Chat Transcript – July 28, 2008 with guest Scott Nesbitt
Posted on July 29, 2008
Mike_Summey Hi everyone
padale70 hi
Mike_Summey Scott will be joining us shortly! I just wanted to get here early so you guys didn’t take advantage of him before I arrived.
Mike_Summey Where is everyone from?
chad Baltimore, MD
padale70 pennsyvania
mikelalumondier@charter.net Mike, I’m here in Asheville
Mike_Summey Welcome Scott. People are already waiting for you.
scott_nesbitt Hey Mike glad to be here.
Mike_Summey Scott, we’ve got some early birds who are chomping at the bit to ask you about buying foreclosures.
Mike_Summey Hi jess
Mike_Summey Hi oz
Jess Hello Mike
oz HI MIKE
santo mike, had another eviction—no damage, but she left all her furniture behind–$900. to clean the place out.
scott_nesbitt Well lets bring on the questions.
Mike_Summey Scott has already sold millions of $$ worth of foreclosures this year.
chad Scott, do you mean the same as REOs?
scott_nesbitt Chad, yes REO’s
Mike_Summey Santo, that happens occasionally. Was the stuff worth anything?
santo mike, $0
chad Does your bank own them, or do you provide financing for investors to buy from other banks?
ritchie Scott, do you always work through a realtor or do you negotiate directly with sellers?
scott_nesbitt Chad, our bank owns them. We will provide financing with 20% down.
Mike_Summey Hi Lon
Lon Hi Mike
Mike_Summey Hi albert
albert Hi Mike
scott_nesbitt Rithchie, We have a core of people we try to sell to first before listing property with agents.
ritchie Scott, do you always work through a realtor or do you negotiate directly with sellers?
Mike_Summey ritchie, you mean buyers, right?
ritchie um, yes
ritchie sorry long day
oz scott_nesbitt Isthat 20% of purchase price or of ARV/
santo scott, will a bank sell a foreclosure to a person that has 10 rental properties–some banks have a 10 property limit on mortgages
scott_nesbitt Oz, 20% of purchase price.
scott_nesbitt Santo, we will sell anything, we just may not finance.
Mike_Summey santo, Scott has sold properties to me and I own more than 10.
mikelalumondier@charter.net scott, what is the best way to get on your “core people” list?
chad Scott, don’t investors usually have to go thu a listing agent?
oz scott_nesbitt Mike_Summey
scott_nesbitt Mike, persistance, and generally we like someone who makes a purchase from time to time.
Mike_Summey scott, can you give us one or two pointers that will help people form their questions.
Mike_Summey Scott, what is the #1 thing you look for when selling foreclosures?
scott_nesbitt Chad, no small banks welcome the opportunity to sell to the general public without paying commissions
chad Thanks, Scott, that’s the first I heard of that.
scott_nesbitt Mike, when selling foreclosures I need to know my audience. ex. commerical, rental, enduser.
chad I deal with a local bank for all of my refi’s, but I doubt they have any REOs
Mike_Summey scott, how important is cash vs providing financing?
scott_nesbitt Mike, cash is king. We all know this. The ability to close a loan before month end is key. Even three days is better.
Lon Scott, how many commercial properties do you typically have?
Mike_Summey Hi dallas
dallas hi all
Mike_Summey Hi david
padale70 scott what advise do you have for somebody new to the real estate market?
Mike_Summey Hi lunapo
chad Scott, do you suggest simply contacting local banks to ask if they have REOs?
lunapo Hi all
scott_nesbitt Lon, right now are seeing more spec homes in trouble than the commerical market. So very few.
davidoro hey gang
ritchie Scott, how long does a property usually stay “on the books” before you reduce the asking price?
davidoro good question ritchie
chad Here in Baltimore, all the REOs get listed thru the same agents — who aren’t even worth dealing with.
scott_nesbitt Padale, Be smart right now. Wait for the right deal. Especially early. There is a deal out there.
santo scott-nesbitt, I live in new york city, where one family homes go for $650,000—-can’t touch anything here–so I invest 400 miles away, where 2 family homes go for $40,000—what is the price range of a foreclosure on a 2 family where you are at.
