Chat Transcript - October 8, 2007
Posted on October 9, 2007
Roger Dawson Hi Everyone. Happy Columbus day. Mike will be joining us any minute.
Roger Dawson Welcome Mike
Mike_Summey Hi everyone, sorry I’m late.
Lon_Peper Hi Mike
maria Hi Roger
maria Hi Mike
Mike_Summey I’ve been working on several offers today.
Mike_Summey Hi ggggg
gggggg Hello
Mike_Summey Will probably make 8-10 offers this week.
Lon_Peper Mike, where do a majority of your leads come from?
Mike_Summey The market is cooling and I think I will find more offers acceptable in the coming months than I’ve seen in several years.
Mike_Summey Lon, mostly from getting out and riding and from people who know I buy properties.
Mike_Summey It appears that people with AOL email addresses did not get today’s chat reminder. Any of you on AOL?
Roger Dawson I am, and I didn’t get it.
Mike_Summey Roger, I spoke with several others today who didn’t get it.
Mike_Summey Why is everyone so quiet? Any questions?
Mike_Summey Hi Zoe
Mike_Summey Hi jennifer
jennifer hello
Zoe Hello everyone
Lon_Peper I just found out my A/C unit’s drain pan is quite full and the drain for it is probably clogged. It drains through a soffit vent and is leaking inside my upstairs window. Any suggestions?
maria hi zoe
Zoe Hello Maria
Mike_Summey Lon, you probably just need to clean the drain. The water coming from the soffit is usually an indication of a clogged drain.
maria Gee we are all quiet today
Lon_Peper that’s what I thought, I’ll get the ladder out after the chat.
Zoe Mike & Roger, could either of you help direct me in the right direction concerning why the banks are stopping cold on all home loans?
Roger Dawson Hi Doug
Doug_in_CT Hi Roger
Roger Dawson Zoe, are you going from personal experience or what you read in the press?
Roger Dawson Hi Wood. How are things in Beijing?
Mike_Summey Lon the main drain usually goes into the gutter and you don’t see water unless the line becomes clogged. The overflow is usually positioned so you will see the water if the line becomes clogged.
Mike_Summey Hi Doug & wood
wood hello everyone
Doug_in_CT Hi Mike
maria Hi Wood
Lon_Peper thanks Mike
jennifer it doesn’t appear that banks have stopped lending for homes, just tightened their lending req’mts
Zoe No Roger, I went out on last friday to look for lending institutions for a couple of leads concernng SFH deals and was all turned away from the banks due to something that’s going on in the RE market
Mike_Summey Zoe, there was a change made by the Feds recently that put restrictions on the amount of real estate loans a bank could have in relation to its capital. That could be the problem. Some banks are way over the limit and are dumping loans to get back in complaiance.
jennifer zoe - perhaps you could try a loan broker?
Mike_Summey Lenders have definitely tightened up on real estate loans.
wood Roger,I’m in WeiHai ShanDongProvince,so I don’t know much about Beijing now.
Mike_Summey The 100%+ loans and interest only are a thing of the past.
Zoe Thanks Mike & Jennifer, I have not exhausted all of my pursuits just yet and will be looking forward to speaking to brokers, mortgage lenders, and so forth
Doug_in_CT I got an interest only loan on investment property about a month ago. It started as a Sherson Lehman loand and was sold to Aurora Loan Servicing.
Mike_Summey Zoe, when the market tightens up, the first thing lenders look at when making investor loans is the amount of cash reserves you have.
jennifer i just got a decent loan on a sfh outside dallas, putting 20% down, but i have really great credit
Lon_Peper 20% down didn’t hurt either
Doug_in_CT Mine was 10% down
Mike_Summey jennifer, people with excellent credit and good cash reserves should not have a problem. It’s the marginal borrowers that the banks are afraid of right now.
jennifer i just went to a seminar on saturday - the speaker believes we are just entering the down cycle and it will get worse for 3-4 more years
Zoe Wow Mike I was not privy to such matters. I presented all the NOI those properties could generate and still they were unable to do anything
maria If the market is going down should you wait for prices to get lower before you buy?
