Chat Transcript - August 27, 2007 with Bank President Bob Roberts
Posted on August 28, 2007
Bob_Roberts Hello to all
kharr1027 hello
Roger Dawson Hi Bob Roberts, welcome to our chat!
santo hi roger
Bob_Roberts Hi Roger, glad to be here.
santo hello mr. roberts
Roger Dawson Mike will be joining us in a minute and we’ll give Banker Bob a great introduction.
Bob_Roberts Hello Santo, please call me Bob
Bob_Roberts Roger, how is your golf game?
santo hi mike
Roger Dawson Hi Santo!
Mike_Summey Looks like I’m late arriving.
Roger Dawson Bob, I keep wacking away but I don’t get any better at it
Bob_Roberts Same here….
kharr1027 sounds like me 
Bill L Hi Mike & Roger, Welcome Bob
Bob_Roberts Hi Bill.
Mike_Summey I have a split personality. One plays the front nine the other plays the back nine.
oz Hi all,
Roger Dawson Got a banking question for you, Bob. When the Feds adjust the rate, how does that affect your ability to loan?
Bob_Roberts Hi oz.
jralph hello everyone
Mike_Summey Hi jralph.
maria Hello everyone
Mike_Summey Hi maria
santo Bob, when this train wreck on the mortgage scene comes to a stop, do you see rates going way up
Mike_Summey I see a number of new names tonight.
Bob_Roberts Normally when they lower rates we get more demand and the Fed gets a bit
Mike_Summey Hi ggggg
Mike_Summey Hi wstuart
gggggg HI
Bob_Roberts Oops…tougher and regs seem to be their focus. When demand is slower, they give s a break.
Mike_Summey Hi TonyB
TonyB_OH hello
Mike_Summey Bob, where do you see rates going in the next six months?
Bob_Roberts It’s difficult to tell right now, but I would bet on rates going down slowly. Perhaps 1 to 1.5%
oz Mike, if I order the OG tonight, how soon can/will I get it?
Mike_Summey A personal observation…when banks are promoting fixed rate loans, they expect rates to fall. When they are touting adjustable rate loans they expect rates to rise.
Roger Dawson Bob, should people with adjustment rates convert their loans to fixed rate?
Mike_Summey oz, order tonight, it will go out first class mail tomorrow.
Bob_Roberts If possible, I would wait until raes fall a bit before converting to fixed. Maybe ext Spring would be a good time.
Mike_Summey Bob, I agree with your assessment.
Mike_Summey Hi Penny
Roger Dawson Hi Penny!
oz Thanks Mike, will try to get that done.
santo Bob, my real estate attorney got me a 7.8% on a 30 year fixed, when the bank wanted 9.5% so banks can be flexible
kharr1027 Bob, I talked to a bank about a mortgage for an investment property and they wanted 10% down and the rate was going to be around 8%. Is that the norm for a bank to require 10% down a mortgage for an investment property? Also why do you require 10% down if you purchase the house several thousand below appraisal?
Bob_Roberts Yes, normally rates are negotiable. keep an eye on t’bills, their trends will dictate where banks will set rates.
Mike_Summey Hi wps
Penny Hi Mike & Roger & everyone
maria are t’bills tax bills?
Mike_Summey maria, treasury bills…issued by the government.
oz Hi Penny
wstuart Bob, are certain institutions - community banks, crdit unions, regional/national banks, mortgage banks - more likely to offer deeper mortgage discounts on short sales, or is it always a matter of each individual situation?
maria thank you
Bob_Roberts Kharr–normally banks will loan based on cost or appraised value whichever is less. Sometimes the appraisals aren’t truly indicative of the true value of the asset. We are seeing some devaluation of real estate across the nation and that is probably why they want 10% down of the cost.
santo Bob, my attorney said with my 6 mortgages my credit score will go down 75 to 100 points, why is this if i am not late on any of my payments
Bob_Roberts Wstuart..it is a function of each institutions liquidity and exposure tolerence to risk. Also a major driver is each institutions problem credit percentage.
