Chat Transcript - July 14, 2008 with Special Guest Ken McElroy
Posted on July 15, 2008
wps just checking in
RolynProperties Welcome…eager beaver like me lol
santo hi, mike
Mike_Summey Hi santo & everyone else
RolynProperties Hello
Mike_Summey Hi Daisy
RolynProperties First time on here, (Don’t know what to expect)
Mike_Summey Ken McElroy should be along shortly.
Lon Everybody’s loggin in early to make sure the new site works.
DaisyNH7 Hi Mike and everyone!
santo mike, my 5 mortgages are with indymac bank–but i think i am okay
Lon Santo gets a special hello Hi Santo.
santo hi lon
Mike_Summey Rolyn, just jump in and ask whatever you want. We’re all friends here.
Mike_Summey Roger Dawson will join us shortly also.
Mike_Summey Hi Ken
RolynProperties I have taken your course, very good stuff.
Mike_Summey Thanks Rolyn
Mike_Summey Hi danko
ken_ Hi everyone…..it’s Ken
Mike_Summey How does everyone like the new website?
RolynProperties The small rent increases on net worth is BIG.
danko Hi Mike. Hi everyone. I like the new website design. It’s great
santo mike, website is good
Lon I like it Mike, I think it’s probably easier for you to post new things as well.
ken_ Mike - - Great changes!
Mike_Summey The website is still a work in progress. There is a lot more coming.
RolynProperties It was easy to get into, a friend of mine said that it was a little difficult previously.
Mike_Summey Hi mayorad
Mike_Summey Hi Oz
RolynProperties Hey Ken I have read your book the ABCs of Real Estate Investing very good book!!
oz Hi Mike, yep the site had chanjed, hope all is well
mayorad Hello, Mike.
ken_McElroy Hi Mike. Great to be here
Mike_Summey Oz, we’re working on it. I think everyone will like the new website much better when it’s finally finished.
Mike_Summey Hi RGrimsley & sparky
sparky37 hi mike
Lon Hi Roger
Roger Dawson Hi Lon and everyone
Mike_Summey Okay everyone. Ken is here. Ask him whatever you want.
Mike_Summey Hi Roger
sparky37 big crowd for the re-launch
oz Mike, of the little I have seen so far I do like it.
Mike_Summey Ken is an expert in multifamily properties.
RolynProperties Hey Kent I have read your book the ABCs of Real Estate Investing very good book!!
Mike_Summey And property management.
RolynProperties Opps Mistype..Ken…I knew that
Roger Dawson Ken, How is the real estate market affecting your vacancy rates
santo mike, when my income increases, social security deducts money out of my wifes s.s. check–$96.–this is for medicare part B–now they deduct $122.–if My income is $300,000 they take $254.the limit–is this fair?
danko My wife is reading your book now, Ken. Do you have a preference between duplex and four-plex for a beginner?
Mac Ken, There are lots of deals in my area (Raleigh, NC), but also lots of investors pursuing them. What do you do to attract sellers in such a market.
Mike_Summey santo, as long as your income is from real estate rents, it shouldn’t affect your SS.
ken_McElroy Thanks - The foreclosures and harder underwriting for loans has made the renter base increase
Roger Dawson Santo, I think that Medicare is a great bargain. I was paying $1200 a month before I turned $65. Now it’s around $200.
RGrimsley Ken, with all the multi-family properties that have been converted to condos, where do you see the best opps for small investors today (ie B or C properties)?
Mike_Summey Ken, that’s what I’ve been telling everyone. the harder it becomes for people to buy the more renters there will be.
ken_McElroy Our sellers focus on cash flow……do yours?
RolynProperties Ken, In your book you mentioned that you invest in Oregon if you still do how is the market out there?
Mike_Summey Hi Penny
RolynProperties I invest in Washington state
Penny Hi Mike.
ken_McElroy I like B and C, depending on the market…..we are buying B’s in Texas
danko Mike, I heard that with the IndyMac fiasco and other banks about to fail, getting mortgages is going to be harder for the common folk. Then do you think the rent market is going to spike too?
Penny Hello Roger and everyone.
Mike_Summey Ken, cash flow is the only game in my book.