Lon Scott, do you ever get large commercial properties, such as malls and hotels?
davidoro there are deals out there. all the banks are hurting with the foreclosed homes right now. i’m about to pick up one from Washingting Mutual
scott_nesbitt Chad, Yes. Open a checking or savings account and hit up the teller for who handles that banks REO’s.
Mike_Summey Hi Penny
davidoro I’ll have to givey ou all an example. Scott you’ll like this one and Mike this is picking up where I left off last week.
Penny Hello Mike and everyone.
ritchie David, how did you find the deal you are working on?
mikelalumondier@charter.net Scott, can you briefly give us the process involved in purchasing reo’s from you?
davidoro Craigslist.
scott_nesbitt Ritchie, it all depends on the property. Out of market loans for a bank right be the right market right now.
ritchie David, no kidding, the bank advertises on Craigslist?
chad Thanks, Scott, but I have too many bank accounts already. I’ll investigate further though …
davidoro Scott – question for you. I like to keep it simple so I only have one bank. Are you saying that I should sign up at other banks in order to get in with the REO deals?
padale70 for some one new like me where is the best place to look for forclosures
scott_nesbitt Santo, (Two family, duplex?), In the ball park 175K to 225K.
Mike_Summey david, you should develop relationships with several banks, if for no other reason, banks have their ups and downs like any other business. If you only deal with one bank, you have to ride their wave even when its not good for you.
santo scott, thank you
davidoro Ritchie – I was scrolling craigslist when i found a property that a mortgage broker posted who turned me onto an agent he was working with. the agent contacted the selling agent and we did the offers last week and i just signed their counter offer
scott_nesbitt Lon, No, We have a make loan of around $4 Million.
davidoro so mike – that means i have to have checking accounts at several banks?
chad David — that’s what I’m saying.
Mike_Summey david, it doesn’t necessarily mean a checking account. I use several banks to deposit my reserve funds. Most of it is in either CDs or Money Market accounts.
Mike_Summey Hi Sandy
ritchie Scott, are there specific times when the banks are more flexible than others in unloading REOs?
scott_nesbitt MIke, The first thing I would do is see what your interests are if something fit the mold I would give you info on the property and let you check it out.
Sandy Hello
mikelalumondier@charter.net Thanks Scott
Mike_Summey david, you don’t always have to have a deposit account to maintain a good relationship with a bank. I have no deposits with Scott’s bank, but I believe he would say we have a good relationship.
chad Scott, what kind of purchase contract do you use? Is it assignable?
Mike_Summey Hi IBMally
IBMally hello, sorry I’m late
davidoro thanks mike. i don’t mind having mortgage loans with several banks, but it’d be tough to have accounts – especially checking and savings accounts with several banks. CDs and stuff sound good.
chad I agree with David.
chad or O, whichever is talking now
Mike_Summey Hi Pete
scott_nesbitt Davidoro, not always, its who you know. However knowing different bankers will help you get in the game.
Pete Hi Mike
Mike_Summey Hi Sharon
Sharon Hello
IBMally Are you discussing being limited to the number of mortgages you can hold at one institution?
scott_nesbitt Ritchie, quater end. Most banks run a normal Jan. to Dec. Some end thier year in July.
chad IBMally, my local bank told me they don’t have a limit.
padale70 mike, u have any advise for a person new to real estate like how to find forclosures and how to go about purchasing im very green
Mike_Summey IBMally, no we are discussing buying bank foreclsoures. Scott is our expert tonight. He is his bank’s Special Asset Manager. That’s the one who sells the foreclsoures.
scott_nesbitt Chad, honestly I’ve seen them all. Cocktail napkins to Standard forms to Handshakes, like Mike S. and I like to do. Those are the easiest.
ritchie Scott do you have branches or properties in the Raleigh area?
IBMally oh good, just put in an offer tonight for a REO property,
chad Scott, doesn’t your bank have a rule about it? I would think that state’s realtor’s contract.
IBMally I gave them two weeks to respond. The last time I put in an offer it took forever for them to respond
Mike_Summey padale, my advice is to get some experience first. Most banks aren’t going to take a chance on someone with no experience when selling a foreclsoure unless you have a big down payment. They’ve already had to foreclsoe once, they aren’t too willing to take a lot of risk when they sell.