Mike_Summey Bob, I’ve had lines of credit where the bank agreed to loan 100% of cost not to exceed 70 percent of appraised value. Is that a viable option today?
Bob_Roberts santo…credit scores are based on several items, including the amount of debt you have. Simply, the more debt…the lower your score. It should not materially effect your score if you pay on time.
Bob_Roberts Mike…we’re in an unusual situation today. The Fed is really cracking down on banks. It can be done, but it’s not as common due to the credit crunch with mortgage securities.
santo Bob, is it true that after 10 loans a bank will give you no more, do you move to another bank, and do they frown upon the 10 loans you already have
wps Bob, what are the standard requiremnet to borrow as an LLC
Mike_Summey Everyone, I’ve done business with Bob for many years and we discuss how banks are businesses just like any other business. Sometimes they have a big appetite for real estate loans and sometinmes they have none. The good thing is that when one bank’s appetite cools anothe get hot. That’s why I recommend building relationships with several banks.
TonyB_OH Bob, we are looking to upgrade our housing situation as well as buy rental props. Will the banks give us a hard time regarding this?
Bob_Roberts santo…the 10 loan situation is going from a “passive” investor to a focused par of income. You may need to create an LLC and make it more of a career at that point.
CBS Bob, who would you recommend in the Charlotte area as a contact at First Citizens?
Bob_Roberts wps…cash flow, collateral and credit are the same for individual investors as well as LLC. Pretty much the same criteria is required.
Mike_Summey santo, I think what Bob is saying is that after 10 loans you are no longer considered a passive investor and your loans will no longer qualify to be sold on the secondary market the way most conforming loans are sold.
maria what is an LLC?
santo mike, when should i seek another bank, should i wait till they cut me off
Mike_Summey maria…Limited Liability Company LLC
Bob_Roberts Tony…without the particulars, it’s hard to tell, but I think if you go to the bank and honestly explain your situation, they will probably figure out a way to get you what you need.
maria ty mike
Mike_Summey santo, I’d establish another banking relationship long before the current one cuts you off.
Bob_Roberts CBS…My counterpart in Charlotte is Jeff Ward. His offce is located downtown at 4th & Tryon.
Mike_Summey Anyone from outside the US tonight?
kharr1027 TN here
Mike_Summey Last week we had China and Australia reperesnted.
maria New Zealand here
Mike_Summey maria, what time is it in New Zeland?
maria I was here last week but missed you by 1 hour…I had not calculated in daylight savings time
Bob_Roberts All…I have a question for you. Are you seeing devalued real estate come available in your markets?
maria Mike, It is 12:20 midday tues
santo mike, my attorney does all my bank loans, i can’t i am 400 miles away from my properties, so i should ask her to maybe look at other banks, right
Roger Dawson Bob in Southern California prices are holding firm so far, but sales are off 40% and foreclosure filings are up 90%
Mike_Summey maria, that does take some calculation. Weere you able to use the time zone calendar I sent out earlier?
maria bob, nz seems to be still growing in the RE markets but slowing down
Mike_Summey santo, you don’t have to use a bank where the properties are located. There are plenty in New York you could deal with.
Bob_Roberts I’m hearing that in parts of FL real estate is off 40%. Have any of you heard that about FL?
TonyB_OH Bob, Prices in OH are really dropping. I read Mike’s Aug 24 article and it’s a little scary.
kharr1027 i haven’t been doing this long but i have been noticing a lot more real estate auctions in my area
maria Mike, yes I did receive it and now I know what time to appear
Bob_Roberts Tony…maybe some good deals are out there in OH for you!!
Mike_Summey Everyone, as the markets cool and prices fall, rents strengthen and rise. Eventually the two meet and it is easier to find deals that will cash flow.
santo mike, they can’t give me the rate i get in buffalo, i tried
TonyB_OH I’m worried that too many people will be in a rental situation
maria Mike, I have a question
wstuart Boston area properties appear to be down about 15% in the past 18 months. Trend is slowing, but to many owners are listing at what they’d get a year ago and are slow to reduce prices. Properties are sitting out there for a long time.