Mike_Summey jennifer, I concur completely. If that happens, we will have the greatest opportunity for long term investors I’ve seen in my lifetime. The flippers are definitely out of the market right now.
jennifer yes, i was thinking about flipping in my area, but the build up of unsold inventory kills that idea - way too much competition
Zoe Roger, is there a negotiating gambit in the tools I have purchased from you guy’s able to deal with such matters as a tightened market
jennifer i was thinking about buying a townhouse in a good school district around here (many first time buyers cannot afford houses in my area - sf bay area), but perhaps i’ll wait to see if prices dip more
Mike_Summey maria, if you structure you offers the way we teach and the way the Offer Generator computes, the price doesn’t matter. The deal will still caash flow. Also think about this…the more difficult it becomes for people to buy the more will have to rent and this will push rents higher. The higher rents will cause break even deals today to become cash cows in the future.
maria ty Mike. I dont have the Offer Generator and what is a break even deal?
Roger Dawson Zoe, as in any negotiation, showing that you have alternatives gives you power. If you can show that you have other lenders willing to make the loan, you can get this lender to make a better offer.
Zoe Thank you very much Roger!
Mike_Summey maria, a break even deal is one where the NOI will pay for the property and/or give you the return you desire on your cash. If you don’t have the OG, you should get it ASAP. It is the best tool on the market to structure deals that will cash flow.
Zoe I believe we call it, …”the walk away gambit”.
gggggg mike/roger will a lender give a mortgage on a properties cash flow if the borrower has great credit but not much cash themselves?
Mike_Summey gggggg, lenders will lend on cash flow quicker than they will on equity. Cash flow make payments, equity does not.
maria Mike where could I find the OG in new zealand and what is NOI?
gggggg Oh good I am driving up to Tenn tommorrow, maybe i can get my first; then stop by Ashville to see you(ha)
Zoe Maria, I vouch for the OG in keeping you out of red zone purchases
maria zoe what are red zone purchases?
Mike_Summey maria, you can order the OG from our website. The postage will be a bit higher going to New Zealand, but not significantly. The OG is shipped via US mail. NOI is Net Operating Income. That’s the amount of money left over after all espenses are covered. That’s what you have with which to buy the property.
Mike_Summey Hi alex
alex Hi Mike, Hi everybody
Lon_Peper Mike, related to gggggg’s question - based on cashflow, how willing are lenders to loaning 100% purchase price?
StephenS so in purchasing a new home to live in..should investing in a 2nd rental property be put on hold for a while?
Zoe Maria, In my humble opinion, red zone purchases are Real Estate properties that give you a negative return on your investments and put you in the red level to all your lenders
maria ty zoe
Mike_Summey Lon, I’ve been very successful with getting lender to loan 100% if I can purchase a property for 70% or less of the appraised value. The point I make with them is this, “Why would you loan me 80% or the purchase if I paid full price, but not loan me 70% if I am able to find or negotiate a great deal.”
Mike_Summey Hi Penny
Penny hi Mike,
Roger Dawson Hi Penny
wood Roger,I played the cashflow e game,and find that one should flip to accumulate some money,then invest.So when the house price goes up,do you sell it or just keep it?
Penny Hi Roger & everyone. Just getting home from work, so a little late to chat.
cville Hi all
Roger Dawson Wood, we would say keep it and refinance back up to the point where you still break even.
Mike_Summey Lon, I even have lines of credit that state the bank will loan up to 100% of the purchase price not to exceed 70% of appraised value.
Mike_Summey Hi cville, didn’t see you come in.
Lon_Peper ARV or as-is value?
gggggg Mike thanks that info really helps(no kidding)
StephenS this may be a silly question, but I have been getting confused with the term Wholesale Price with regards to purchasing a house?
