Chat Transcript - October 15, 2007
Posted on October 16, 2007
maria Hello everyone
Al Lee Is everyone enjoying the new lending environment for real estate?
santo al, i am going through my first eviction
Al Lee santo, that was inevitable.
Al Lee tenants come and tenants go.
Ed Hello evryone, good to be hear.
maria I am about to start building my r/e portfolio so have yet to start borrowing
santo al, yes i know,
Al Lee sometimes we are able to get long-term tenants who will stay for many years.
Al Lee my longest tenant was for 13 years.
Al Lee HI, Ed
Ed Hi Al Lee
Al Lee OK, the big guns have arrived in town now
Roger Dawson Hi Everyone!
Roger Dawson Al, where have you been? We missed you.
maria hello Roger
IBMally Hello
Al Lee Roger, yeah! I know. Mike calle dme last week to see if I was alright. I just have been very busy.
Mike_Summey Hello everyone.
Al Lee Hi, Mike. See, I made it.
IBMally Hi
Mike_Summey I called Al to see if he was okay.
santo hi, mike
maria hi Mike
Mike_Summey I was just reviewing two appraisials of a property I want to buy.
Al Lee I was afraid to anser the phone for fear Mike have wanted to borrow money; but I answered and we had a nice chat.
Al Lee I need more wine to settle my typing down.
Roger Dawson I thought you might have been taking typing and spelling classes, but I guess not!
Al Lee It is too late for that.
Mike_Summey It is an income property that the landlord pays all utilities. One appraiser used a gross rent multiplier of 192 for his income approach and the other used 147. Anyone ever heard of something that ridiculous?
maria I have not heard of that at all…..just a beginner. What is 192 or 147 rent multiplier?
Roger Dawson That’s Beverly Hills type pricing
Al Lee Mike, that is wacky. Are you selling or buying it?
Mike_Summey The 147 multiplier used projected rents while the 192 multiplier used actual rents.
Al Lee If you are selling, jsut accept the appraisal.
santo al, all my tenants were in place when i bought my 6 properties, so i had to wait to see who was good or bad, so far it looks like just this one
Roger Dawson Maria, He would mean 192 times the monthly rents equals the appraised price.
Ed Sounds like someone has tooo mutch money
Al Lee santo, that is a pretty good outcome if only one is bad
maria mike, as the price of the propert?
Mike_Summey Al, I’d like to buy it, but the sellers…an estate…seem to think just because they go out and buy an inflated appraisial I won’t have sense enough to know it.
Roger Dawson Al, Mike don’t no nothing about selling no properties!
Al Lee Mike, I woudl pay 100 times rent if it is triple-net rent.
maria Mike or Roger, what is the best percentage to charge rental at?
Al Lee If you pay the utilities, insurance, taxes, repairs, etc. then 50X might be too high.
Mike_Summey maria, the appraisers have simply multiplied the rent by either 192 or 147 without makeing any consideration for taxes, insurance, management, maintenance reserve or utilities. Totally absurd!
Mike_Summey Al, you are correct on that.
maria mike where do they get the figures 192 or 147 from?
Roger Dawson Maria, in our book we teach you how to figure NOI, net operating income. That’s net rents after a vacancy factor, minus Management, Insurance, Taxes, Utilities and Maintenance. What’s left is how much you can afford to pay in mortgage payments.
Al Lee The rents on buildings that are for sale may be inflated to jack up the price, too. You need to verify that those are REAL tenants payign REAL rent.
Mike_Summey maria, that’s a good question. I don’t know. I’ve never heard of such multipliers plus multipliers tell you nothing really.
IBMally MIke & Roger, just read your book a couple weeks ago, exactly what I was looking for. Been looking for my first property for several months, currently bidding on 4th potentail property.
Ed Mike, maby if u wate awile you could buy it when thay go in the hole?
Mike_Summey IBMally, good for you. I believe you will see sellers becoming very flexible in the coming months.
Al Lee If it is an estate, the owner is already in a hole lol
santo mike, what happened last week, i could not log on to the chat
IBMally I hope so, not so in my “farming area” yet
Mike_Summey Ed, the problem is they owe nothing on the property since it was inherited. I made an offer two years ago and we were so far apart I suggested they put it on the market to see if anyone would make an offer close to what they want. That was two years ago and no acceptable offers yet.
Mike_Summey Hi Penny
maria roger is that in the Weekend Millionaires guide to r/e investing?
