Chat Transcript - March 3, 2008
Posted on March 4, 2008
Roger Dawson Hi Lon and Chris! Welcome!
Mike_Summey Hi Chris, Ron & Roger
Roger Dawson Hi Mike!
Mike_Summey Chris, I spoke with your dad this morning.
Mike_Summey Hi danko
Lon Hi Roger
Lon Hi Mike
danko Hi Mike, Roger, everyone
Roger Dawson It’s a beautiful evening here in LA. 75 degrees, bright and sunny. Just thought you’d like to know.
Roger Dawson Hi Danko
Lon It’s dark and about 68 here in SC.
Mike_Summey Roger, I think part of the country is beginning to catch on to the Weekend Millionaire method of investing. I did 5 radio shows today, booked 3 more plus a guest slot on a real estate web conference. People are suddenly interested in our buy & hold strategy.
Mike_Summey Hi Rod & rggame
Rod_NY Hi Mike
Roger Dawson Thanks great Mike. Congratulations and thanks for all the hard work.
Mike_Summey Hi sparky
sparky37 hi mike
rggamel1 Hi Mike
Mike_Summey Hi Daisy
Roger Dawson Mike is tonight the night that you’re doing the call in show after this chat?
DaisyNH7 Hey Mike, I loved your quote in the ACT.
danko back again, as usual
Mike_Summey Any questions. Let’s get started.
Mike_Summey Which quote Daisy?
DaisyNH7 Hot diggity dog!
Mike_Summey Daisy, I’m not sure where the reporter got that. I didn’t say that, but it’s true anyway. We talked for about 45 minutes, but he put very little of what I told him in the article.
Roger Dawson What is the ACT Daisy?
Rod_NY I’ve got a question… I know you guys recommend SFH, but I’ve come across a 6-family that I think is a bargain because the rents are 20% below market. The property won’t cash flow very much (break even) the first year, but as I get rents up, it should get better quickly. Question - go for it or not?
DaisyNH7 Asheville Citizen Times (the local newspaper here in beautiful Asheville)
Mike_Summey Rod, my first question is, “Have you considered all of the expenses, including those that aren’t associated with SFH?”
Roger Dawson Rod, so far that sounds good. What kind of a neighborhood?
danko Is there a better time of year than another to buy rental properties? My wife wants to hurry and make offers when spring comes…she doesn’t want to buy when winter sets in because she thinks we will not be able to get renters when the snow comes. We live in Minnesota.
danko or is there a time of year when deals seem to be better?
Mike_Summey danko, your wife may be right about it being tough to get renters, but you will probably get the best deals during the time of year it is toughest to sell properties. You may save enough buying during these times to compensate for having to sit on a property for a few months.
Rod_NY Mike, I’ve used $40/unit/month for repairs, 6% of EGI for management, $1000 for misc and actuals for everything else. I think I am conservative if anything.
sparky37 Danko, doesn’t it snow in minnesota all year!
Roger Dawson I think that properties are a little easier to rent out in the summer when the kids are out of school.
Rod_NY Roger, the ‘hood is good. 10 minutes from train to NYC, 10 minutes from State university, not a bad area.
Roger Dawson Rod, sounds good so far. Who pays the utilities?
danko lol…only 11 months out of the year
Rod_NY tenants pay (except hallway lights which is small)
rggamel1 [Danko] Most moves occur in June, but you can maintain some control by not having any leases expire in the winter months.
Mike_Summey Rod, have you considered common area maintenance, utilities, lawn & exterior maintenance? I’d prefer to see you allocate a percentage of the rents to maintenance reserve based on the age and condition of the property. Are there any deferred maintenance items that will be coming due soon? Roof, HVAC, Applaiances, Painting, Carpet, etc.
Roger Dawson I’m speaking in Kohler Wisconsin on Friday to the Wisconsin Hospital Assn. That make Minnesota seem positively balmy!
danko yeah, we’re balmy
Mike_Summey Roger is traveling the last few miles by dog sled. 
