY: good for you bk
big777dog: MIke, I guess the only question I would like you to answer is if you felt comfortable with the owner saying he had appraisels for a certain number and he was willing to sell you the properties 28% less than the appraisels, would you pull the trigger??
Mike_Summey: bk are you using the new Offer Generator software?
Bob_(vegas): send some bread my way please?
EdSmith: yeah, bk good job
bk_in_ok: We have an amazing market here, a 1500sq ft 2/3 bdr is about 55k
Daryl$: Mike,Al, How much of a cusion do you allow for maintence and make ready?
Al_Lee: bk, what rent will that house bring?
big777dog: Mike, taking into consideration your Offer Generator??
bk_in_ok: No haven’t used the offer generator? I just find a house and make an off
Mike_Summey: big dog, as I mentioned earlier, I would forget about appraisals. Run the numbers to see if you can make the properties cash flow at his asking price and if you can’t, make him an offer that you know willwork.
bk_in_ok: 600.00 amonth avg
elba_NY: Big dog do not delay doing so.
Al_Lee: bk, then they shoud cash flow OK
elba_NY: You could configure so many different offer that could work for you.
bk_in_ok: Yeah they all cash flow. some more then others
big777dog: Thank you all! I’m going to sit back and get educated!!
Daryl$: Elba when are you going to buy yournext property? I feel like I know you from reading previous chats
Mike_Summey: Daryl, I set up a maintenance reserve based on the age of the property and how much deferred maintenance I will be facing. It could be anything from 5% to 50%
Al_Lee: bigdog, I allow 6% of gross rent for maintenance and repair. ON a new-construction house I allow jsut 3%.
bk_in_ok: But I am taking all my profits and buying more, plus paiting all the outside and working on the curb appeal
Al_Lee: bk, I predict you are going to be very rich!
big777dog: Both houses are less than 10 years old. I have personnally looked at both and they are pretty houses!!
elba_NY: Hi Daryl, the next property we will move into so we will be using our credit.Thus for it may take a bit longer. My goal August.
Daryl$: for Ex if you know you need a new roof you will save accordingly?
bk_in_ok: Lot of stress but I am like you and mike… addicted!! hahaha
Al_Lee: bk, there are worse addictions.
Mike_Summey: bk, when the mortgages begin to pay off and you see how great the cash flow becomes you’ll really get addicted.
Mike_Summey: Leslie, how about a B200?
bk_in_ok: Al, what has happened here is that everyone started fixing them up and flipping them. The market is flooded with rehabed homes
bk_in_ok: I am looking for an old gas station now, with a large garage to keep a truck and trailer in. make an office out of it
elba_NY: bk. This is when the Tortoise and the weekend millionaires coming in.
Al_Lee: bk, I have bought a few like that, but sometimes the rehab job is so poor that you have to spend a lot of money on the house after you buy it. I have started focusing on new construction more and more lately
Mike_Summey: Leslie, my next purchase will be a B200. Sorry!
bk_in_ok: I have seen plenty like that, i just look them over the best I can.
Al_Lee: bk, I managed my own hoses for about 10 years until I got smart and started letting a professional property manager do it.
mr24shoe_kc: Al, are the same types of “creative financing” options available w/ new construction, or are you pretty much stuck w/ standard/bank financing?
bk_in_ok: Mike, do you know the guy from Flip that house? Out of SC?
Mike_Summey: bk, I bought just such a property in Anderson, SC several years ago and converted it into a very nice commercial property. I currently lease it to a jewelery store.
big777dog: Thanks for the chat, I’m out of here!!
jon: al lee in your market you can cash flow new const
Al_Lee: shoe, I don;t use much creative financing, but I suppose you could.
Mike_Summey: bk, I’m not sure about your question.
bk_in_ok: Richard C Davis
Al_Lee: jon, that is correct!
elba_NY: Good nite everyone. My baby is not to well so I must do what Mother Nature indicates:Nurture. By the way Al, I got your last message thanks again.
Mike_Summey: goodnight big dog.
Mike_Summey: bk, no I don’t know him.
Al_Lee: Goodnight, elba.
mr24shoe_kc: Al, do you deal directly w/ the builders, or w/ the realtors?
Mike_Summey: goodnight elba.
big777dog: Mike, Before I go, where do I find out aboout your Offer Generator??
Bob_(vegas): Mike you should tivo that show and coment
bk_in_ok: Ahh well, its a good show but they are flippers
elba_NY: Penny, Mike, Vegas is always a pleasure. Ill “see” you next time.
Penny: nite Elba
Bob_(vegas): night
bk_in_ok: Al, where are you? Dallas?
Mike_Summey: wow! It’s after 9:00 already. Time has really flown tonight.
Al_Lee: shoe, I was dealing direct with builders and then I took over the building and hired a builder to do the work. Now I suppose I am the builder!
Mike_Summey: I guess I will be leaving too! Still have a couple of things to finish tonight. See everyone next week.
bk_in_ok: Mike, any hot stocktips lol???
Leslie: See you next chat!
Al_Lee: bk, yes, I invest in the Dallas. Fort Worth metroplex. Anywhere in a 50-mile radius of the downtown areas
Penny: goodnight all
Mike_Summey: Goodnight
bk_in_ok: See you mike!! When is the next book?
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