Chat Transcript – June 11, 2007
Posted on June 12, 2007
wood: hello everyone
jagvocate: howdy, wood
wood: Fine ,thank you ,and you?
santo: hello, mike
Mike_Summey: Hello everyone!
Mike_Summey: Roger should be along shortly.
oz: hi mike
Mike_Summey: Any exciting news tonight.
Ken: Mike what do you expect interest rates to peak at and when
Ken: I hear 7% this fall,
Roger Dawson: Hi everyone
oz: hi roger
Mike_Summey: Hi Roger
Mike_Summey: Ken, I’m not sure what interest rates are going to do. If I had to guess, I’d say they would remian stable until the economy stumbles a bit more and then start to fall. I don’t see rates rising.
Roger Dawson: I agree Mike. The LA Times speculated that by the end of the year the Feds will drop interest rates a notch.
Mike_Summey: I will be attending a foreclosure auction in the next few days. It’s the first one I’ve seen here in many months.
Roger Dawson: Is it on the court house steps?
Roger Dawson: I see Santo typing but I’m not seeing his text. Should I log in again?
Roger Dawson: Hi Penny
Mike_Summey: One thing about interest rates everyone should watch is the budget deficit. When the Feds are in the market trying to raise money it pushes rates up. I believe the budget surpluses during Clinton’s administration had more to do with the extremely low interest rates of the early 2000s than anything else.
Mike_Summey: Hi Penny
santo: my attorney told me to use this new broker because he said the one i am using works too slow, also the houses he has are priced better, 2-4 family from 29k to 60k he only deals in multi units
Penny: Hi Roger & Mike.
Mike_Summey: When the budget surpluses went away and we started funding the war on terror rates started to rise.
Mike_Summey: Hi Yameen
Yameen: Hi everyone.
Mike_Summey: High rates are bad if you need to borrow money, but good if you have money. It’s a double edged sword.
Roger Dawson: Hi Yameen
Yameen: Hi Roger, good to be in the chat!
Ken: Do you think we would see 8% or 9% again
Roger Dawson: Santo, you’re in Buffalo, aren’t you?
santo: yes roger
Roger Dawson: Your prices are unbelievable low by LA standards!
Mike_Summey: Ken, I think the Feds will have to lower rates if the economy continues to slide.
Roger Dawson: Ken, I don’t think so. We’d have to have a run away economy for rates to be that high.
Mike_Summey: Santo, in LA a dog house goes for $29-60K
Roger Dawson: Maybe a poodle house, but not a retriever.
santo: roger, i live in nyc but can’t buy there, so i invest 400 miles away in buffalo
Al Lee: Oh Oh! Roger beat me here this week.
Mike_Summey: I think the subprime fiasco has yet to really be felt across the country. Yesterday there was an article on AOL real estate about a neighborhood in Detroit where about 25% of the people are in danger of losing their homes because of the rising rates on the ARMs they were sold of getting.
Mike_Summey: Hi Al
Roger Dawson: Hi Al. I’ve been mis-spelling words for you until you got here!
Al Lee: Roger, thanks so much. My dyslexia must go on even in my absence.
Mike_Summey: sold on getting! sorry
Mike_Summey: Hi amckenzi
Al Lee: I have often said that if you NEED an ARM to afford a house, you CAN’T afford the house.
Yameen: Do you wonderful people have any advice re: purchasing houses as an individual, as opposed to a corporation? I know that is a complex question, but there it is.
Al Lee: There are valid uses for ARMs, but they are limited.
Yameen: In other words, is it harder to get a loan as corp?
Roger Dawson: Those sub prime lenders have gone out of business. I imagine the people they sold the loans to will have to bite the bullet and rewrite those loans. They won’t want to foreclose.
jagvocate: I know that divorce situtations potentially offer good investment opportunities for bread and butter properties. Anyone had any luck networking with attorneys or counselors to let these folks know you’re available and may be able to help out their clients?
Al Lee: Yameen, I certainly do. I say “buy in yoru personal name to get the best financing”. Some lawyers will tell you how to transfer the title to an LLC, if you care to do that.
santo: my broker wants to withdraw $40,000 in equity from my first house to put down payments on 5 2family homes, $7000 for each down payment
Roger Dawson: Yameen, it’s harder. The bank will probably want to get a personal guarantee from the key stockholder.