Mike_Summey TonyB, the more people who have to rent the higher rents you are able to get. The same thing happens when there are too many people wanting to buy…prices go up.
Bob_Roberts Mike is optimistic about the upcoming buying situation that may be created if we see developers walking away or cutting losses for some spec properties.
TonyB_OH I am too, but when do you know?
Mike_Summey I think long term investors are in for 2-3 very good years ahead. Blood will be running in the streets and most of it will be that of speculators who thought the bubble would never burst.
Mike_Summey What’s your question maria?
Bob_Roberts Roger…I have heard that San Diego is seeing some devaluations. True?
maria is it better to wait to buy rentals due to prices falling?
Mike_Summey Bob, Roger & I were just in San Diego last month, but we didn’t have time to get out and check out the market.
maria also is it wiser to put capital into one property or split it between 2?
TonyB_OH Maria, That’s my question as well
Roger Dawson More renters may be good for the economy. Some people were paying 50% of their gross incomes on mortgages. When they are renters gain they’ll have more spendable income.
santo Bob, where you are, what is the rate for a 30 year fixed, on a two family house for a person with a 825 credit score
maria ah great minds TonyB_OH 
Mike_Summey maria, you should make offers that will work for you whether prices are rising or falling. When prices fall you find more deals available than you do during rising prices. The secret is to be patient and only buy when the numbers are right. Just remember, no one ever lost money on a property they didn’t buy.
Bob_Roberts All…I have recently heard that Myrtle Beach, SC will have a glut of condos on the market late this fall at 60% of prices just 1 year ago.
CBS Holy Smokes! What about Sunset Beach and Ocean Isle?
Roger Dawson Bob, the San Diego market went up like a rocket and came down just as fast. The property sales came to a screeching halt 18 months ago and people forced to sell have seen values drop 40%. It hasn’t been that bad yet in the rest of Southern Calif.
Mike_Summey maria, you are better off to spread your equity among as many properties as possible as long as you don’t get into a negative cash flow position.
Mike_Summey Hi tinakay
tinakay hi
kharr1027 when you are calculating the NOI where do you take into account closing costs on mortgages?
Bob_Roberts Santo…for a conventional loan (less than $417,000) rates are around 6.78% on a primary residence. Investment property normally gets .50% to 1.% higher rates.
Mike_Summey Bob, I recently read an article that said over 50% of pre construction deposits are being forfeited because the properties can be bought for less even after taking the loss.
Mike_Summey kharr, closing costs are considers as a part of the purchase cost.
Bob_Roberts CBS…I have’t heard about the NC beaches, but Myrtle Beach has many emotional buyers that get stuck after their vacation and a few weeks of rental income.
tinakay Sorry to join late. Not sure if you may have addressed this question… If you
tinakay If you have an investment property, is it possible to get financing on an appraisal, and not price is the appraisal is higher?
tinakay if the appraisal is higher?
santo Bob, where i invest, a 2 fam. is $40,000, a 3 fam. $60,000, 4 fam. $67,000
Mike_Summey Hi jydush
kharr1027 Mike, oh ok it took a while but i think that has finally clicked
Mike_Summey
Bob_Roberts Santo…WOW!! You can really hit the 10 units quickly at that price!!
Mike_Summey tinakay, are you asking if you can finance based on appraisal without consider the actual cost?
tinakay yes
Mike_Summey tinakay, a lot will depend on your financial strength, but in most cases the banks want to loan based on the LESSER of cost or appraised value. Bob may want to comment on this.
Bob_Roberts Has anyone seen their bank “tighten” up since the sub prime issue came up?
wps santo in what area do you find prices like that?
Mike_Summey Yeah Bob…YOU HAVE!
tinakay if the property cashflows properly and can support the higher price, then would it be a possibility?
Mike_Summey
santo wps, buffalo n.y.