Penny hi Mike
Roger Dawson Hi Penny
Penny & Roger.
Roger Dawson Maria, yes, that’s right.
Mike_Summey santo, nothing happened here. We were all here.
maria Roger, good I have it on order
IBMally Currently negotiating on a REO, bank my offer $110,000, bank countered with $131, $2K over the price listed on their website!
Al Lee I would counter with $108k
Mike_Summey maria, I beleive you will find the book very easy to understand and if you have any questions, we are here in the chats or you can get the Weekend Millionaire FAQ book which is filled with questions and answers sorted using the same chapter headings as the real estate book.
Mike_Summey Hi ray
IBMally LOL I told my agent the same…\
maria ty Mike
IBMally Maria, get the book and the FAQ book read them side by side, great stuff if this is your style.
Ed Hang tight Mike thay’ll come around when thay start pulling lint out of their pockets.
Mike_Summey IBMally, you can bet they have it on their books at a NRV (Net Realizable Value) conservatively based on what they believe they will actually get. Their counter is merely their opening negotiating position.
maria IBMally ty. I will order that as well now. I have read WM Mindset. I am glad I found it before I started buying properties
Mike_Summey Ed, I will pay more than anyone esle they will find because I own all of the property around it.
Mike_Summey Ed, but I’m not a fool! I’m not going to pay double what it’s worth just so I can own it.
Al Lee Mike, start raising pigs on the property around it and they will sell cheap pretty soon.
IBMally My agent is listing agent, he told me to be patient as he is trying to talk sense into them. I have a good tenant prospect lined up (friend of a friend).
IBMally Anxious to get the first one under my belt…
Al Lee OOps! Careful about renting to a friend !!! 
Ed AAAAA, squeeeez play.
Mike_Summey I made an offer on 8 houses this week. Rejected! The seller said he has someone willing to pay 50% more than me. This is another one of those deals where it will take time for them to find out money isn’t flowing like it was a year ago.
IBMally Not my friend, timing just seems to be working out. Currently renting a place scheduled for demolition.
Mike_Summey After telling me that, the seller asked me not to throw away my work papers. What does that tell you?
IBMally Mike, how much time do you devote to REI in a week?
Ed What he is telling you about the other buyer is BULL.
Al Lee You are not suggesting that a seller or hsi agent would LIE, are you?
Al Lee Roger, is that possible?
Ed Nooooooooo.
Mike_Summey Everyone, I’ve noticed a definite decline in the number of people in the Monday night chats since the real estate market has gone in the tank. Unfortunately, now is the time investors should be looking the most. There are going to be some fantastic deals made in the next 2 years.
Ed And you will be heading the pack.
IBMally Do you think the downturn will last that long?
maria In NZ we are slowing now so am keeping my eyes on the r/e market
santo mike, maybe they are wacthing the baseball play offs
Al Lee The “downturn” has been great for occupancy rates.
Mike_Summey Ed, I’ve been dealing with sellers like that for over 35 years. I am very patient and I don’t have to ever buy another property unless it will make money. I have the luxury of being able to live very comfortable with what I already own, so if someone wants to sell to me the deal will have to be good.
Mike_Summey IBMally, my prediction is that we will not see a turn around until late 2009 or early 2010.
Roger Dawson Maria, what’s the exchange rate now between NZ dollars and US?
Mike_Summey I think we have at least 2 years ahead where we won’t have to be competing with the flippers and other speculators.
Al Lee Roger, you seem to have a way with the ladies. Oh, seh came back.
Mike_Summey santo, I’m very tired tonight. I stayed up and watched the Boise State - Nevada game last night. Boise won 69-67 in 4 overtimes.
Al Lee YOu ran her off temporarily
Ed Do u think the Canadian dollar will make a diforance in our market?
maria Currently we are at 76.6 I think with the us dollar
wood hello everyone
Al Lee Hello, wood
Roger Dawson Ed, I think you’ll see more Canadians investing in winter homes here because their dollar is worth so much more now.
wood some problem logging in
Mike_Summey Good offers are still being rejected because sellers have not gotten far enough from the red hot sales days of 2004-2006 to start feeling the pain enought to swallow their pride and get real.
wood Hi Al
Roger Dawson Hi Wood!
Mike_Summey Hi wood. How are things on the other side of the world?
maria You can always check on the www.XE.com conversion tables
Al Lee Wood, were you able to read that eBook?
wood I updated my Java and could not log in right now
Mike_Summey Did anyone else read where last month the unsold real estate inventory was at a 37 year high in the US?
