Chat Transcript - October 13, 2008
Posted on October 14, 2008
santo hi, mike, last week Roger told me I have to pay a small capital gains tax on any property i sell, my pm told me he never pays that tax, because they give you 2 years to reinvest the the money–this is true, right
Mike_Summey santo, I don’t think that is correct. You can defer the tax with a 1031 exchange, but there are strict rules you need to comply with in order to have a successful exchange.
Mike_Summey Hi geoff
geoff hello Mike!
geoff Hi Santo
santo hi geoff
Mike_Summey What did you think of the stock market rally today?
santo mike, it’s only one day
geoff I think it’s a good sign, but I think ultimately it’ll take a while for everything to get better
Mike_Summey Hi Lon
Lon Hey gang.
geoff My father’s 401k has taken a huge, huge hit unfortunately
Mike_Summey I know now why I stay out of stocks. Worst week ever last week, best day ever today. Wow! Too much movement for me.
geoff hopefully when I get this real estate thing coming along, I can help my family
Lon The smart people waited for everybody else to bail out, then bought all the stock that was on sale.
Mike_Summey geoff, I didn’t participate in the real estate bubble or the stock market boom so the crashes in both didn’t hurt me.
geoff ahh, that’s good for you. I am hoping to learn from this so that I can avoid someting like this in the future
Mike_Summey geoff, I stayed the course with what I’ve been doing for 37 years and it has served me well. I’m having the best year I’ve ever had.
Lon How many properties have you bought so far this year, Mike?
geoff I think the problem with me is that I want it to happen faster. And I’ve learned to take my time, and that all good things come with patience
Mike_Summey Hi Karl
karl top of the day , Mike
santo mike, the money i took out of my annuity 2years ago, would have seen a $25,000 loss–i am glad I took it out to buy those 7 houses–i did not lose a penny.
Mike_Summey Lon, I’ve bought 14 so far, but most of those were earlier in the year. I’m looking at several now, but no deals in the past couple of months.
Mike_Summey santo, goo for you.
geoff Mike, when it comes to lines of credit, does it matter if it;s a fixed line or not? I plan on buying a fixer uppers, fixing them and renting them out and refinancing
Mike_Summey good
geoff wow, thats nice Santo, and now it’s makinig you money as well! woohoo!
Mike_Summey geoff, I have 3 lines of credit and all are floating rate lines. That doesn’t bother me because all I’ve used for over 25 years is flaoting rate loans.
Mike_Summey Hi mary beth
santo geoff, i never believed in the stock market– 1929 and 1987 are good examples
Mike_Summey All of my real estate loans are floating rate/fixed payment loans with 5 year balloons. I can’t qualify for the 30 year fixed rate loans.
mary beth Hi Mike, I have not had the opportunity to chat before as I am on the West Coast so usually I am too late. I am checking in from work today. I have chatted with Santos before when Al had his radio station up and running.
geoff sso it doesn’t really affec tyou because you can refinance in a short amount tim?
Lon Mike, what are those amortized at?
Mike_Summey mary beth, glad to have you. Just jump in anytime with your questions.
mary beth Thanks!
Mike_Summey Lon, most are 15-20 year amortizations.
santo mary beth, good to hear from you
Mike_Summey Lon, in over 25 years, I think my interest cost has probably been less with the floating rate loans than I would have paid with fixed rates.
Mike_Summey Hi david
geoff I have 100k in equity, and I just trying to find out the best way to use it
davido it must be football/playoff season - not too many folks tonight
Lon It’s Thanksgiving in Canada and Columbus Day here.
Mike_Summey david, I think the crazy market conditions have a lot of people running scared.
davido Anyone else run into problems getting mortgages? Spoke to a broker the other day who said that lenders are only allowing four loans per investor (including your own home). Used to be 10 loans.
Mike_Summey Roger is away tonight. He had a water problem at his house in Lake Arrowhead that he had to take care of.
geoff hope it doesn’t get too bad
geoff Mike, so it seems as though any kind of line of credit would be fine? As long as I refinance the property I buy to pay back the line?
Mike_Summey david, the 4 loan limit only applies to conforming loans that will be sold on the secondary market. A bank can make as many portfolio loans as they want.
geoff What is usually your turn around time in refinancing houses bought with a line?