Roger Dawson Stephen, we simply mean that you can not get cash flow by paying retail — that is what a seller might list the property at. You have to look for the better deals.
Mike_Summey Stephen, we talk about wholesale value, not wholesale price. Value is the combination of what you pay and how you pay it. A wholesale deal is one that can be structured so that the NOI gives you your desired return on cash plus make the payments on any financing. Does that help clarify it?
StephenS yes thanks, as I said in my email I havn’t finished the book yet, and sometimes I find myself get lost in the numbers and %’s. I hope it all clarifys moreso as I continue reading ha.
Lon_Peper Mike when you say 70% of the appraised value, is that a Subject-To Appraisal or an As-is Appraisal?
Mike_Summey Stephen, you could pay $100,000 for a property, finance it for 15 years at about 9% and your payments would be about $1,000 per month. Or, you could pay $180,000 for the same property, finance it for 15 years at 0% interest with the seller and your payments would still only be $1,000 per month. That’s why I say valeu is dertemined by the combination of what you pay and how you pay it.
StephenS and all these different ways of going about paying it are all my choice?
wood Roger,you mean one could get some money through refinancing it,but how to do it?
Mike_Summey Stephen, you should get the FAQ book, which is the companion book for the real estate book. It is filled with questions and answers that are sorted to match the chapters in the real estate book.
Zoe Mike/Roger, Have you heard of Accelerated Mortgages? and if so, can you comment
StephenS I’m sorry if these are very noobish questions.
Mike_Summey Lon, that is usuall an “as is” apprasial.
Mike_Summey Lon, using a “subject to” appraisial often means the bank will withold funds until the work is completed.
Mike_Summey Stephen, there are no noobish questions here. If you don’t know something, ask. We don’t mind.
Mike_Summey Zoe, are you talking about mortgages that have a call provision after 5-7 years?
Lon_Peper Yeah, I’m familiar with how hard money lenders pay on draws, I guess banks do the same thing if you were to get a construction loan, the refi into a long term loan afterwards. Do you have use any private lenders, not hard money lenders, but people you know who want to passively invest in real estate. Your owner financers certainly could be considered private lenders.
StephenS well everybody, thanks for all the info. I hope to be a regular visitor here. I have to jet to bed there now, take er easy.
Roger Dawson Accelerated Mortgage pushes the idea of making mortgage payments twice a month instead of once a month. You don’t need a middle person to do that for you. Simply send half the payment 15 days ahead of its due date. You’ll save interest in the long run. Never send a mortgage payment to someone other than the lender.
Zoe I’m not entirely sure what “call provisions” are, but they are mortgages where they take your entire paycheck and deposit it into your mortgage agreement and it speeds up your duration loan payments from 30 to 10-12 years quicker then your conventional loan set up.
Zoe Goodnight Stephen
Mike_Summey Lon, I have several loans with private third party lenders. I usually pay a rate higher than the bank will pay on deposits, but less than the banks charge on a loan and secure the lender with a first mortagage on a property. I get a lower rate thatn the banks want to charge and I pay the lender more than the bank is willing to pay. It works well for both of us.
Mike_Summey goodnight Stephen.
Lon_Peper Exactly! I’m am looking for those people myself.
cville Zoe, I simply send Chase Finance a couple to a few hundred each month. I have a 30yr, and am only bound to send that amount that I was comfortable with in a fixed rate, but accelerate “at my own pace” by sending more each month
cville couple to a few hundred EXTRA that is….
wood Roger,you mean one could get some money through refinancing it,but how to do it?
Mike_Summey Zoe, a loan with a call provision is one where you may be paying payments based on a 20-30 yr amortization but the entire balanc is due after 5-7 years. This is usually done so the banks can renegotiate the rate plus it keeps their loan portfolio on a shorter term which is desirable for them.