Mike_Summey As I ride around my area, I see condo projects and housing developments stopped dead in their tracks. Partially completed buildings with no one working on them. Anyone else seeing that in your areas.
wood Al,I have finished reading the ebook.Thanks!
IBMally No much here, always more stable, we never got the rah rah peaks of a couple years ago, not much change.
maria In Auckland there are now major problems with renting converted city apartments
wood Mike,things are fine here.I think there is a little inflation now.
Mike_Summey Within the next few days I’m going to put a link on this website to the marketing package for the new office building I want to build. That is if Roger doesn’t mind. Maybe one of you will send me a tenant! 
Mike_Summey IBMally, where are you located.
Roger Dawson Mike, I some some luxury homes in my area that are stalled. The big news here is builders offering incredible incentives to dump their inventories. It’s depressing prices of used homes.
IBMally North suburbs of Pittsburgh
Roger Dawson Go for it Mike!
Al Lee Prices going down do not hurt real investors, they hurt flippers. For us, rents stay the same and we just rock along.
Al Lee If we have a little money, we can pick up great bargains, too.
Mike_Summey Roger, we aren’t seeing the slowdown in big expensive homes that we are in the more modest priced ones. People with money seem to ride out these slumps better than those who have to borrow most of the money.
Mike_Summey Al, my experience is that when sales are floundering, rents start to rise because the demand for rentals grows. We’ve made some very healthy rent increases since spring.
IBMally Here just the opposite, $500K homes sitting, $125K homes (which I’m trying to buy) are going fast.
Mike_Summey Hi Mark
Al Lee IBMally, where s “here” for you?
Al Lee Hi, Marki
MarkNC Hi Mike, Al, everyone
maria Hi MarkNC
IBMally Not much supply, literally bottom of the market in my area (North of Pittsburgh) rents do appear to be increasing slightly. 5 - 6 homes for rent in my target neighborhoods, all rented now.
Mike_Summey Roger & I will finish the final read of the page proofs on our new book this week and send them to McGraw-Hill by Friday. The book will be out in Dec or Jan.
MarkNC What is the new book about? I know I have seen it but can’t remember.
santo mike & roger, good luck
Al Lee Mike, Roger: We need to do a radio interview of you for the new book.
Mike_Summey Mark, it is Weekend Millionaire Secrets to Negotiating Real Estate
Mike_Summey Al, we’ll do several when it hits the stores if you want.
Roger Dawson Al, I’d be happy to do that for you.
Al Lee Absolutely!
MarkNC That’s right, I have Roger’s Power Negotiating tapes. Will the new book have the same examples from the 70’s?
Mike_Summey Roger, I got the new golf balls today. Carleton will be here tomorrow so I’m going to try them out on him.
IBMally Mike/Roger - quick question on cash flow and NOI. The deals I am looking at are slightly negative for the first couple years if I use a 15 yr mortgage, positive if 30 year. I am in my mid 40s, thinking 15 year is a better plan. Your thoughts? (I can handle the negative in my current budget).
Mike_Summey IBMally, will the negative on the 15 mortgage be more than the principal portion of the payment?
IBMally I didn’t calculate it, but I doubt it, About $100 / month
Mike_Summey Roger, have you received the marketing package I sent you on the new building yet?
Al Lee IBM I can handle the negative, too; but I always use 30-year, fixed-rate, with 10-year interest-only option (or as close as I can get) because if you run the numbers you see that your overall return is higher. Use Other People’s Money (OPM) as much as you can.
Al Lee The cash flow that you do not need can be accumulated to buymore properties. It is foolish to forego that benefit.
Roger Dawson No, Mike I haven’t. But I’m eager to see it.
Al Lee In my humble opinion (IMHO)
Mike_Summey IBMally, that’s one of the few things Al & I disagree on. I like to get the properties paid off as quickly as possible. I’m using OPM to do that…it’s called rent!
IBMally Both side of the argument. My plan was to buy 1 house a year for the next ten or so, then if a few are paid off, I would have higher income to supplement retirtement
Mike_Summey IBMally, if you have to subsidize part of the principal payment, it sort of like taking money from one pocket and putting it in another. Just be sure any negative cash flow doesn’t hurt you financially.