Mike_Summey geoff, that is probably true. I use my lines to purchase and then get long term financing once the property is rented and bringing in income.
davido Geoff, the lender I talked to also said that many banks are only refinancing for 50% of the LTV
geoff ohh, that’ll make things difficult
Mike_Summey geoff, sometimes one month. Sometimes 6 months. It mainly depends on when I want to do it.
geoff what would you do in something like that mike, when LTV are at 50%?
davido Yeah, it gives me pause. I have an LOC to buy some homes outright in Sacramento, but not at 50% of LTV
Mike_Summey geoff, I haven’t seen that, but in this market I’ll bet you can buy a lot of properties for 50% LTV
Lon Find a bank first that will let you refinance at the normal 80%. Different banks have different criteria at different times. A local bank may not be as strict compared to a national brand name bank.
geoff I was thinking that too, thanks Lon for pointing that out
karl long term financing is that good?
Mike_Summey Lon, all of the news about banks is mainly about the big banks…the ones who were buying the mortgage backed securities. Smaller local banks have not been affected the way the big banks are.
geoff It seems as though the safest bet would be to buy a fixer upper, because usually you can refinance for far more then you put into it
Lon Mike - exactly.
geoff My brokers mentioned that the local banks are still lending as well, but I haven’t looked into deeply just yet.
davido Mike - have you spoken to banks recently that are still doing 80% LTV loans? My broker made it sound like NO ONE is doing that. That maybe because he doesn’t work with individual banks though.
Mike_Summey karl, long term financing for me is 15+ year amortization. Even if the loan has a 5 year balloon, I know that in 5 years the bank will roll it over as long as I pay timely.
geoff I didn’t know banks would roll over a balloon?
Lon Your local banks may not have the 4 loan limit either. The 4 loan limit is usually tied to loans backed by Fannie or Freddie.
geoff I thought it was set in stone that you had to pay that balloon
geoff when it was up
Mike_Summey david, I just recently financed 110% on two purchases, but I bought the properties for cash at about 60% of appraised value. When I financed them, the bank loaned me less than 80% of appraisal because that’s all I wanted, but that amount was about 110% of what I paid.
Mike_Summey Hi Penny
santo mary beth, are you still living in that place with the good rent
Penny Hi Mike
geoff that sound like good news to me Mike, gives me some hope
karl cash is king
Mike_Summey geoff, no the balloon is merely to keep the banks maturity short. If you do your part the bank will renew the loan unless there are extenuating circumstances.
Mike_Summey Hi Mark
geoff mike, is the majority of your real estate 1-4 family homes?
mary beth Hi Santo - yes and holding on for dear life. Anything I had in 401K tanked and see that some of the folks I rent to are beginning to have difficulty paying their rent.
MarkNC Hi Mike, everyone
Mike_Summey geoff, I have many 1-4 families, but I also have commercial buildings and other investment real estate.
davido Hey Mike - If you bought them at 60% of appraised value, doesn’t that actually lower the appraised value? Won’t that bank just reject the appraised value because you bought it lower than that? I fear that banks may toss the appraisal out the window and finance me for less. Has that happened to you?
geoff thanks for your answer, it seems as though alot of people around me think the only way to do well, is to buy huge commercial properties. But it seems as though you’re doing just great with a majority of 1-4 families.
Mike_Summey david, I’ve never had a problem with the bank throwing out an appraisal. In NC the bank hires the appraiser so what they would be doing is saying their own appraiser doesn’t know what he/she is doing.
davido right
davido good argument
Mike_Summey geoff, start out small and grow. That’s better than starting out on top with only one way to go.
Mike_Summey Would everyone be interested in me inviting a representative from Experion, the credit reporting people, to join us again?
mary beth I would be interested
MarkNC David, I have had appraisors tell me that they feel pressure not to go too far above the purchase price, if I AM buying below market. One had done a refi appraisal for the previous owner at 235 three months before doing mine for 195. My purchase price was 180 and he said that is high as he felt comfartable going.
karl When a renter bails is the deposit our only recourse ?
Mike_Summey I thought a discussion about how the current conditions wer ebeing view by the reporting agency might be of interest.
MarkNC Mike, I owuld definitely be interested.
davido I would not be interested. (Contrarian POV).
geoff I would be as well
davido MarkNC - So did the appaiser know what you were purchasing for?
santo mary beth, good luck with those tenants–my landlord is late with my new lease, but that happens all the time, last time he was 6 months late, so i continued to pay the old rent–he wanted retroactive back rent,but housing refused that my rent is $500. for a one bedroom–I have been living here for 30 years
Mike_Summey karl, if damages exceed the deposit you can go for a judgement for the difference. I’ve gotten judgements that just sat there for years until the tenant tried to buy a house and then they had to pay off the judgement before they could get a loan.
Mike_Summey Hi Joe
Joe from CT Hi Mike
karl sweet!!! thanks Mike
MarkNC Yes, the bank gave him a copy of the contract when they ordered the appraisal. It just so happened he was a friend of mine (this bank insisted that they pick the appraiser.
mary beth $500.00 good for you Santos.