Jess Hi Ken, I have a few apartment units and they are doing well in renting. However, I’ve not raised any rental for these units since a few years. How do I communicate that I would want to increase my rental to my current tenants after the tenancy agreement expires (which is going to be very soon)?
ken_McElroy Portland is still a great marketd due to the growth boundry.
santo roger, my insurance charged her only $15. everytime she saw a doctor–thats all she paid–how is medicare better if you pay $122 a month
Mike_Summey danko, I’m already seeing a real tightening on real estate financing, but it had to happen. the crazy loans banks were making a few years ago were nothing short of a recipe for disaster and anyone with an ounce of common sense knew that.
ken_McElroy On raising rents..we have a plan every 30 days…BEFORE they expire.
markm Mike, I heard that many of those “crazy” loans were mandated by the govt.
ken_McElroy I like fourplexes over duplexes….the larger the better…..less risk
Mike_Summey markm, if so, that’s even more reason they were a recipe for disaster. Have you seen anything yet the government has gotten involved with that it hasn’t screwed up?
danko Mike, the tightening on real estate here is creating a veritable garden of homes…people are begging me to make offers, no matter how low and “insulting”. We hope to buy two properties in the month at a huge discount
markm Mike LOL! You are 100% right about that!
Lon Mike, that’s a loaded question.
Roger Dawson Sorry, I have a new computer and I havn’t figured it out yet, but I’m back now.
oz markm I hear that as well, in their drive to make everyone a homeowner if they could afford it or not
Mike_Summey danko, same here. I’ve already bought 14 properties this year and am currently looking as several more.
Mike_Summey Hi Justin
justinlee HI
Lon danko, it’s about time the prices up there got realistic.
Mike_Summey Roger is it another MAC
danko We have investors here that are turning over properties to us because there are too many to buy. It’s great.
ken_McElroy Mike - Are you finding good loans?
markm Ken, if 4 units are better, would an entire apartment complex be better still?
Jess Ken, My concern is how do I communicate to the current tenant that I will be raising the rent soon. I forsee there is going to be resentment from the tenant and I’m afraid the tenants might turn violent in times like this with inflation riding high and fuel prices keep on going up? How do I reason with the tenant?
danko right, Lon. Prices were way too high. I have seen a lot of short sales up here. Properties bought for much more than they were worth
ken_McElroy Yes…I like properties that can support a staff…..
santo roger, my insurance charged my wife $15. everytime she saw a doctor-thats all she paid–how is medicare better if she has to pay $122. a month
RGrimsley Ken, when you were forst building your multi-family portfolio did you take on partners to buy bigger properties (with the problems partners bring to the table) or did you scale in to bigger properties as you were able to do so?
ken_McElroy How much UNDER market is your resident AND what is the market rent IF they did move?
danko This may seem like a dumb question, Ken, but do you like multi family properties with swimming pools?
Mike_Summey Ken, I’m not having any trouble yet finding good loans, but the type financing I use is always available. I’ve always used fixed payment/floating rate loans. That keeps cash flow constant, but allows both me and the bank to take advantage or disadvantage of the market conditions. Banks don’t mind making that kind of loans.
Mike_Summey Hi Steve
Steve_NM hi.
ken_McElroy I like partners….you can buy more and do more.
ken_McElroy Pools can be good for attracting residents…..they can be a pain…maint/ins/liabiliy….
Mike_Summey Jess, I’ll answer your question about dealing with tenants…don’t. That’s what property managers are for.
danko exactly. That’s why I asked.
danko Pools seems like a lawsuit waiting to happen
danko Ken, I know you like multi family, but do you have any single family? And what did you start your investing with?
ken_McElroy I started with a 2 bed condo……rented it out.
RolynProperties Does anybody believe that interests rates will not go down forever and eventually Ben Bernake is going to have to raise them pretty fast to catch up with inflation?
Mike_Summey Ken, if you would, please put the person’s name you are responding to in front of your answer That makes it easier to follow in thsi crazy environment. 
Lon They’ll come up eventually.
Mike_Summey Rolyn, I don’t see rates going up before the election. After that it’s anyone’s guess.
mayorad Ken, have a few questions: 1 at a time, though: 1st, if you don’t mind sharing .. what type of incentive do you offer other investors in your projects: share of the rental income, equity in the property, a high interest rate on their money investment?
ken_McElroy Rolyn - Dont forget about the dropping dollar…..40% in 5 years
Jess Ken & Mike, I love the challenges of dealing with tenants. I just need to learn a few techniques. The vancancy of my units are very near to 0%. I would say that the current rental is about the market rent. I would like to take a step further. I’m trying to force vacancy to see how much I could raise my rent. Is that a good move?