Roger Dawson Not barmy, Danko! Balmy!
Mike_Summey Hi sheseltine
sheseltine Hi there
danko lol…we’re both
danko I’m barmy for living here.
Rod_NY I’ve considered all of those items, thanks for the list. The landlord has done a good job with up keep. The only thing I am worried about are 4 furnaces which look old as dirt. He says they’ll last another 10 years, I’d be surprised if they last more than 3.
sparky37 rod, what part of ny?
Lon Wisconsin - where every town may not have a post office or grocery store, but they do have a bar!
Rod_NY Ulster County (Hudson Valley)
danko hey, that’s not fair…they usually have two bars
Lon now that you mention it…
Mike_Summey Rod, do a careful inspection of the properties and then adjust your maintenance reserve percentage to allow for replacement of the furnaces in 3 years and any other items that may be marginal. It’s always better to err on the side of caution.
Mike_Summey Hi Elizabeth
sparky37 I am originally from westchester
Elizabeth Hi Mike.
Rod_NY Thanks Mike.
Rod_NY Sparky, Where from now?
danko tomorrow night, our REIA meeting topic is land trusts. Any thoughts on them?
Elizabeth Mike, we ordered your WM CD program and are really enjoying it.
sparky37 bergen, nj
Rod_NY Sparky, I used to be from Parsipanny.
Lon Rod - it may pay to have an inspector check everything out. Not sure what it will cost for a multi-unit though.
Mike_Summey Rod, there is a great inspection form on this website under the “downloads” button. You can bring it up and print it as often as you want. It’s FREE.
sparky37 guess we switched!
Mike_Summey danko, I’ve never seen much use for them.
Rod_NY Thanks Lon. I plan on paying whatever it takes for the inspection to be safe.
Mike_Summey Thanks Elizabeth. Do you have the Offer Generator?
Elizabeth No, but my husband was looking at it the other day.
Rod_NY Mike, I’ll download it after the chat.
danko there seems to be a lot of chatter about them in REI circles. I’m not interested. I figure I can do pretty much the same thing with an LLC. But I wondered if anyone else used them.
Mike_Summey Elizabeth, I think its the best tool we offer. It computes NOI, walks you through the process of balancing price & terms, combining bank, seller & third party financing to create literally hundreds of ways to buy any given property that will all cash flow and it even prints the offer letters ready for your signature and presentation to sellers. It’s awesome, because it lets you quickly evaluate a property without having to waste hours with a calculator.
Roger Dawson Land trusts are used if you want ultimate privacy in real estate ownership. Perhaps you’re buying up tracts of land and don’t want people to know what you’re doing. Or you’re wealthy and are afraid of lawsuits if people know how much real estate you own. Also they avoid probabte if you die. Only the biggest investors need to worry about it.
Mike_Summey rod, you don’t need to download it. Just bring it up and print as many copies as you need.
Elizabeth OK–thanks Mike. I was kinda wishing I had ordered it with the program.
Rod_NY oh cool.
sparky37 quiet in here without Al
Mike_Summey danko, I’ve talked with my attorneys about land trusts and they’ve advised me to stay away from them. I’m not totally sure why, but I’ve never found any reason to use on.
Mike_Summey Hi alex
alex hi mike
danko Mike, thanks. It sounds like a lot of hype. I think some guru got hold of them.
Mike_Summey I’m not sure where Al is tonight. I haven’t heard from him this week.
Elizabeth Mike, have you ever bought large apartment buildings?
Elizabeth Or you, Roger?
Lon A lot depends on which asset protection attorney you talk to and what you’re trying to accomplish with it.
Mike_Summey danko, there are many gimmicks being promoted by fast talking gurus who are more interested in selling you on an expensive program or boot camp than in whether or not they are good for you.
Mike_Summey Hi Linda
Linda Hi Mike
Mike_Summey chrisbaggett, are you with us?
Roger Dawson Elizabeth, the largest I owned was a 36 unit building.