Mike_Summey Mark, david has a point. How did the appraiser know what you paid? In many cases the amount does not have to be a matter of record. I just approach the bank and tell them I want to finance a house I already own free and clear. I’ve never been asked what I paid for it.
Joe from CT Hopefully tomorrow the banks will decide to trade money with each other and get this economy show movin
santo mary beth, the people next door to me pay $1100 for the same as i have
Mike_Summey Joe, unless all the profiteers decid to sell and the market takes another nosedive.
geoff Mike, from what I heard from some investors, if you have the stomach for buying an ugly house and fixing it up, it seems that you’ll be better in the long run. Since it’ll be better deal then buying a turn key, and have more equity or an easier time when it comes to refinancing, is this true in your experience?
Mike_Summey Hi John
MarkNC This was a new purchase and I guess the standard procedure around here is to give the appraiser a copy of the contract for purchase. Refi’s are different.
karl Mike, I put in the #’s into the offer generator and they came in more then the asking price for a 30 yerr fix. Should I feel good and look closer or Buy?
john Hi Mike
Mike_Summey Mark, how did the bank have a copy of the contract, or were you trying to finance the original purchase.?
Joe from CT Yeah Mike your right the markets are crazy lately
MarkNC The origial purchase.
MarkNC original
davido Mark/Mike - In California, sales of homes are public records so i think an appraiser would know what I would pay for it.
davido That is if I bought all cash and wanted to do a refinance.
Mike_Summey karl, if you can buy for less than what the OG calculates, you won’t get hurt as long as you have provided the program with good information.
MarkNC David, that is true in NC as well.
mary beth Mike - oh no - gulp. Does anyone feel comfortable sharing where they are investing their money outside of real estate. I only own 3 homes so not a big player but the little bit of money I have I don’t know where to put it and I only have a few more years to retirement.
Mike_Summey Banks here used to only want to finance 80% of the appraised value or the purchase price, whichever was less.
MarkNC Mike, that is my experience as well.
Mike_Summey I went to my bankers and asked them why.
Joe from CT Mary beth I put most of my money in a money market mutal fund for liquid cash
john Mary Beth, Ditto Joe
davido And there is the catch Mike, purchase price in my case would be less than the appraised value and I would be stuck with 80% LTV loan on a property and less cash in my pocket. You did good with your recent refi and the 110%
Joe from CT but i still own some european mutal funds also
mary beth Joe, is you money market mutal fund insured?
karl I did and I’ll let you know how it goes…
Mike_Summey I asked why they would finance 80% of the appraised value for someone dumb enough to pay that much but only want to finance 80% of a purchase for me if I could negotiate a purchase at 70% of appraisal. They didn’t have an answer.
Joe from CT no its not insured i bought it threw T-Rowe price
Joe from CT i think some of the banks are offering them insured
Mike_Summey Today, on new purchases, I can still get the greater of 70% of purchase price or 80% of appraisal not to exceed 100% of purchase price.
karl mary beth Real estate… it works
davido Mary Beth - I have a long ways to go before retirement. Most money now is going towards houses, but I have “legacy” investments from old 401ks. That money is about 40% cash right now. The rest in crappy stocks.
santo mike, is the FDIC for the banks insuring up to $250,000 yet–that was in the bailout package
john Like I said last week, my RE is the only one of my investments that’s remained stable throughout this whole economic thing
Mike_Summey What banks want most of all is to have a comfort level that you will pay the loan timely.
Mike_Summey Hi daryl
daryl hi mike
davido Hey Gang - I’m in and out tonight. Work beckons. Will catch you all on the transcipts. Happy investing.
Mike_Summey santo, I understand that they are, but you may want to call your bank to verify that.
MarkNC Good night David
Mike_Summey Goodnight david.
geoff Mike, do you think fixer uppers are better then turn keys if you have the cash to buy and fix them?
santo mike, get it in writing
Joe from CT Do the banks still want you to put 20% down or did that change
Mike_Summey geoff, it’s six of one - half a dozen of the other. What you want are properties that will cash flow when you rent them. Whether you buy the ready to rent or buy and fix up it’s all the same.
Mike_Summey Hi Brendonlee
Brendonlee7 Hey Mike first time
Brendonlee7 remember talking a while back the pilot
Brendonlee7 good to be here
Mike_Summey Brendonlee, glad you could join us. You’re a little late, but we’ll forgive you this time. 
Brendonlee7 won’t happen again:)
Mike_Summey Brendonlee, which pilot. I talk to many over the course of a month.
daryl Mike how much cash reserves you recomend per property?