Mike_Summey Hi wps
wps good evening
RolynProperties In the weekend Millionaire course Mike tells you EXACTLY what to ask a property manager who will look after your property. Every last detail, even down to if I get sued what kind of protection will my property have. Good stuff!!
RGrimsley Ken or Mike, are banks willing to make 20 or 30 year loans now on small multi-family buildings with the right borrower, down payment, etc. or does multi-family generally mean a balloon note?
Mike_Summey Jess, in my opinion, if you have 0% vacancy your rents are too low.
ken_McElroy Mayorad - We try to return 20 to 30 percent by the 4th year to our investors.
Lon RGrimsley - I’m buying a quad right now on a 30-year note.
mayorad Great. Thanks, ken, for the answer - would never have thought that.
santo mike, property manager right now is evicting a lady who broke her leg, and could not work, so she turned to the crack pipe and did not pay the rent– her dog died, and she left it lying there for 2 weeks–this is why you have property managers to take care of the dirty work
ken_McElroy Mayorad - The investors get the all cash flow……until their invetment is returned
Lon Santo, does smoking crack create income? Doesn’t make sense to turn to that if you’re running out of money.
ken_McElroy Jess - if my vacancy was 0….I would raise the rents
santo Lon, my tenants are in a different world
mayorad ken, sorry … I think I’m misunderstanding you … you mean a portion of the cash flow is passed along to the investors, right? Or did you really mean ALL cash flow.?
Lon Santo, Buffalo is practically Canada.
sparky37 ken, is that 15-20 per year?
ken_McElroy RGrimsley - I am getting a 5.7% FNMA loan right now…75% LTV
Mike_Summey santo, good point.
santo Lon, 80% of my rents are section 8–directly into my account
Lon Ken, I want to meet your banker.
RGrimsley Ken, once you return the capital to the investor, if there was one investor for example. would you look for a 50/50 split - after paying yourself a management fee?
Jess Mike & Ken, m not residing in the US at this point of time and my investments are in Asia right now. I’ve approached a few property managers and all they told me is that my current rental could not go up any further for now. I’m not sure if the property managers here work the same as the property managers in US. I need some suggestions how do I start or steps should I take to increase my rental?
ken_McElroy Mayorad - 100% of ALL cash to investors until capital is returned
RolynProperties Hey Roger, thanks for your negotiation tip in the course to ask for more then what you think you can get so you will have some bargaining room.
Mike_Summey Everyone, I just had one of my bankers today tell me they would rather give me an unsecured line of credit than try to make it secured by real estate.
RolynProperties lol!!
ken_McElroy Sparky - Yes…per year.
RGrimsley Ken, is that 5.7% FNMA a 30 year loan? Wow!
Mike_Summey Ken, any prepayment penalties on the loan?
sparky37 Ken, are they 50/50 partners or strictly investors?
mayorad Clear now - just a little surprised. I appreciate your clarification.
ken_McElroy Lon - 602 852-5454…Scott McPherson
RolynProperties Hey Mike, how did you find 14 properties so fast?
danko Hmmmm, Mike, maybe we should go to your banker and just ask for money. No security, no real estate Get rich quick by asking.
ken_McElroy Rgrimsley - Yes…50/50
markm Ken, if you deliver 20%-30% to your investors, what do YOU expect to make off of a deal?
Mike_Summey Rolyn, several sources. 2 were bank foreclosures that the bank called me about. One a property manager brought to me. The rest I found on my onw.
ken_McElroy Mike - Yes - there is a PP….but I am a long term hold guy….
sparky37 ken do u have an e-mail address that you can give to reach you?
justinlee Ken, A group of investors and I have an Class “C” apartment complex in Las Vegas. We have been bouncing around 60-70% occupance for 6 months. The referral program seems to be working okay. Do you have some marketing or lease up tips so that we can consistently increase our occupancy.
Mike_Summey danko, you can do that once you own about 70% of your properties free and clear.
Roger Dawson Thanks Roslyn. That’s a principle that’s often overlooked because of its simplicity. If you ask for more and back off of that, it seems like you’re making a concession.
danko Rolyn, our partners have 70 properties waiting to make offers on. And they are just waiting because they are back logged.
RolynProperties Thanks Mike, Do you still go around and look at properties? or do you find them online?
Mike_Summey justin, why don’t you hire Ken to manage it for you.
justinlee Ken, Do you manage properties in Vegas?