TonyB_OH wps, Dayton, oh
Bob_Roberts Tinakay…Mike is correct. Most banks go with the lesser of cost or appraisal.
wps Santo, good for you
tinakay ok, thanks
Mike_Summey tinakay, I think you could find a bank that would loan based on cash flow as long as the cash flow is verifiable.
Bob_Roberts Mike…you are right
Mike_Summey Hi Ryan
maria What percentage do real estate agents ask on house sales in the usa?
Mike_Summey Bob, what would be the most improtant thing a new investor could do if they wanted to do business with your bank?
Mike_Summey Hi Rocky
ROCKYDIDONNA HI MIKE
Mike_Summey maria, most residential real estate commissions are 6%.
Mike_Summey maria, commercial commissions run about 10% unless you can negotiate something better.
santo wps, i spent $50,000 on down payments for 6 properties in 6 months, two 1 fam. two 2 fam. and two 3 fam.— 12 rental units
Bob_Roberts Mike..The most important thing a new investor can do is to be prepared. Do their homework and know what they can expect out of their investment (i.e. income, expenses, etc.). In other words, be honest and prepared.
wps santo do you live in this area
Mike_Summey Bob, in other words read the chapter on building banking relationships in our Real Estate book!
santo wps no, my broker is my pm
Bob_Roberts Another thing they should do is….take your advice, read your book and follow your examples. You and Roger know how it’s done and can easily explain the concept to others.
Mike_Summey Bob, why don’t you explain how I deal with you and other banks as far as keeping you informed and feeling comfortable?
wps bob do banks only lend in theie geographical ares?
Bob_Roberts Mike keeps me and our bank totally informed monthly on how each of his properties are doing. He lists all income and expenses out for us to evalate. Some make money, some don’t due to improvement expenses, vacanies, etc. Each month, Mike calculates his own cash flow coverages so we the bank don’t have to.
ROCKYDIDONNA Bob when dealing with banks what % do they accept from there asking price
Bob_Roberts wps…normally because they are more familiar with property values and their borrowers. Relationships are key in the lending and borrowing business.
Mike_Summey I’ve had my bankers tell me that they hope the federal auditors choose my loans as one to audit.
Mike_Summey Hijcblythe
santo have to leave, nite all
Bill L nite santo
Mike_Summey Rocky, are you asking what % banks will discount properties they own through foreclsoures, etc.
Mike_Summey Goodnight santo
ROCKYDIDONNA YES MIKE
Mike_Summey Hi BKG
Bob_Roberts Rocky…it depends. If they have held the property a long time they are much more willing to take less. It also depends on the markets. If we believe that things are getting tougher with real estate then they may want to dump the units more quickly than in a good economy.
Mike_Summey Hi Fred
wps have to go night all
Bill L nite wps
Fred Hello everybody
Bob_Roberts Hello, Fred.
kharr1027 how do you find REO properties…having a good relationship with your bank
Mike_Summey Rocky, a bank will be much more flexible on a cash offer with a quick closing than on one where they have to make a loan to facilitate the sale.
Mike_Summey Roger, are you alive?
Bob_Roberts kharr…simply call your bank and ask if they have any foreclosures and ask to be included on their call list when they have new inventory.
Roger Dawson Yes, I’m still here but learning from you experts
kharr1027 sounds easy enough
CBS lol
Mike_Summey Hi krspack
krspack1 Hey Mike
TonyB_OH Thanks for that tip Bob
jcblythe When trying to buy a defaulted note from a bank, what is usual TITLE of the person who will be the decision maker there (ei asset manager, secondary marketing manager etc).
Mike_Summey TonyB, there’s an article poste don the website about buying foreclosures. You may want to read it.
krspack1 Mike, have you ever had to do a rehab on a pre-1978 home and if so, have you ever run into asbestos or lead paint issues
TonyB_OH I try to read all of your material. Thanks so much for it all.