Elizabeth That’s pretty big to me. I guess it’s a whole different ballgame than SFH’s.
sheseltine Ok, I have to ask…It’s probably on the minds of lots of folks, has anyone been buying more than usual foreclosures or REO’s with the current market?
Mike_Summey Elixabeth, the largest I own is a 20 unit building. I do have one comples with 42 units, but it is multiple buildings.
danko I have not bought any, but we have a lot of REOs and short sales up here.
danko that was in answer to sheseltine
Roger Dawson The biggest problem I had was finding a resident manager (required by law) that I could trust. Everytime he told me he had three vacancies I’d go see him to find that he had just rented them out that week.
Mike_Summey sheseltine, I buy a bit of everything. Foreclosures are just an occasional purchase. There are many deals without chasing foreclosures.
Elizabeth We have bought some here in Raleigh, but the banks aren’t too willing to deal here, even on short sales.
danko Roger, do you need a resident manager if you have a property mgmt company?
sheseltine That has been my question, with all the talk in the news about the increase in foreclosures, I haven’t heard much from the investors I know. I know the banks are a bit skittish now.
Elizabeth We made an offer several weeks ago and still haven’t heard either way.
Roger Dawson Yes, in California you must have a manager living on site for anything larger than 15 units. I imagine most states are that way. Some resident managers will do it for a free apartment, sometimes for half rent.
Mike_Summey I did an article recently on foreclosures and I interviewed the special assets manager of a major bank about it. He had one of the best comments I’ve heard. He said, “You wouldn’t believe the number of people who come in to see me wanting to buy foreclosures and their fingers are still orange from the Cheetos they were eating the night before when they watched the late night infomercial.”
sheseltine Ha-ha! I can picture it!
danko because of the bank skittishness, our REIA just started a rehab funding coop. Investors put in money that is loaned out for rehabs. Sounds like a good idea to me.
sheseltine What kind of return do they expect with that investment?
Mike_Summey everyone, I want you think about this! If you have to sell a property to make a profit, you are not an investor you are a speculator.
Roger Dawson All those “flippers” turned into lemmings overnight last year.
Elizabeth We just bought a property a few weeks ago that we probably paid too much for, but I think it’s gonna work out OK. But it is a temptation to sell it.
Mike_Summey Investors put money into stocks, bonds, real estate and othe investments for the purpose of generating an income. Speculators buy and sell stocks, bonds, real estate and other assets hoping to take advantage of special conditions that they feel exist in the market. Big difference!
sheseltine I wasn’t thinking of speculation but what you have taught me in your books. I’m wondering if there really IS more opportunity for long term gain. I can’t help but think YES!
danko none of our offers are based on flipping. Our plan is to buy, hold and rent. If the numbers don’t work out that way, then the deal doesn’t work.
Mike_Summey sheseltine, if you can buy a property that will just break even in the beginning after all expenses, the longer you won it the wider the margins become as rents go up and the mortgage pays down. The margin really gets wide when the mortgage pays off.
Mike_Summey Hi eric
ericl Hi
rggamel1 Elizabeth, talk to Mac about REO deals in this area. For everyone else Raleigh currently has about 250 foreclosures a month, some at 50% of market. Thats hard to innore.
Elizabeth OK, sorry but who is Mac?
sheseltine So, a down market with lots of REO’s and foreclosures aren’t necessarily something to go after?
rggamel1 Mac Johnstone
Mike_Summey danko, good thinking. I’ve walked away from hundres of deals that came within just a few dollars of breaking even, but even $25 negative cash flows add up over time to enough to sink you.
Elizabeth LOL–OK. Thanks. Do I know you?
Mike_Summey sheseltine, that’s not what I said. I said don’t focus on just foreclosures. There are many other deals that can be better than foreclosures.
Mike_Summey Oops! I hit the wrong button!
rggamel1 Elizabeth, I don’t know, I met Mac about 3 months ago and attended first Treia rehab meeting last month.