Mike_Summey IBMally, did your offer require them to finance the deal?
scott_nesbitt Ritchie, No branches in Raleigh. However we do have two properties that were auctioned at the court house today. I’m not sure If we were outbid. Do you have any interest?
chad padale, I would recommend really knowing the values well. Otherwise you won’t be able to identify a good deal.
padale70 what do you mean by experience?
chad Scott, do you allow assignable contracts?
scott_nesbitt Chad, As a bank we are allowed to sell realestate.
IBMally no, I have a preapproval with my broker, but would probably consider that in the future
padale70 chad where can i learn this info?
davidoro so mike – and anyone who was here last week – here’s an update on the property i bid on. Duplex in Sacramento sold in 2005 for $410k; on the market for $164,900. I offer $35k and get rejected flat out. expected that. I re-submit at $150k and they counter at $152k. I inspect the house fully on Wednesday and it all looks good. NOI works well all the way up to the $160k so I’m thinking this is a good deal. Others in the area on the market for $180k. wish me luck.
ritchie Scott, I’m always looking, yes. That you can provide financing makes it more attractive.
chad Scott, I mean a rule about which contract to use.
davidoro that should be $135k
Mike_Summey padale, there are many good deals in the market right now. Try to buy some of them and show the banks that you can negotiate good deals in the open market. That will give them more confidence in dealing with you.
Mike_Summey Hi dschapman
mikelalumondier@charter.net Scott, do you currently have any properties on the books under $150K?
chad Scott, sorry for the confusion: I meant that I was surprised that your bank doesn’t have a rule about which contract to use
scott_nesbitt Chad, we dont have a rule about contracts. If someone agrees to purchase a foreclosure and we feel good about escrow and closing date than we move forward with sale.
santo mike, the foreclosures in buffalo ny are cheap, but you must buy outright–4 family $19,000–2 family $10,000
IBMally Mike, have you found that large banks will finance REO properties?
Mike_Summey david, aren’t you the one who was telling me a few months ago that our method of investing wouldn’t work in your area? 
Mike_Summey Hi msalus
davidoro Scott – do you sometimes go to investors like Mike first before going to market. Seems like a guy like Mike can make unloading these properties easy for you – assuming he wants to buy them.
scott_nesbitt Ritchie, After underwriting and the 20% down we might be able to provide the financing.
davidoro Yes Mike – I believe I said that it would NEVER work in California. 
ritchie Scott, how can I get more info about the properties?
padale70 where could a person find a list of forclosures?
chad Scott, what about assignable contracts?
davidoro Mike the NOI numbers I have on my offer has a 10% return on my money inculded in it – and I think I have the low rent rates in there too. I might be able to get more. Knock on wood for me.
scott_nesbitt Davidoro, Yes I almost always go to a core list of people like Mike prior to finding an agent. Commissions can cost the banks losses. Mike can also turn us onto people who might have some interest.
Mike_Summey IBMally, the large banks are more difficult to deal with. The personal contact is just not there. If you can buy for cash, you can get financing shortly after clsoing.
chad Mike, I love the WM method, but I don’t have another job, so I also wholesale properties.
IBMally That’s what I did on my last one,
IBMally took 6 months to cash out because of the significant increase due to major renovations.
Mike_Summey chad, the WM method of investing is not a job. It’s investing! Building wealth the WM way takes time so I fully understand your need to wholesale for living expenses.
scott_nesbitt padale, Most banks are reluctant to give out lists.
davidoro Thanks, Scott. You’re the “Special Asset Manager” at your bank. What other titles are out there for people at banks who handle REOs?
IBMally Turned into a very lucrative property… now on the prowl for the next one, this is addictive…
scott_nesbitt Chad, yes we have signed contracts that are assignable.
padale70 scott how do i find them then?
Mike_Summey IBMally, you’re right about it being addictive. I think of it as playing Monopoly for keeps.
scott_nesbitt Davidoro, Collection Manager, Asset Departments.
davidoro IBMally – if i get this next purchase it will be my third since October. And I send I was done for at least a year when I bought the second one.
davidoro And I said….
chad Mike, what I meant about ” job” was that a lot of people keep their day job while building their rental portfolio.