Mike_Summey: Yesterday I spoke with a lady who had purchsed the Offer Generator a few weeks ago but had been afraid to present any of the offer she had generated with it. She said she finally got up the nerve to present one last Thursday and was shocked to learn that the sellers accepted it. It jsut goes to show you that you don’t know what people will do until you ask.
Al Lee: It may be impossible to get a loan into a corp. YOu msut use a commercial loan for that and most lenders will nto loan under $1M, or occasionally $.5M. That is more than you will be borrowing for one house. If you are buying an apartment building or commercial proeprty, that is different. YOu shoudl use an LLC for that.
Mike_Summey: jagvocate, I’ve bought several properties that were involved in divorce situations, but only one where the attorney for one of the parties contacted me. All of the rest have been the result of getting out in the neighborhoods and talking to people.
Roger Dawson: Do you look for the dinner plates sticking half way out the front door?
jagvocate: Ha–thanks guys.
Mike_Summey: Yameen, a corporation is not a good entity in which to title investment properties.
Mike_Summey: Hi kk1
kk1: Hi Mike, sorry to come in so late, this Kevin out in Colorado.
Yameen: but after purchasing a few houses, isn’t there a lot of potential liability if everything is in your name?
wood: What if the house is hard to rent?
Roger Dawson: Hi Kevin
kk1: Hi Roger!
santo: mike,my broker wants to withdraw $40,000 in equity from my first house so we can put down payments of $7000 on five 2 family homes
Mike_Summey: Hi Kevin, you’re not late. Still plenty of time to get your questions answered.
Roger Dawson: Santo, will you still be at a positive cash flow?
Al Lee: Yameen, you should have a few million worth of liability insurance. Also, using a property manager who also carries many millions of liability insurance adds another shield.
jagvocate: Yameen–that’s where insurance on the properties comes in.
santo: roger, yes
Roger Dawson: Then it sounds good to me, Santo
Mike_Summey: Yameen, Al makes a good point. A big umbrella policy is very cheap and having a property management firm between you and the tenants also limits your liability.
Yameen: is that insurance carried separately for each property?
Al Lee: Just be srue the property management company is licensed and carries lots of insurance also.
Mike_Summey: Santo, if you can pull out $40,000 and leverage it into 5 more properties and everything will cash flow, by all means DO IT!
Yameen: i ran into an issue where a # of insurance companied refused to provide liability insurance on an unoccupied house. seen that before?
Mike_Summey: Hi Sparky
Al Lee: your liabilty policy shodu lbe one policy with all yoru properties listed on a schedule/
sparky37: hello Mike
Al Lee: When you are starting out you may even be able to get liability coverage for yoru first few houses as a rider on yoru own homeowner policy.
Yameen: yes, i heard that as well.
Al Lee: How’s my spelling, Roger?
santo: roger, my broker has 29 multi family houses in buffalo, and he wants me to go the same route
Mike_Summey: Yameen, insurance companies don’t like to insure vacant properties being held for resale, but I’ve not had any problems with them regarding vacancies between tenents.
Roger Dawson: Very creative spelling Al
Al Lee: Thank you, Roger. I try to be innovative/
Yameen: i never got that far. good to know.
wood: Mike,What if the house is hard to rent?
Roger Dawson: Don’t let fear of being sued stop you from making deals. I’ve been wheeling and dealing all my life and have never been sued. The only people I’ve ever sued are tenants who wouldn’t (not couldn’t) pay their rent.
sparky37: Mike in your opinion, what is the best market to buy in right now?
santo: Al, i read your book, very informative
Mike_Summey: wood, to answer your earlier question about being able to rent a property, you should check out the market to see how much demand there is for rentals before investing in them.
Al Lee: santo, thanks. I tried to email the mp3 file of the radio show with Sandy Botkin, but it is too large and woudl not go.
Mike_Summey: wood, there are many types of properties that are hard to rent, very expensive ones especially.
Al Lee: Roger, you have to consider that for many English words we have two spellings, the American and the British. There may also be more. Some of what you think are misspelled, may be correct somewhere in the world.
wood: Mike,you mean there is always chances to get it rented?
Mike_Summey: sparky, I still think the middle part of the country is probably best. Both coasts are experiencing problems.