Mike_Summey Rolyn, I’m always looking. It’s become a fun game for me.
ken_McElroy Markm - I have $ in…so I make the same….I also get a split as developer ..call it sweat equity…so my return is infinite…I have no investment in it.
RGrimsley MarkM - I think Ken meant 20 to 30% return of their investment over several years, not NOI.
ken_McElroy sparky - ken.mcelroy@mccompanies.com —–www.mccompanies.com ——www.kenmcelroy.com
sparky37 thank you
mayorad ken, 2nd question: I see that you specialize in property acquisition in the Southwest and north (in Oregon, etc.). I also know that the southwest is your backyard. Have you looked over to the Mid-West and East. What are some of your criteria for targeting properties?
ken_McElroy Justin - Can I buy it? just kidding….how many units?
Mike_Summey Ken, this will improve your typing speed and skills if you join us every week!
Jess Mike & Ken, I’m not residing in the US at this point of time and my investments are in Asia right now. I’ve approached a few property managers and all they told me is that my current rental could not go up any further for now. I’m not sure if the property managers here work the same as the property managers in US. I need some suggestions how do I start or steps should I take to increase my rental?
ken_McElroy Mayorad - I bought in Oklahoma last yr and now in Texas…..
santo Ken, have you heard of a man named lance edwards who buys 50 unit apartment buildings for no money down–he is on the internet
Mike_Summey Jess, where are you?
Jess Mike, in Malaysia
RolynProperties Thanks Roger, I just wanted to point that out because it does work. When I took the course I honestly didn’t believe it because I thought it was so simple. But I told myself the only way for sure to know if something works or not is to try it first hand and I did. Not only did I do it in Real Estate but in the real world as well. I even learned to get rid of the smirk off of my face after my request. 
Lon Jess - are your units subject to rent control?
ken_McElroy Jess- THe max rent is a MARKET issue…..you can only go so high…
danko Ken, Mike and all the other investors, what software do you recommend for managing your properties? Our goal is to buy 12 properties in the next six months. Do you have a real estate software for keeping track of your properties?
Roger Dawson That’s great Rolyn
ken_McElroy santo - Havent heard of him
Jess Mike, I’m in Malaysia
markm I’d like to know about the rental software as well.
justinlee Ken, if you want to make an offer we’re open to it . Anyway, it’s 117 units with 13 different buildings. Each building has an individual owner, but we collective manage it using Riverstone Residential.
Mike_Summey danko, I have my own software that I developed to consolidate the reports from my property managers. I don’t use management software, I use managers.
santo Ken, his site is–www.interviewswiththeexperts.com/apartments
mayorad Oklahoma & Texas …. Texas - I’ve heard a lot about, particularly Dallas and Bowmont (sure I spelled this wrong). But Oklahoma is interesting. What was the criteria for the property in OK.
ken_McElroy ALL - There is an annual publication called - JPM - Journal of Property Management - that evaluates software packages — I use Yardi
danko Understand, Mike…I am going to have managers, too, but need something to manage the managers…lol
Mike_Summey Ken, one of my managers uses Yardi.
ken_McElroy Justin - I am actively looking in LV - send me some info - ken.mcelroy@mccompanies.com
danko Mike, Ken, thanks for your suggestions
RGrimsley Yardi is kind of like the old reliable (think Toyota, Honda) of LL oriented software programs.
Lon Santo, I thought that site looked familiar - Heater Seitz.
ken_McElroy Mayorad - I liked Texas and OK due to OIL….employment and cash flow….
Lon Heather, not heater
Mike_Summey Changing the subject a bit, how would you like to have an asset manager from a bank as a future guest? One of the guys who sells bank foreclosures.
Mike_Summey special asset manager!
danko Mike, that would be great! Would love to know how to find foreclosures other than buying lists that everyone else has
santo Lon, yes heather sykes
RGrimsley Mike that would be awesome to find out what banks make their decisions on concerning short sales and forclosures!
Mike_Summey I think I can arrange that.
Steve_NM mike, i think that would be interesting also.
mayorad Ken - thanks. Oil in that area (with Texas) is pretty understandable and cash flow is a standard criteria. What source (web site, list broker?) do you turn to for employment information?
markm Mike, great idea on the foreclosure guest…gotta run for now…later.