Mike_Summey Hi josh
IBMally padale70, read a few books, Mike hsa some good ones, many others as well, I read and studied for over a year before making my first offer. Then you have some ammo to start moving in the right direction. Also might want to consider joining a real estate investment club
Lon Padale, you can get lists at the court house, you have to do the research yourself. You can also buy lists from people who compile them. I don’t suggest doing that when you first start out.
scott_nesbitt padale, The best advice I can give is beat the streets. The more bankers you know the easier this will be for you. Mike S. knows all the bankers in town.
davidoro Scott – so how do you weigh investment mortgage debt? how big of a factor is it?
Mike_Summey chad, I worked a full time job in the advertising business for 20 years while building my real estate portfolio. I never touched any of the money from my rentals for that 20 years.
Mike_Summey Hi RGrimsley
santo mike, since I retired, people ask me do you have any hobbies now—so I tell them yes, I have 2 hobbies–collecting old cars, and old houses.
padale70 thank you all so much for the help and advise
Mike_Summey Good one Santo
scott_nesbitt Davidoro, Huge, if you dont have adequate reserves right now getting a mortgage is tough. Especially investment.
davidoro Does reserves mean retirement portofolio as well?
IBMally I have a full time job that pays too well to quit. I have a 5 year plan to “retire” and move into full time property acquisitions and management.
davidoro My plan is Mike’s plan but to do it in 15 years.
chad That’s what I mean, Mike: rentals take a long time to build cash reserves, but if I can wholesale a property and make a quick $3k to $10k that supplements my income
Mike_Summey Scott, I’ve been preaching for years the importance of building up cash reservs. The reason is simple…WITH WEALTH YOU CONTROL CIRCUMSTANCES, WITHOUT WEALTH CIRCUMSTANCES CONTROL YOU!!!
scott_nesbitt Davidoro, No, you cant touch this money easily and it will cost you down the road. Reserves are CASH on hand.
davidoro I’m not touching real estate investment money until i can functionally retire
josh mike, scott: one bank i spoke with was unwilling to do teh 6 payment floating interest program. they told me that based on teh current lending conditions ththey can’t do it. do you beleive this is accurate or do you think i should keep seaching and might find a bank that will do it now?
mikelalumondier@charter.net Scott, for example, on a REO purchase of $100K, what type of reserves would you be looking at the purchaser needing?
chad Scott, any other ideas on how to find out if local banks have REOs?
davidoro So Scott – buying a $100k home and having $100k in reserves with $1 million in mortgage loans look OK? I know there are a lot of other variables, but lets just assume that income can make the payments on the new loan. I ask because I’m thinking if your reserves match the purchase price then you look good with the bank.
davidoro mikalumondier – i think we have the same quesiton, sort of
mikelalumondier@charter.net yep
IBMally Mike and Scott, I am planning to buy, renovate, rent, buy, renovate sell, refinance after growing a little equity and reinvest in the process all over. I am concerned about getting financing after my debt grows. Is that a typical problem and how do you get around it?
Mike_Summey Josh, I know of no legitimate reason a commercial bank would be opposed to making a fixed payment floating rate loan unless you want to set the fixed payment too low. I usually set my payments at .5 to 1.5% above the prevailig rate at the time I make the loan. By doing that, I’m getting ahead of the amortization schedule in the beginning.
chad IBMally, my local bank will give me as many mortgages as I like. They evaluate them deal by deal
RGrimsley I was late to tonight’s chat. I can catch up by reading the transcript once it is posted after the fact but has the question been posed to Scott on where the best sources are to check to find forclosures and REO properties?
lunapo Scott, do you have any other tips for getting your foot in the door with bank asset mngrs?
IBMally good to hear chad,
Mike_Summey david, the criteria I use for reserves is to have enough cash on hand to pay 3-6 months of expenses with no income. The actual total increases with each purchase.
davidoro that’s good mike, and i get that. i’m just wondering what the bank’s criteria is
josh thanks mike, with the 5 year balloon notes you have, does interest rate reset thus possibly increasing your payment amount?
ritchie Scott, or Mike – so it sounds like even though lending is tightening, there are still opportunities for investors who qualify to obtain financing for investor properties. Would you agree?
scott_nesbitt David, Mike, to many variables. Do you have the $1 million in debt at the same bank you are borrowing the $100K?
davidoro by the way mike, 3-6 months is a good meausre all though i’m shooting for six months
davidoro $1 million in various mortgage loans, borrowing a new $100k
Mike_Summey david, I don’t care what the bank’s criteris is. That changes like the wind. As long as you have solid reserves, you can get financing on any reasonable deal. Scott may want to comment further on the subject.
chad David, my bank only lends 80% of ARV, based on their appraisal, and they don’t care about cash reserves.