Roger Dawson: Oh Al you’re tyring me out!
sparky37: Carolina’s
Yameen: Al, are you still in Dallas? I hear Houston and Austin are promising.
Al Lee: sparky, I would like to answer that. I think Texas, specifically DFW, is the BEST. Go to www.buyRentHouse.net and you will find plenty of reasons why.
Mike_Summey: sparky, certain parts of the Carolins are better than others. The middle part of both NC & SC are good, but the mountains and coasts are tougher.
sparky37: Blue Ridge?
Mike_Summey: Al, you wouldn’t be a bit prejudiced about that would you? It sounds like santo is getting some great deals in Buffalo.
Mike_Summey: Hi Bob
Al Lee: Yameen, Houston and Austin may vie for second place behind Dallas. Dallas is the fastest growing city in the US. We added 500 people a day in the last year. They are not illegals, either. They are moving from other states.
sparky37: I know Al, but I am too far too look after Texas
Bob (vegas): Hey Everyone
Mike_Summey: Hi Ryan
Al Lee: Mike, I am very prejuduced and it does sound line Buffalo is doing well for santo.
Ryan-NC: Hi everyone
Roger Dawson: The first thing to do is do a rough comparison of purchase prices versus rental rates. If you can buy a property for 100 tmes the monhly rental rate you’re in a good town for investors.
jagvocate: Howdy from Houston. I’m a brand new investor, but my parents have knocked the cover of the ball for years in Tyler and Austin. Single family homes in East Texas and Condos in Austin. They’re very happy with all the mailbox money in retirement from their Texas rentals
Roger Dawson: That’s great jagvocate. Follow in their footsteps.
Yameen: do your parents want to adopt me?
kk1: Mike, I have a question regarding pursuing your philosophy in very high-priced markets. As you know, I have two condos already, but would like to get away from them due to HOAs. However, here in Summit county, the bottom of the barrel on duplexes is $750K. We have cash reserves, but not enough to cover that mortgage for a long time if it doesn’t rent. We are considering a move to Salt Lake City where cost of living is lower and I believe the rental market is better. Entry level is definitely much lower.
santo: mike, being in the very expensive area where i live, or overpriced is a better term for it, i can’t make offers, but maybe it will work out better with these brokers
Al Lee: sparky, in MY opinion, an investor is better off being far away. I distinguish betseen an investor and a landlord. I was a landlord for the first 10 years, then became an investor and started seeing some success. Landlording is for the birds! I use professionals for everything. I have never even SEEN half the houses I own today and hope never to see them.
Mike_Summey: Roger, there you go with one of those rules of thumb. sometimes they work and sometimes they don’t. It all depends on what interest rates are at the time.
Mike_Summey: kk1, where do the blue collar workers in your area live?
Roger Dawson: I love to stimulate you Mike!
sparky37: Al I agree but for my first few properties I will be like a new parent, looking at that kid everyday
Al Lee: Investors get rich. Landlords get burned out!
kk1: In condos and trailer parks. We actually live with them right now in the condo we bought, but the mortgage is 832 a month and the HOA is 425!
Mike_Summey: Al, that’s one of the best comments you’ve made ina chat! Congratulations!
Al Lee: Most Americans will buy a mutual fund and never see the companies the fund owns, nor the offices of the fund managers. The buy on financial data only. That is hwo I look at houses, more-or-less
Roger Dawson: KK1: homeowner associations in luxury developments are not good news for cash flow.
Yameen: thanks everyone. gotta go, see you all next week.
Al Lee: Mike, thanks, you may use it. I said that on my radio show a coupel fo weeks ago, so I can prove I owned it first. You just have to acknowledge that you heard it form AL Lee every time you say it.
Mike_Summey: kk1, how do the blue collar workers afford to rent in an area where it costs $750K to buy a unit. Is everyone who is renting to them losing oney?
sparky37: Al agree but what about when repairs need to get done? Do you just trust your mgnm’t co. 100%
kk1: That’s why we’re really considering the move. We could invest in Denver, which is an hour away, but really don’t know the area that well and would burn a lot of gas doing it. SLC is closer to my wife’s family and would have solid investing opportunities.
Mike_Summey: Ah shucks Al, you mean I can’t just steal it?