Mike_Summey goodnight markm
ken_McElroy mayorad - Most of the local brokers have this data….I like Red Capital and URban land institute
RGrimsley Does everyone (anyone) run credit or background checks on their prospective tenants?
mayorad Excellent. Thank you - love specifics when they’re available
RolynProperties Yep, that would be a good idea, (The banker idea) We can give the banks a hard time about those subprime loans. 
justinlee Ken, sure thing. I’ll email some more info.
RolynProperties that is a BIG requirement Rgrimsley
Mac RGrimsley, absolutely! I don’t run credit checks on my low-end tenants however. They’ve all got credit problems. We rely more on reports from former landlords.
ken_McElroy Rgrimsley - I run on 300 residents per month - They pay me $50 and my charge is $20 - I make $30 per app and we ONLY rent to the credit worthy
Mike_Summey RGrimsley, my managers run both credit and criminal histories on prospective tenants.
RGrimsley Great feedback on the credit check, thanks!
ken_McElroy rgrimsley - We also run a sex offender check AND a criminal background….in addition to just credit. We manage 5,000 units….
Mike_Summey Mac, I find that former landlords are not good references. They will tell you anything to get a bad tenant out of their property and into yours.
RolynProperties Hey Ken, What do you consider credit worthy? Also if you rent to a person with great credit wouldn’t turnover be high because they can get a good interest rate on a home instead of throwing money away?
Roger Dawson You always need to check the landlord before the last one for that reason
Mac Mike, that’s true. We only trust reports from landlords we know.
mayorad RGrimsley, - don’t know much about them, but I’ve heard that the National Tenant Network provides a good background check for your tenants. Might want to look them up on the net.
RGrimsley Touche, Roger!
Mike_Summey Ken, what is your collection policy on past due rents?
RolynProperties lol@Mike…I didn’t think of that
Mac mayorad, my property manager uses NTN.
ken_McElroy Rolyn - 3 times the rent….we do lose good credit residents to home buying….BUT they typically are good residents and leave the places in good condition
mayorad Mac - can he swear by them? Aka., are they reliable, good as I heard they are?
Mac mayorad, he’s been using them for several years and they’ve been reliable.
mayorad Mike - question for you: The news with Fannie Mae and Freddie Mac being saved by the Fed? What do you suppose this means for interest rates and loan programs in the near future?
mayorad Thanks, Mac. Putting them at the top of my list.
Mac mayorad, there’s another one that many of my fellow investors use. It’s called TECO and is based in NC.
ken_McElroy Mike - We don’t take partial payments, we dont take checks after the due date, we only collect rent plus late fees after the due date…..We immediately file in court on the day after the rent is due……we do not chase rent at all and have a very low delinquency.
Lon TECO is great.
mayorad Good to know. I’ll look into them as well. Thanks!
RGrimsley Mac - What does NTN stand for (dumb question)?
Mike_Summey I’ll share the collection policy I expect my managers to follow. Rent is due on the 1st. If not paid by the 5th a 10 day notice is given. If not paid by the 16th eviction is filed. My managers know this policy and if they don’t follow it I expect them to pay the tenant’s rent and let the tenants sign a note with them I pay them to manage, not loan my money. Once I implimented this policy my past dues have become nil.
Mac Rgrmsley, National Tenant Network
ken_McElroy Mike - You are so right…..you cannot give the resident an inch….they must follow the agreement
Mike_Summey mayorad, I don’t know what to make of the Fed’s help for Fannie Mae & Freddie Mac. I’m not a good one to ask, because if it were up to me I’d let the ones who got us in this mess pay the price.
mayorad Gotcha. Will just see what develops then. Thanks.
ken_McElroy Mayorad - Watch hat happens to the FDIC…..1 bill at Indymac…uninsured and more banks on the way.
santo nite all
mayorad ken - maybe my last question: If you had to give a quarter (or timeline) as to how long the market will fall, what would you guesstimate?
Jess Mike, do we have to reason it out with the tenant when the landlord increases the rent?
Mike_Summey Ken, in the beginning a couple of my management firms thought this was too heavy handed. Once they saw the result they now do it for everyone. Once they understood that everyone has problems from time to time and if they allow the tenant’s problems to keep them from paying their rent all they are doing is letting them transfer their problems to me. I’m an investor, not a social worker.
RGrimsley Ken or Mike, any chance either you is putting together a partnership pool to buy distressed or forclosed residential properties?
mayorad Yes, interesting, ken. They are (or rather, were) one of the biggest. Scary to see them go under. I’m sure that there are more to follow. Just a matter of time - see what shakes out.