IBMally if you google REO properties you can find sites, or go to a bank’s home page and search for REO and you will find it. I have several bank’s sites bookmarked and search often. Most of the time you will find them when they pop up on MLS. Have a good RE agent and they can auto email you with new listings that meet your criteria….
Mike_Summey chad, with a policy like that they may be one of the banks in trouble right now.
davidoro appraisals are so off right now in california.
RGrimsley Mally – Thanks!
davidoro i actually don’t care what it appraises for, just if NOI works for me.
scott_nesbitt Lunapo, there is no real answer to this question. I have done this for 7-8 years and never talked with anyone from The Larger Banks (ex. BOA, Wachovia). The key is the smaller banks they make more loans outside the box and opportunites are more prevelant.
chad How so, Mike? Their appraisals are very conservative, and they have the property as collateral.
Mike_Summey IBMally, most of the large banks have a listing and contact information for their foreclsoures on their websites. Most of the time the contact information is for the Realto handling the transaction.
IBMally david, if appraisals are off, you may not want the property unless you’re just in it for cashflow.
davidoro ibmally – cash flow, hold long term
IBMally same here, but if I don’t buy below market, why bother?
davidoro IBMally – where are you?
IBMally PA
Mike_Summey Keep this in mind!!!! IF YOU HAVE TO SELL TO MAKE A PROFIT ON REAL ESTATE, YOU’RE A SPECULATOR, NOT AN INVESTOR!!!
chad IBMally, if you follow the WM method, then NOI is all that matters
davidoro Indeed – if I’ll take the lowest and try to get the lowest price possible, but if NOI works I’ll take it.
Lon IBMally, if you buy it at 0% interest, you can pay more than what it appraises for, just not with bank financing.
davidoro But what I find is that to make NOI work, you have to come in under market anyway.
chad Good point, davidoro
RGrimsley Scott, I was a charter stockholder in Blue Ridge SB at 19 years old. Sold too early. Impatient. Should have put it in the drawer. You have to think of these rental investments the same way.
santo mike, speculator is a four letter word.
josh thanks mike, with the 5 year balloon notes you have, does interest rate reset thus possibly increasing your payment amount?
davidoro Oh Mike – what’s your take on paying points for mortgages?
Mike_Summey The WM investing method teaches you how to balance price and terms to make deals work under many different circumstances. If you limit yourself to bank financing, you are missing more opportunities than your are getting.
IBMally I won’t buy in the war zones, looking for appreciation more than cashflow, If I have a small cash flow on a large property, after 30 years I own it.
ritchie Mike – what would you say is your best source of deals nowadays? I know early on you said working the neighborhoods.
josh also, banks i talk to request all my deposits “on my rentals” into their accounts so they will the loan. when built cash reserves, do you keep them at the bank where you have the loans or all one bank?
santo IBmally, I am in a war zone and love it.
Mike_Summey david, points are merely a way of buying down the rate on fixed rate loans. I don’t mind a small fee under certain circumstances, but if I’m willing to ride the rate up and down with the banks, I don’t expect to pay points.
IBMally You’re right Mike, I have to start getting into owner finance. But hard to work that on a REO owned by a large bank
RGrimsley Mally, sounds like Philly to me.
IBMally santo, I understand, but as I said, I have a day job that keeps me covered up. Would consider that avenue if I had the time to manage…
mikelalumondier@charter.net Mike, do you still recommend using an equity line to pay cash for a property, then getting a loan after renting it?
scott_nesbitt Davidoro, Mike generates offers to purchase with his software when he buys properties from us. We usually dont agree at first. But alot of negotion goes into these deals. Mike doesnt always get what he wants and we dont either.
chad They’re not really warzones. They’re areas with the social problems — namely poverty. And people live there and people own property there
Mike_Summey josh, deposit your rents in your operating account and use your reserves to establish relations elsewhere.
santo Ibmally, my property manager takes all the hits from the tenants
IBMally Chad, not knocking it, I have compassion for all.