Al Lee: sparky, YES! The key is having the right managers. They know infinitely mroe about the repairs than I do and they get volume discounts form the tradesmen and vendors.
kk1: No, they live in condos. Ours cost $175K. There is just a huge disparity between the condos and the single family homes.
sparky37: Ok but even mgm’t co’s can get greedy and overcharge or claim a repair needs to get done when it might not
wood: Al Lee ,after you buy a house, who will manage it? you or let company do it?
Al Lee: Mike, a friend who is also a public speaker said that it is the most thft-prone business there is. We steal lines all the time. The first time I use your line I say” Mike Summey said…, the next time: You have heard said…, the next time: You have heard me say…
Al Lee: I use professional, licensed, insured property managers for every aspect of it. Yes.
Al Lee: sed to do it ALL myself. That stinks!
Mike_Summey: kk1, if SLC works better for you that may be an answer. My brother used to be the city traffic engineer for SLC.
Al Lee: I used to do it all myself, That Stinks!
Roger Dawson: Finding a good property manager is the toughest thing to do. You’ve got to negotiate a good buy so that you can afford them.
sparky37: again agree but you should also know what costs are and how long some repairs should last and get estimates from 2 to 3 co’s
kk1: mike, did he like it there?
Roger Dawson: I look seriously at Salt Lake. Realize that if you’re not Mormon you’re going to feel like an outsider there.
Mike_Summey: kk1, yes he did. He left several years ago to take the top job for the State of Nevada, worked for them for a few years and now heads up the Carson City office of Parson’s Technology.
wood: Al Lee ,when you are landlord,what is the situation?Do you earn much?Compare to invest,what is the benifit?
kk1: Roger, We’re not mormon, but latest I’ve heard is it’s headed more toward 55% non, 45% mormon. My wife lived there for a year and really enjoyed it. I’m willing to check it out and see how we feel before we have kids.
Mike_Summey: kk1, my brother was not Mormon and neither was his wife, but he had no problems fitting in with them.
Mike_Summey: kk1, it is a very wholesome community.
kk1: mike, thanks for the info, I appreciate it. You guys are doing a great thing, both with the book and the chat.
Mike_Summey: Good place to raise children.
Al Lee: “The best executive is one who has sense enough to pick good people to do what he wants done, and self-restraint enough to keep from meddling with them while they do it. –Theodore Roosevelt
sparky37: Theo was ahead of his time
santo: mike, did you see a show on 60 minutes a few weeks ago on a real estate company called Redfin
Al Lee: Landlords get to clean toilets, face tenants who are angry, listen to reasons why they can’t pay the rent, answer phoen calls at 2am because a light bulb is burned out, etc.
Roger Dawson: I did. Redfin are discount brokers in Seattle aren’t they?
Mike_Summey: Al, you’re just full of good qoutes tonight. I couldn’t agree more. I try to let my managers handle the day to day problems however they want and I judge them on their overall performance. I know that they will make mistakes fromtime to time, but as long as the overall numbers are good I give them that latitude.
wood: Roger,you said it is hard to find a good property manager ,and how you manage it?
Mike_Summey: santo, no I didn’t. What was it about?
Roger Dawson: What’s a qoute? Do they give good milk?
Al Lee: Mike, I have a dollar limit on the cost of a repair. It soemting is below that, they use their discretion. If is is higher, they call me and ask. I usually ask them what they recomemnd and usually take their advice. They are professionals and know this stuff better than I do.
wood: Al Lee ,it sounds like a terrible life for a landlord
Mike_Summey: quote! I was spelling for Al! He understood me.
santo: mike i taped it, i will send you a copy.
Al Lee: qoute chees is popular in Greek salads.
Roger Dawson: Wood, the key thing is to be able to afford them. To do that you’ve got to buy right. If you can’t sleep becuase they sent you a bill for $100 you’re going to be a nervous wreck.
Mike_Summey: Al, I do the same. I give my managers a $500 limit and if a repair is more than that I ask them to submit 3 quotes for my approval. If it is a large repair, I will often go inspect it myself, but that doesn’t happen too often.
Al Lee: wood, I NEARLY got out of owning renal properties after 10 years of being a landlord. I finally decided to try using a professional manager. That turned everything around 18 degrees. I starte dbuying more houses then because I got the money and none of the nuisances.