Elizabeth Oh, OK. Maybe we’ll meet sometime. Thanks.
Roger Dawson With foreclosures I think that you have to distinguish between buying from homeowners before it goes to sale; buying at the sale; or buying from the lender after the sale.
Mike_Summey I guess everyone knows that daylight savings time starts this coming Sunday.
ericl Mike, other deals better than foreclosures? What do you mean?
Roger Dawson Thanks, Mike, I didn’t know. That’s my favorite day of the year. I can sit out on my front porch and enjoy a bottle of wine again.
Mike_Summey I will be on the Garrett Sutton show tomorrow at 10:00 AM Pacific time - that’s 1:00 PM Eastern. You listen live at www.wsradio.com
Mike_Summey Hi Sandy
Lon Roger, there some kind of law in LA that says you can’t when the clock is set back an hour?
Sandy Hello
Linda Just chiming hin here, and my question to anyone is, Has the Broker issued changed everywhere like here in Ma. If You call a Listing broker, they WON’T deal with you directly, they will refer you to a buyers broker if you don’t already have one you are working with…. Therefore, good luck getting anywhere with out a Broker. Or is that just North East?
Roger Dawson Lon, it’s a matter of tradition.
sheseltine I understand. I do believe in the buy and hold. We have one rental that’s got a good positive cash flow and have only 7 years left on the note. We are trying to buy the house next door since it’s a divorce but the owner is difficult. Any suggestions?
Mike_Summey eric, a $100,000 purchase financed at 0% interest buy the seller could be better than a $70,000 purchase you have to pay cash for or finance with conventional financing. That’s just one example.
DaisyNH7 Mike, when you are financing a rental property, do you go through conventional means ie. bank or other ways. Also do you do interest only or a 15 or 30 year fixed?
Roger Dawson Linda, I’ve never encoutered that before. There’s no reason I know of that the listing broker couldn’t represent the buyer also. They would certainly have another agent in their office that could handle it.
Elizabeth Mike, when you do an owner-finance deal and you put money down, is that cash from your pocket or do you borrow it?
Mike_Summey Linda, in most places the listing brokers will work with you, but require you to sign a document stating that you know and understand that they work for the seller, not you.
Mike_Summey Daisy, I’ve done just about every kind of financing you can imagine over the years. I don’t have a standard way of buying, which is why I am able to make a lot of deals work that others pass up.
Mike_Summey Elizabeth, see my answer to Linda.
Mike_Summey Elizabeth, sorry, I meant Daisy.
Elizabeth OK–thanks. 
Mike_Summey Elizabeth, thee are ways to get cash in sellers hands and still have a no money down deal. A small bank first mortgage combined with a large seller note is one way to do it.
Elizabeth Yes, that would work. We’ve never tried that.
Mike_Summey Elizabeth, all of these are techniques you will figure out with the Offer Generator. There are so many different ways to structure deals it would be impossible to describe 10% of them in one of these chats.
Mike_Summey Hi Mark
danko Mike and all, do you ever use hard money lenders for down payments? I have a lot of cash available through my HELOC, but once I have used that, then I need another source for cash. I know I can use seller financing, too, but just wondering if anyone uses hard money
Roger Dawson Shesetine: RE the divorcing sellers. Have you read Mike’s story in our first WM book about buying the husband and the wife’s share separately?
Mike_Summey Hi dj
dj hi mike
MarkNC Hi, sorry I’m late, there was a lockdown on campus tonight that messed up my schedule.
Mike_Summey danko, I’ve never used hard money lenders. If you use your HELOC to purchase, you should be able to refinance in a relatively short period of time and pull out enough to repay your HELOC. If you can’t, you’re paying too much when you purchase.
sheseltine I did but quite a while ago. I’ll go back and read again. The husband wants to sell says he can’t afford the mortgage but blows me off when we go to meet to look at the house or talk about details.
Elizabeth Where do you go to school, Mark, if you don’t mind saying?