Bob_Roberts jcblythe…normally you will need to deal with the special assets officer (i.e. the one that actually worked with the attorney to foreclose on the property).
Mike_Summey krspack, fortunately I have not. Almost from the beginning I limited my purchases to properties built after that date in order to avoid lead paint and asbestos issues.
ROCKYDIDONNA I had a banker (from new york) call me on sunday reguarding a home the where selling in the suburbs of chicago he told me it would sell for $225,000 and he would sell it to me from $181,000. I look it up
Fred Mike, the Offer Generator is excellent !!!! Thank you
jcblythe OK thanks Mr. Roberts. Special assets officer is kind of “official title” in the banking world?
ROCKYDIDONNA I looked it up on the mls and it was listedfor sale at $169,000 why do banker play games like that
Mike_Summey Rocky, I don’t know the rest of the story, but I’d be willing to bet the NY banker had never seen the property.
krspack1 good idea. I looked at a distressed property today that will require some work to get it to a point of rental. Just concerned that I may have to deal with those issues.
Mike_Summey Thanks Fred. We think it’s the best tool on the market today for long term investors.
Bob_Roberts jc…Yes, that is a common title.
Bob_Roberts Rocky…sounds like a fishy banker to me.
Mike_Summey jcblythe, “Special Assets Manager” is a banking title for “We screwed up”
jcblythe Mr. Roberts, what about he case where the property has not been foreclosed upon, but is just in default. Would that also be the ’special assets officer’, or would that be some else in the back?
Bob_Roberts we do have a way with titles in the banking world!!!*)
jcblythe Should call it the “We screwed up officer”…
Mike_Summey Rocky, personally I think that the more honest you are with y our bankers the more respect they will have for you and the more open you will be able to deal with them. Would you agree, Bob?
Bob_Roberts jc…normally if it has not been foreclosed upon, the bank cannot execute a salewithout consent from the owner. It is rare that the owner and banker work together on a sale. Usually the relationship is contentious at that point.
krspack1 Mike, I looked at a REO today. The bank is asking 400K and had a 400k loan defaulted on it. Frankly, to make this property work, it would need to be around 300k. Have you ever experienced banks accepting an offer/terms with this much of a loss?
jcblythe Yes, I was talking about just buying the defaulted note directly from the lender without any homeowner involvement.
Bob_Roberts Mike & Rocky…I agree 100%.
Mike_Summey Some people think they are helping themselves by witholding information from their bankers, but my experience is that if you do that and you get caught, just one time, you lose your credibility and it becomes more difficult to deal with them.
jcblythe Buy the note, not the house….
Mike_Summey krspack, I’ve bought properties from banks with even greater discounts that that.
krspack1 well, thats good news
gggggg yeh-can someone talk about purchasing default notes next week?
Bob_Roberts jc…most banks don’t sell paper today. Perhaps you have a bank that will. The reason is that their is so much scrutiny around privacy laws that if the note was not structured correctly on the front end, then it may not be able to be sold.
CBS Sounds like a BIG legal hassle.
ROCKYDIDONNA Mike & roger i read all three of your books in the last 2 weeks. Lots of great stuff in there. My offer to the banker was i would pay him his asking price but he would have to give my 0% financing do you think that a good way to go?
Mike_Summey jcblythe, there are people going around the country giving seminars on how to buy defaulted notes and make a killing doing so. If it’s that lucrative, why are they spending all their time giving seminars instead of buying notes?
Roger Dawson I have to run, thanks so much for your participation Bob.
Mike_Summey Rocky, you won’t get 0% financing, but there may be a combination of discounted price and discounted financing that might work.
Bill L nite all, Thank You Bob, see you next week Mike.
Mike_Summey Goodnight Bill L
Bob_Roberts Bye…Bill
CBS Bob, thanks for your valuable insight. Nite all!
Bob_Roberts Night..CBS
jcblythe Bob, I didn’t know that incorrectrly structured notes was so prevelant. I thought banks were prettly diligient. Did they get sloppy during the feeding frenzy?