Al Lee Negative cash flow might not seem bad today, but if anything happens to your other income it can cause you to lose all your properties and the equity in them. What if you get sick, fired, business gets bad, lazy, etc, etc
Mike_Summey IBMally, when you build up equity quickly, you can always releverage it to buy more properties or to give you a cushion in times of need. If you buy 1 house per year for 10 years, at that time you can probably refinance 3-4 of them and pay for the rest.
IBMally We have two good incomes now, putting away good amount, plan to use REI as diversifying some of our money
Mike_Summey IBMally, the secret to success is to always maintain good cash reserves in case something unforseen does happen.
maria Mike what do you mean by re-leverage?
Mike_Summey Penny, what happened? Did we run you off?
MarkNC If I can put in my two cents, I think it dependds on where you think you are. If you are into the serious growth phase of your plan, I would think you would go thirty years and use as much of OPM as possible. At some point though I think it will make more sense to try to get properties paid off and rest on your laurels so to speak. Does that make any sense?
Penny No
Mike_Summey maria, when you borrow to buy an asset (House) it is called leverage. If you pay 20% down and finance the balance, you have leveraged 80% of the purchase.
IBMally thanks for all of your answers, I think I’m on the right track, starting in mid 40’s with a plan to do more relaxing in 15 - 20 years!
MarkNC I am two or three years younger than you IBMally so am still in the growth phase. Although my RE portfolio is not growing quickly enough lately.
IBMally Mark, are you doing REI full time?
MarkNC No, I am a college math professor full time, I just do real estate on the side.
Mike_Summey Someone ask earlier how much time I spend each week on real estate. I’ve never spent more that 5-10 hours per week since I started. Real estate should be and investment, not a JOB.
MarkNC That way I can get the students tuition and rent. If I could start a beer distributorship I could get all of their money :).
IBMally That was me Mike, thanks, How many properties do you have? I assume you use a management company?
Mike_Summey I’m catching up with Al on the typing & spelling!
Mike_Summey IBMally, I have several hundred and yes I use several management companies.
Al Lee Mike and Mark, Is it true what the Democrats said that you need to get 5 immunizations before traveling to NC?
Mike_Summey Al, we don’t have any Democrats here.
maria OOPS!
IBMally Mike,
Mike_Summey They’ve all gone to Texas to picket Bush’s ranch.
MarkNC That’s why they need the immunizations Mike.
Al Lee I will be moving to NC, we still have a few in Texas
IBMally Do any of your books tell your story on how you got started>
Mike_Summey IBMally, the Mindset book tells much of it.
IBMally I’ll pick it up
Al Lee That Mindset book is my favorite of your books.
Mike_Summey Al, every one who has read them all say that too.
Al Lee I bought one for each of my kids
maria I loved the mindset book but there is one thing in it that bugged me
Ed The Mindset book is a gooood book.
Mike_Summey What’s that maria?
maria Mike, the statement that is oft used from the bible about money
maria most people dont realise that it is always used incorrectly
Mike_Summey maria, which statement is that?
maria Money is the root of all evil. That is incorrect.
Al Lee The love of money is the root of all evin - is that it?
Mike_Summey Are you talking about the quote from the street preacher that was in the book?
Mike_Summey That was his quote, not a qoute from the bible.
maria The correct version is “the love of money is the root of all evil”
Al Lee Hey! I got it right…
maria Money as a force of energy has no more power to good or evil than say a teacup !!!
maria and ‘The Love Of” reminds us that for evil to occur HUMAN INVOVLVEMENT IS REQUIRED
Mike_Summey The quote from the stree preacher was that it is easier for a camel to pass through the eye of a needle than it is for a rich man to enter the kingdom of heaven.
Ed What was he on?
Roger Dawson I need to run. I’ll see you next week.
santo maria, money is the root of all happiness, the more you have the happier you are
Mike_Summey maria, read the article on the website titled “Teach Children That Having Money Is Not Evil”
Ed Money is A tool.
Mike_Summey A means of keeping score.
maria anyway it is often used and I get bugged people use it as a fear of money
Al Lee Mike, everyone, I need to run now, too. Glad I made it back after so many weeks away.
Al Lee Goodnight.
MarkNC Good night Al
Ed Thank you Mike
Mike_Summey I have to run also. I stayed up too late last night watching a football game & I’m tired.
maria It is a small matter but one that is not of great concern just a curiosity
Mike_Summey Goodnight all. See you here next week.
IBMally thanks all
maria anyway I must go nice talking to you all bye
MarkNC Good night, all
santo nite all
wood nite all
wood bye penny
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