Mike_Summey mayor, I’ve been saying for over a year that the bottom is late 2009 or early 2010. I still think that is true.
ken_McElroy Mayorad - depends on the market….Miami 2011, LV 2009, Seattle 2008, Phoenix 2009, Austin 2009…….all based on supply and demand…
Roger Dawson Ken, thank you so much for your contribution tonight!
mayorad Thanks, Mike and ken. I agree with both your points. Soonest I envision is in mid-late 2009 and then again, it really does depend on the specific region/market - some will stay where are, others will fall.
Mike_Summey Ken, some of the Florida markets may not see an upswing for many years. There is simply too much inventory and too few buyers.
ken_McElroy Mike - right you are….I want to make money on my investment not babysit
Mike_Summey Amen
Lon Jess - how much are you planning to raise the rents?
danko Ken, thanks for visiting tonight. Come back again. Mike, Roger and all, thanks for a great chat. See you all next week, I hope. Hope to have good news soon…our first two properties in the next month.
danko ‘Night, all
mayorad Mike, ken - many thanks for providing good specifics and insight. Very constructive session.
Jess Lon, I’m planning to raise my about 10%
Roger Dawson Good luck d
Roger Dawson Danko
Mike_Summey Jess, I know nothing of the Asian markets. Roger speaks in Asia frequently and he may know something.
ken_McElroy All - Thanks everyone for the great questions
sparky37 Thanks Ken
RGrimsley On FL markets, I read that 20,000 new condo units are coming on the market this year in Miami? Think what that does for the rental pool!?!
Jess Thanks Ken
sparky37 Nite Mike & Roger
Mac Ken, thanks for participating tonight. Very enjoyable and valuable chat.
oz thanks all, enjoyable, informative evening
Steve_NM thanks ken, mike, roger. goodnight everyone.
RGrimsley Ken and Mike, thanks for sharing! You guys are awesome (I don’t care what they say)!
oz g/night all
Roger Dawson Jess, it’s been a couple of years since I’ve been in Malaysia. Next week I’ll be in Taiwan and then on to China, where things are booming. Of course in China you can’t own the land. The government owns all the land. You can only lease it from them.
Lon Jess, if that’s still in line with the surrounding market and can pull it off, that’s great. You don’t have to explain why you’re raising the rents.
Mike_Summey Ken, we usually stop at 9:00 Eastern, but sometimes we stay longer if there is a good crowd and good questions. You’ve done a great job and are welcome to saty as long as you want, but don’t feel obligated to stay longer unless you just want ot.
Jess Roger, thanks for the info
Roger Dawson See you next week!
mayorad Take care, all. Happy trails til the next session!
ken_McElroy MIke - Thanks….let’s talk again soon.
RGrimsley Good night guys (and gals).
Mike_Summey Ken, thanks for your contribution tonight. I hope you will join us again soon.
Jess Lon, thanks. Just that the tenant might damage the property and turn resentful if I communicate to them about raising rents. How do I deal with that?
Lon How much are they paying now and how much is the new amount going to be?
DaisyNH7 Hey Roly: what were you speaking about when you were saying not having a smirk on your face?
RolynProperties I was talking about Negotiating
DaisyNH7 Lon, let’s chat this week, ok?
Lon ok, do you have my email address?
Jess Lon, I’ve talked to a few property managers and all they told me is that the current rental could not raised any further. I don’t quite believe that because I do think the rental units could perform better than what they are doing now. Currently, I’m renting from RM 550 to RM 600 per month. I’m thinking of making it to RM 700 a month.
RolynProperties I use to have a big smile on my face when negotiating because I would ask for more then I intended to get.
DaisyNH7 can you givve it to me again.
Lon lonpeper@charter.net
DaisyNH7 great, talk to you later…
DaisyNH7 bye everyone
Lon ok Daisy, bye
RolynProperties Does anybody have any real estate questions that I can answer…or at least try to
RolynProperties Oh well…gnite everyone!!
Lon Jess, if that roughly equates to the US dollar, that would be quite a hike. I don’t know that your tenant would necessarily trash your property, but they may certainly move out if they think they can find a similar place for less. If you want them to stay and raise the rent, think smaller amounts each year. Try RM 25 each year for example.
Lon gn Roly
Jess Lon, should I add value to my properties before I could increase the rent?
Jess Lon, I think that is really an excellent suggestion!
Lon That certainly will help justify the rent increase.
Jess Lon, what are the examples of the value added work I could do to my properties?