Mike_Summey Mark, were you on the loose?
MarkNC I am a professor at Appalachian State. Apparently a gunman robbed a nearby Domino’s drove to the edge of campus and took off on foot. I was stuck in a meeting for about two hours while they looked for him. They never did find him from what I heard.
alex What is a heloc?
Mike_Summey Appalachian State University - Three consecutive national football championships!!!! Wow!!!
danko alex, HELOC = home equity line of credit
alex thanks
Mike_Summey Mark, my son Matt played quarterback for Furman and is soooo jealous.
Mike_Summey alex, HELOC is Home Equity Line Of Credit
alex thanks
MarkNC I thought I remembered your son playing somewhere., I take it he is no longer playing? App and Furman have had some great battles the last few years.
Elizabeth I hope they catch him . . .
Lon sheseltine - I had a seller that way once, I went out to meet him, take pics of the property, etc. and he wasn’t there, so I waited with his kids for a while and they finally got a hold of their mom and she said to have me leave the papers behind, so I did (unsigned). I heard from another investor that he did the same thing with them. You may have a situation where you just need to let him go. If he gets desperate enogh, he’ll call back and beg you to meet with him.
Mike_Summey alex, you’re going places. Too many people would sit there and not ask and leave the chat no smarter than when they joined it. Thanks for asking.
alex I am just learning.
Mike_Summey Mark, he is not in the Army at Ft. Rucker in flight school to fly the new Apache Longbow Helicopeter.
danko Mike, if I use my heloc with seller financing, can I pay a little more for the property and still refinance my heloc back out? Like you can pay more for a prop when you do a 0% seller note?
sheseltine Thanks Lon, I’ve not contacted him again. The thing is the house shares a drive with my rental and would be a great situation if he would finally be motivated enough to sell. Wouldn’t want soneone buying that would trash up the place and make my rental less appealing, therefore driving down the rent.
ericl Mike, Not sure if I understand something from your book. You suggested working with Property managers to help learn the area and properties. What’s in it forthem? Should I also search for a good buyers broker?
MarkNC Wow, great for him. I used to live near Ft. Campbell and have the Apaches buzz the treeline near my house. The first time you saw that you had to go in and change your pants.
Mike_Summey danko, it would be hard to refinance if you have a very low interest rate from the seller. I suggest you add a substitution of collateral clause to the seller’s note giving you the right to substitute another property of equal or greater value so you can keep the low or 0% financing. It doesn’t make mucy sense to pay those off.
Elizabeth Goodnight everyone. Thanks Mike and Roger.
danko Mike, interesting. I like that idea.
Mike_Summey eric, once a property manager knows you are serious and will give them your properties to manage, they have a lot of incentives to help you learn the market and buy more properties. Goodnight Elizabeth.
danko Good night, all. See you next week.
DaisyNH7 Goodnight everyone. Thank you for another great chat!!
Roger Dawson Goodnight everyone. I’m going to be speaking in Palm Springs next week but I’ll be back with you on St. Patrick’s Day.
Mike_Summey eric, I paid just one of my managers over $8,000 last month. You can bet they will help you. This one will be going with me tomorrow to look at properties that will add about $700 per month more in management fees if I buy them.
rggamel1 Mike, do you manage any properties yourself?
Mike_Summey Wow! Time has flown by tonight!
Mike_Summey Hi gayle, your a bit late. We’re just ending the caht.
ericl Thanks
sheseltine Good night all!
Mike_Summey rggamel, only a few triple net commercial propeties that I only have to collect the checks from.
Lon Oh, poor Mike, and you have to cash them too!
Mike_Summey Goodnight all! See you here next week.
MarkNC Good night all
rggamel1 Mike, thanks good night
alex good nite all, see ya, next week.
chrisbaggett hello all
chrisbaggett sorry i missed the chat
chrisbaggett an hour behind everyone here - in TX
llfells@comcast.net what is the topic of discussion?
chrisbaggett hi Lon, hi SAndy
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