Brendonlee7 I’ll catch up about it another time don’t want to interupt the investment conversation (Corporate Pilot in CA, Citation/Premier)
Mike_Summey daryl, personally I try to keep enough cash reserves to pay all expenses for 3-6 months. That’s my comfort level. Others want more and still others less.
Mike_Summey Okay
MarkNC Mike, you may remember that we have talked in the past about the need for more financial education in our schools and I have commented that when I teach it my students don’t seem interested. Well, the last few weeks have peaked their interest. I have had lots of students coming back to ask questions. Including some who have graduated.
Mike_Summey Brendonlee, are you familar with the Airgator NavPad 10? I just ordered one.
Brendonlee7 no I’ve never heard of it…? Interested to look it up though. That should be fun
geoff I have to go, thanks for your help Mike and everyone, take care and have a good night!
Mike_Summey Mark, I think one of the problems teachers have with teaching personal financial literacy is that they try to teach theory rather than practical application. Theory is very boring and difficult to follow. Not being abot to affor groceries tomorrow is real.
mary beth Thanks to all who responded to my questions. Hope to chat again but will check out the transcripts for the remainder of the session. Good night.
daryl With tough times ahead do you think we should have more in reserves or do you think times aren’t going to get so bad where we have to lower rents?
santo nite, mary beth
Joe from CT I always think there should be more money in your reserves
Mike_Summey Brendonlee, you may want to look into it. If it does all they claim, it’s almost like having a portable G-1000 unit with the exception of auto-pilot coupling. It gives you everything including approach charts with full position dispalay both horizontally and vertically.
daryl joe how many properties do you have and how much do you think you should have in reserves?”
Mike_Summey daryl, I don’t think one can have too much in reserves, but you sure can have too little.
Brendonlee7 your in a king air right?
Mike_Summey Brendonlee, right.
Brendonlee7 nice
Mike_Summey Brendonlee, I understand the uints are coming in all the new Gulfstreams.
MarkNC I have to agree. You may recall that I am a math professor and many of my colleagues get too involved in the math and not enough in the practical aplications. I have tried to change that in recent years. I am often told by students that they don’t need to know any of this, they will just borrow what the bank tells them they can afford and do what the banker says.
Joe from CT As of right now i have no properties i’m lookin to buy when the prices in CT drop a little lower.But I always belived that one should have at least 1 yrs worth of reserve cash
Brendonlee7 must be to notch than….anyone investing in the Austin Area or Mike what are your thoughts on that area?
Mike_Summey Mark, now you can show them why they shouldn’t do that. That’s a lot of the reason we are in the financial mess today. I’ve said many times that if personal financial literacy was made an important part of the curriculum we probably wouldn’t be in thei mess. It didn’t take a rocket scientist to know we were headed for disaster over the past few years.
daryl Mike once you get over a certain # of properties does the per rental go down?
john daryl, I have two houses, 5K reserve, plus more $ in other places
Mike_Summey Brendonlle, Ausitn Texas?
Brendonlee7 yes
MarkNC I agree. And so do some rocket scientists I know.
Brendonlee7 I have a investment home there already but live in CA where it’s a little tough to get in the market right now
Brendonlee7 although much better than before
Mike_Summey Brendonlee, the Texas markets are still good. They didn’t get caught up in the bubble like many areas so they aren’t experiencing the drop we are seeing elsewhere.
santo brendonlee, I invest in Buffalo (warzone) n.y.
Brendonlee7 how you doing with that?
karl MarkNC , it’s funny but when I was building a office for my company my father would say don’t use anymore then you need because they will give you far more then you can aford,man I’m glad My father was there..
santo brendonlee, very good
Joe from CT Santo Buffalo is really that bad?
MarkNC Karl, that’s great advice.
Mike_Summey Mark, I’ve been pressing our legislators to make personal financial literacy part of the end of grad testing and give it extra weight. It makes no sense to turn out students who can plot the course of a rocket to the moon but can’t balance their checking account. Everyone needs to know how to pay bills, manage credit, prepare budgets, etc. whether they are going to be doctors or ditch diggers.
Brendonlee7 I’ll have to research that a little
Joe from CT Amen Mike
santo joe from ct, in the daytime you need a steel helmet and a grenade belt– at night you need more
Mike_Summey Well everyone, the hour has flown by. I’m going to go watch the football game and I’ll see you all here next week.
Mike_Summey Goodnight
Joe from CT Goodnight Mike
daryl later
Penny same here, goodnight everyone
Brendonlee7 thank you
santo nite all
Joe from CT Goodnight everyone
Brendonlee7 night
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