Mike_Summey Bob, we usually try to wrap up at 9:00, but if you would you like to stay a few minutes longer I’m sure no one would mind.
jralph this was my first time in the chat room…learned a lot…thanks for the info. Bob thanks for your input.
Mike_Summey jralph, join us again next week.
krspack1 Thanks Mike & Bob. Chat with you next week.
oz gotta run, g/night all
jralph Mike…thanks i will…really enjoyed your books
Bob_Roberts jc…no, the new privacy laws enacted about 2 years ago really changed the way banks deal with paper and wha they can share, etc.
Mike_Summey Thanks jralph
Penny goodnight all.
TonyB_OH Thanks to everyone. I’ll check out that post now Mike. Thanks Bob
Bob_Roberts Nite..Penny & Tony
wood Oh,I miss the chat!
jcblythe OK thanks alot for your help!
Mike_Summey jcblythe, in order to deal with a bank prior to foreclosure, you will need to get the lender to give the bank permission to discuss their loan with you.
Mike_Summey Hi wood, you’re late tonight.
Mike_Summey Bob, wood is from China.
jcblythe Yes, the homeowner needs to give permission.
Bob_Roberts Hi Wood…
Mike_Summey jcblythe, thanks for the correction, I meant homeowner not lender.
wood I reinstalled my computer,and fogot to install java,so I cann’t login!
jcblythe But you don’t need homeowner permission to buy the note
wood Hi,Bob_Roberts
jcblythe THe secondary market is gigantic
jcblythe THe niche I was looking at is small banks with too many bad loans
Mike_Summey jcblythe, I don’t know much about buying notes. I’ve never done that.
jcblythe Try and buy a note here and there on houses I have in interest perhaps evetnually aquiring.
wood Mike ,what is LLC?
ROCKYDIDONNA Mike is condos with $200-$400 assoc. Fees good investments
Bob_Roberts jc..most commercial banks have language that specifically states that the paper may be sold on the secondary market or to other financial institutions. It is a totally different matter to sell to an individual or to an investment LLC.
Mike_Summey wood, Limited Liability Company LLC
jcblythe I see. DIdn’t know that
Mike_Summey jcblythe, that’s one of the things the note buying gurus don’t tell you.
maria jcblythe I also asked that question today….there is a lot to learn!
jcblythe Do you happen to know what what qualify one’s Corporation as an “other financial institution”?
Bob_Roberts jc..some banks may chose to ignore the privacy situation and even some of the folks giving seminars may tell you differently. However, there is a gray line on the matter and most banks won’t get anywhere near it.
jcblythe OK
Mike_Summey Rocky, read mistake # 13 in the last chapter of the real estate book.
wood Mike,20% down payment,if you put more down money,would it be better?
Bob_Roberts All…it is getting near my bedtime. I’ve enjoyed it…good luck and good investing. Take Mike’s advice and you can’t go wrong!!
Mike_Summey wood, the more money you put down the more of the rent you will get to keep. If you pay all cash, you get to keep all of the rent. Most people like to finance as much as possible and let the tenants buy the properties for them.
maria Thank you Bob
wood Bye,Bob_Roberts
Fred Thank you Bob
jcblythe Thanks for your help Bob!
Mike_Summey Bob, thanks for joining us tonight. You are welcome anytime.
TonyB_OH Please come back
Mike_Summey I’ve got to run also. goodnight everyone.
jcblythe The devil is the details!
jcblythe Thanks Mike..
Mike_Summey Next week is a holiday so we will not have a chat next Monday.
ROCKYDIDONNA Good nite mike
Fred Thanks Mike
Mike_Summey See you here in two weeks.
Mike_Summey goodnight
maria thank you Mike
maria nice to meet everyone
maria I have learnt a lot today
ROCKYDIDONNA Is there anyone from chicago, il area
maria new zealand here
ROCKYDIDONNA It was nice to talk to everyone good nite i see you in 2 weeks
Fred Good night everybody
ROCKYDIDONNA How do you log out
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