Roger Dawson: 180 degrees hopefully
Mike_Summey: Roger, I understood what Al meant.
Roger Dawson: What’s a renal property? I’m scared to ask.
Al Lee: Well it was just a slight turn–nbot you are right 180 degrees. My fingers can’t keep up with this razor sharp mind of mine
Al Lee: After you are 50 your doctor will start examining it
Mike_Summey: Al, my fingers don’t type as well when I come straight off the golf course and try to do a chat.
Mike_Summey: I played gold Saturday, rode about 120 miles on my motorcycle yesterday and then played golf again today. Whew! It gets to you!
oz: g/night all, good cha tonight
Mike_Summey: goodnight oz
Al Lee: Mike, I am having a difficult time garnering sympathy for you.
Roger Dawson: Penny, you’re quiet. Are you watching a game too?
Al Lee: Roger will soon ask how you play gold
Roger Dawson: I was wondering Al
Mike_Summey: Al, it’s played with coins. They are very heavy!
Al Lee: Liek Scrooge McDuck in his basement counting gold coins?
Penny: No Roger, I’m listening to CNBC
sparky37: Mike when is the last time you bought a property?
Mike_Summey: Speaking of gold coins, has anyone gotten any of the new presidential $1 coins yet?
Mike_Summey: sparky, about 7 months ago. I bought 2 houses.
Mike_Summey: sparky, I hope to buy another one this month and several more in teh coming months.
sparky37: were they positive cash flow right away and what percent did you put down?
santo: mike, that’s all, i thought you bought one a month
Mike_Summey: sparky, I paid cash for both and yes they have provided a nice cash flow right from the start.
wood: Roger ,how much often do you face the problem that hard to rent?
Al Lee: santo, I think Mike is also building a commercial building
jagvocate: Mike and Roger, I’ve got to run, but let me say “Thanks” for all you’ve done to help folks make money the old-fashioned way
Mike_Summey: santo, I averaged buying one a month for over 20 years, but I’ve slowed down a bit now.
Al Lee: I am ot sure if that project has started yet, Mike
Mike_Summey: thanks jagvocate.
sparky37: mike even paying in full they were still pos cah flow?
sparky37: cash
Penny: headed out guys, see you all next week. goodnight
Roger Dawson: Even in CA we can get cash flow if we pay cash!
Mike_Summey: sparky, yes they were. When you have no debt on a property allof the income is cash flow.
sparky37: I know but compared to rate of return was it a decent return?
santo: mike, right now i would be happy to do 5 multi family homes a year.
Mike_Summey: sparky they have averaged about 13% return on cash.
sparky37: using the value of money
Roger Dawson: Wood, in this country we published occupancy rates. 94% means that 94% of the homes in the area are occupied. That’s how we get how hard it will be to find a tenant.
sparky37: ok 13 is very good
sparky37: mike would you recm’nd a heloc at 7.5 to pay cash for a property as long you are breaking even?
Al Lee: Sometimes you can pay cash and buy a property very cheaply. Then wait a short while (1 year?) and refinance it based ont he appraised value, not purchase price. You might get our more cash than you paid for the house–plus you still own the house.
wood: Roger,Here we may have the data too ,maybe I could find it.
Mike_Summey: sparky, I may put a mortgage on the properties at a later date to get my cash back out, but right now I don’t need to. When the market turns enough that I’m able to find numerous good deals, I will start financing some of my existing properties that hav eno mortgages and using the cash to buy more.
sparky37: got it
Roger Dawson: I need to run but I’ll see you next week
wood: Roger,It sounds that your market is good to do invest.
Al Lee: I need to run also. Got to get to my spelling and typing class.
Mike_Summey: sparky, I know several people who use HELOCs to purchase properties for cash, but they usually get mortgages eventually to pay off the HELOC so they can use it again.
Al Lee: Goodnight, Mike.
Al Lee: Goodnight, all.
Mike_Summey: Goodnight Al
sparky37: I am cosidering that
sparky37: Thanks for all your help Mike
Mike_Summey: I’ve got to run too. I need to get some rest. All this activity has gotten me tired.
Mike_Summey: Goodnight all.
santo: mike, i will send you that tape
wood: Thanks all ,I learned a lot here
sparky37: Night all
wood: good night,all
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