Zoe Awesome cville, I’m not sure if we are talking about the same thing. This technique originated in Australia
Mike_Summey Hi sscercone
gggggg Mike- is call provision the same thing as a balloon?
Roger Dawson Wood, if the property has gone up in value since you got the first loan, you can ask the lender to incease the amount of the loan, so that you’ll still owe the same percentage of the new value.
Zoe Thanks Mike, If you google it, you will find just a few companies out there with streaming video’s that market such an idea
Mike_Summey cville, are you aware that if you have a 30 year loan, you only have to send the amount of the next month’s principle in order to advance the payment schedule an additional month. eg. pay a full payment plus the principle for the next month and you move 2 months down the amortization schedule.
Roger Dawson Zoe, most real estate loans in Canada are for only seven years, then they need to be renegotiate. They are used to it and the system works well. Of course it benefits the lenders.
cville yes Mike, I play with my amortization schedule ALL THE TIME… what ifs, and when to pay what and how much to make what difference. At present rate, I will pay off in 10 yrs, bought in 05
Roger Dawson GG, a balloon payment is usually written into the loan. A call provision come into play if an unexpect event happens, such as you sellng the property.
Mike_Summey cville, the further down the amortization schedule you get the greater the principle payments become, but you can knock off the first 5-10 years very easily and hardly feel it. Pay a full payment and then the next 4 principle payments to move 5 months down the schedule.
Zoe Thanks Roger, This techniques originated in Australia and has been found extreemely effective for both lender and lendee’s. As stated earlier, I am not real clear about this program but like all thing’s RE, I am checking it out.
gggggg thanks Roger
Zoe Goodnight Everyone, and thank you for all your wisdom in REI
Roger Dawson G’da Zoe
Mike_Summey I read last week where the unsold real estate inventory is at a 37 year high. That bodes well for us long term investors. The more inventory on the market the softer the market will become.
Mike_Summey Goodnight Zoe
maria night zoe
cville I know some RE I have been looking at for over a year is still there, but has not dropped…. we’ll see
Mike_Summey I don’t know how the rest of you feel, but this hour seems to have flown by.
Mike_Summey Penny, you having problems?
penny yep.
cville what do you think of the asheville market now Mike?
cville still behind?
penny on laptop tonight, apparently having trouble with my ISP though
Mike_Summey cville, I think it will still take a few months for people who had high hope to come back to reality.
wood thanks roger,I will find it out wether we have it.
Lon_Peper I know what Zoe was talking about and the link is www.ufirstfinancial.biz. I talked to a financial planner friend of mine and he said you don’t need to spend the $3500 on the software. If you’re disciplined enough, you can do it on your own. It leverages your HELOC to help you pay down the mortgage faster.
penny soory for all the noise.
penny sorry
penny I have wine fingers tonight.
cville I only have 2 properties, but always looking around here.
Mike_Summey I think Asheville will not come back to reality until next summer when properties have been on the market all winter and sellers find that the summer doesn’t bring any relief. That’s just my thoughts.
cville and I will be making my last tuition payment late summer…. YAHOOOO!!
Mike_Summey cville, are you in Asheville?
cville yes
Lon_Peper Mike, do you have any properties in the Greenville area?
Mike_Summey Lon, no, but I have several in Anderson.
cville south side, have a rental in woodfin, 1.5 from unca, 11 from mars hill
Lon_Peper I knew you did there. I was looking for a referral for a property manager in the Gvl area.
Roger Dawson Goodnight everyone. See you next week.
cville nite Roger
Mike_Summey cville, just keep looking and making offers. You may find that an offer that is rejected today will be acceptable in the coming months.
Mike_Summey I’m going to have to run also. Goodnight everyone. The rest of you stay and talk with each other as long as you want.
cville I was surprised I missed one. ended in foreclosure, guess they thought the back wouldn’t really take it
Lon_Peper g’night Mike
cville nite all
maria nite all
wood bye all
Lon_Peper bye
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