Lon I know an investor in Seattle who bought a complex where the rents were way under the market, he raised the rents over $100 per unit and all but one tenant moved out. He immediately upgraded the remaining apartments, got tenants in them and resold the complex based on the new rent roll for a large profit.
Lon Jess, new carpeting, refinish hardwood floors, new stove, refrigerator, anything that makes the place better than it was before. New lighting and fixtures like faucets are cheap but can make the place look like it is worrth more.
Jess Lon, i find raising rents very complex. I need to deal with it if m into real estate investing, However, I feel today I’ve learnt a great deal!
Lon Like Mike said, you really need to let the property manager handle that. Have you asked them why they say the rent can’t be raised?
Lon You just need to tell them how much it’s going up.
Jess I don’t have to tell them the reasons I’m raising the rent?
Jess What happens if I don’t plan to upgrade my apartment units but I’m planning to raise the rent. Does that justify my rental increment?
Lon No, it’s not their business to know. The property manager may tell you the market won’t handle it and hopefully they know what they’re talking about. Whenever my rents were raised when I was paying rent in the past, I never asked why, I figured they’re taxes or insurance went up and they need to cover those costs.
Lon Inflation, cost of living, insurance, taxes, anything is a reason you need to raise rents. I don’t know about you, but I can’t fill up my gas tank for as much as I could a year ago.
reachr helloo
Lon You don’t have to upgrade your units in order to justify the increase. The increase helps though.
Lon Hi Reachr, the chat is actually over, Jess and I are still going though. The chat runs 8 - 9 Eastern time.
reachr oh well boo 
Jess Lon, like I said u give great suggestion on increasing rents.
reachr actually I didn’t know the chat existed until 2 mins ago lol
reachr Thanks, will hopefully be back next time I guess.
Jess Hello reachr
Lon How did you find out about it?
reachr just searching arounjd
reachr bought the book, finished it,figured I could find more useful info on the web
Lon Well, every Monday night, except holidays and other special occasions, 8 - 9 Eastern.
Lon Thanks Jess.
Lon Jess - most tenant won’t flinch at a small or moderate increase.
reachr really just trying to find a way to make sure a property I found is a good deal when its tax valuation decreased by 29% in the last year…just seems odd.
Jess Lon, I will follow your suggestion on increasing the rental as gradual as possible. Do I have to justify myself if I increase the rent every year when the lease contract expires?
reachr Have fun, thx.
Lon Jess, you always have a reason, it’s whether you want to tell them that reason or not. The reason should never be that you’re greedy. It could be to keep up with the market, could be taxes, whatever. If they ask, tell them.
Lon reachr, what’s the particulars on the deal?
Jess Lon, thanks for the suggestion and clarification
reachr Oh, well, the thing was valued at 69k in oct. 2006, then tax valuation decreased to 48,900 in oct 2007. it is a foreclosure, needs a new floor and needs to be made to look better….probably cost $6-10k. They are asking $48,700…I figured a good offer would be $28k so I could make the repairs.
reachr could probably rent for $600-$635/mo. property taxes are low around here, probably 50/mo, probably same for ins.
Lon Jess - yw. They may not like your reason, but you are an investor here to make money.
reachr it’s a 2 bed 1 bth
Lon A 2/1 getting $600 - $635? That’s good. Hold on a sec.
Jess reachr, that’s a really good deal
reachr well, I called a prop mgmt company and they said it could get $600-$850/mo..I’m sure it’s probably 600/mo…it’s only like 1280 sq ft
reachr it’s kind of scary because it’s been on the market forever
Jess reachr, have u found out why is it on the marker forever?
reachr one of my re friends speculated that it was because part of the repair needs includes a partial floor replacement…but he had a general contractor friend look at it and it looks like that repair by itself will only be $3,500
Lon reachr, based on $600 per month, $50 per month taxes and another $42 for insurance, you can buy it at 7% for 30 years for roughly $51,000 (including repairs) and still cash flow.
reachr why would the tax valuation drop like it did?
Lon If you can get it at $28k and put in $10k, you’ll cash flow well.
Jess reachr, I encourage to go for it. It’s like a sale at the department store
Lon probably due to other sales around the area. If they recently did a tax reassessment and there’s a ton of foreclosures, that’s a reason.
reachr the reassessment was in oct 2007. maybe affected by foreclosures. is a 2/1 too small to have as a rental?
reachr what’s the minimum rent I should deem acceptable (if 600 isn’t feasible after all)
Lon When you’re buying for long term, you don’t have to worry about tax value and appraised value as much, as long as the rent covers your mortgage, management fees, vacancy, and maintenance, you’re good.