Mike_Summey Scott is a tough negotiator!!
chad I just don’t like the term “warzone,” but that’s just me.
Josh Mike, Scott: I know 5 yr baloons are common. With your fixed payment, floating rate program, doesn’t your rate reset after 5 years? This can severely affect your payment and may threaten the NOI model right? How do you manage this?
IBMally Guys, I’m not big enough yet to use a manager. looking for 3rd property. will consider if neccessary, but right now thats my cash
RGrimsley Scott, on REO or forclosures your bank handles, do you require the buyer be prequalified before you will accept a purchase offer?
Lon Mike, just tell Scott that “he has to do better than that…”
davidoro IBMally – get a property manager. it’s the future.
Mike_Summey I enjoy working with Scott, because we are able to talk straight with each other and understand each other’s needs. I don’t try to take advantage of him and he doesn’t try to take advantage of me. We both understand that when negotiating, you might get the last dollar off the negotiating table, but that dollar can ultimately be quite expensive.
davidoro Mike – FYI…read the WM Mindset this past week. Quite the story you have there, Sir.
ritchie IBMally, I have one property that I manage myself, only because it’s not profitable yet. But it’s enough for me to learn I don’t want to be a property manager along with my day job.
davidoro great read too.
scott_nesbitt RGrimsley, Not really. Sometimes we get a letter from a bank. For the most part a buyer is a buyer.
IBMally I am actually considering becoming a manager for mine and others, I have several friends who are also managers. This may be part of my transition plan from day job
davidoro management is a tough gig. i don’t envy it, but gladly pay for it.
santo nite all
Mike_Summey Josh, after 5 years you will have paid the loan down considerably, so there is no need to increase dthe payment. Often time you can decrease the payment or take a couple of properties back up to the original loan amount and use the proceeds to pay off another property.
davidoro adios amigos
Josh Mike, Scott: banks i have spoken with are requesting my wife be a co-borrower on the loan. Is this standard? With yours that are owned in an LLC, do they request both you and your spouse as guarantors or just you?
chad good nite, all. thanks for the chat.
IBMally another good question, how do you eventually get loans in the name of your LLC?
scott_nesbitt Mike thanks for the opportunity. I may have actually sold some property in Raleigh tonite. I would like to do this again sometime in the near future.
Mike_Summey Josh, unless you have a recorded preunptial that give you the right to own properties in just your name individually, your wife will probably have to sign the notes.
Lon Josh, don’t do it unless you have to.
Mike_Summey scott, you are welcome any time you want to join us.
mikelalumondier@charter.net Thanks Mike and Scott. Scott, I’ll be in touch.
oz my-my this has been a rapid hour. g/night all
Mike_Summey Goodnight all.
Mike_Summey Great chat tonight.
Josh Thanks Mike. Big help like always!
Mike_Summey Thank everyone for participating.
Lon IBMally, hang on a sec
ritchie Goodnight – Mike thanks for hosting
IBMally Here Lon
Mike_Summey See you in 2 weeks. There will be no chat next week as Roger and I will both be gone.
Lon Ok, here is what I was told by a mentor about putting your property into your llc “After perm finance in place, change title to llc by gen warranty deed, also change insurance by personal name remaining as primary insured and llc becomes secondary insured. “
RGrimsley Thanks Mike and Scott, et al.
IBMally your lender does not have a problem with the change?
IBMally ALso, why not just put insurance into LLC name?
Lon You have to tell them, I think as long as they know you own the LLC and your name is still on the insurance, and you’re not behind on payments, they shouldn’t have a problem. If they tell you they would have to invoke the due on sale clause (they normally don’t do that), then don’t do it.
Lon I think the reason you stay as primary on the insurance is so the bank doesn’t have a fit.
IBMally OK, thanks for the heads up, have a great nite!
Lon u 2
Josh Lon u still around. U seem knowledgeable. On your portfolio SFH loans what do your banks require you put as a down payment? Mine is requesting 20% and that seems high to me based on the NOI model we use.
Lon Hey Josh, I’m here
Lon On SFH, BOA I can still get away with 10%. I am purchasing a 4-plex now and the best I could get was 20% down.
dpezzo I assume I missed the chat?
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