Lon 2/1 houses are bread and butter homes.
Lon Keep them rented real easy.
Lon 3/1.5 is optimal
reachr the great thing is that it’s only 1 or 2 minutes from where I live so I can drive by and keep an eye on it whenever I want. everyone keeps telling me not to use a property mgmt company because the fee will be around 12%/mo but I see a real benefit in not having to worry about getting the thing rented
Lon I’ve heard that your best bang for the buck is a 900 sq ft home, 2/1 with two single working males living there. They spend enough time to micrwave dinner, sleep and shower, then off to work again.
Lon That and if you ever have to evict, they take care of that too.
Lon It’s good to have it close so you can make sure the property is being taken care of, but you don’t want to be a pain in the butt landlord either.
reachr my friend has struck what I see as a gold mine….he has a re agent that gets people looking to rent all the time…so he presents these people with their choice of house, buys it, then rents it to them (usually rent to own)….great idea to start with the people first so there’s probably never any vacancy…
reachr will the prop mgmt company collect rent? what about repairs, I’m assuming I still have to pay for materials etc…
Lon They will collect the rent, take their 5 - 12% (they don’t all charge 12%) and send you the rest. You should shop arond for your management company. Find one that you like at a rate you’re willing to pay.
Lon You can have them arrange to have repairs done or tell them specifically who to use when repairs are needed (like Uncle Fred the repair man) if you have someone you like to use Yes, you will have to pay for the repairs.
reachr ok i see
reachr well it’s good to know that it seems like a good deal.
Lon I think it is. The hardest thing you may be up against is the price of the home. Some banks don’t like to loan on non-resident homes under $50k.
reachr I guess I’ll just try until I find one that will. I will probably just use whoever my friend uses.
reachr Do you use the offer generator to figure out what’s a good deal? you did it rather quickly…
Lon I have a spreadsheet I use for a quick calculation. If it works, then I go to the offer generator to create the different offer scenarios.
reachr oo, would you mind if I looked at your spreadsheet? I will understand if you do.
Jess Lon, do you mind to share how do u do that with us?
Lon The spreadsheet?
Jess yes and do u mind the offer generator as well?
Lon The spreadsheet is based off of the offer generator. Give me your email addres and I can send it to you.
Lon I couldn’t explain how the OG works, you’d have to buy that and use it. It’s worth every penny.
Jess Lon, I’ve seen apartment units at great locations that people definitely would want to stay due to jobs available and good infrastructure. However, the asking price for these units are really really high and I could not make the numbers work in order to get a reasonable good cash flow. What do u think is the best way to negotiate for a better purchase price?
Lon Jess, negotiation is my weak point. If the numbers don’t work, don’t buy it. This would be a good question for Mike or Roger next week. If the owner is willing to finance, you can get real creative in your offers. If you’re going through a bank, you’re limited.
Jess Lon, how many real estate investment do you have if I may ask?
Lon I own one currently and am in the process of buying a 4-plex.
Jess Any good deal so far?
Lon Yes, but everyone else is getting them!
Jess
Lon I just saw this past week a 4-plex like the one I am buying for $20k less. I don’t have anymore money to purchase another one right now. It would have to be an absolute no money down deal for me to buy that one too.
Jess well, are u able to make it with a no money down deal if the deal is really really good?
Lon It would be a good deal if I had to pay the extra 20k, I just don’t have enough down payment money. Banks have tightened up on mulit-unit properties.
reachr I’m wondering, if I get this house for $28k, they shouldn’t require any money down since I would be going into it with so much equity should they?
Lon I’m getting 8.4% on the 4-plex I’m buying, and I have excellent credit.
Lon A bank will, they don’t care. If you get a rehab loan first, then refi out of it when the repairs are done, you can probably do it for no money down.
Lon You might be able to do a construction loan with a bank, then get a bridge loan into your long term financing.
reachr I will look into that, thanks.
Lon I don’t know if they require any money from you in that case or not.
Lon I need to go shopping. I’ll see you in 2 weeks. I have a REIA meeting next week.
reachr Thanks for your help, look forward to coming here again. Have a good night!
Jess ok cya Lon and thanks for all the suggestions
Jess Good night
Lon good night Jess
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