Chat Transcript - October 20, 2008 - Guest Expert Ken McElroy
Posted on October 21, 2008
Mike_Summey Hi everyone
Roger Dawson Hi Mike and Carleton!
Roger Dawson Hi Joe, Ken, Lucas and Rolyn
hawkeye775 Good evening everyone
Mike_Summey A real surprise tonight. Not only do we have Ken McElroy, but I see Carleton Sheets has joined us also.
Carleton Hello Mike and Roger. I’m in your area Mike so thought I’d drop in for a few minutes to say “hello”.
Mike_Summey Welcome Carleton
Mike_Summey Hi Everyone else.
RolynProperties Hey Guys..Rolyn Properties here. Welcome Carleton
ken_McElroy Mike and Roger - It’s Ken - How are you all?
Mike_Summey Ken, thatnks for joining us. I know poeple will have some property management questions for you.
Mike_Summey thanks
Mike_Summey Can’t type tonight
Carleton Every one…does the stock market bounce-back today give any of you a feeling that we may have hit the bottom?
Roger Dawson I think you all know that Carleton is Carleton Sheets, famous across the country for his TV infocommercials about real estate investing.
Carleton I’m talking about the economy in general not just the market.
RolynProperties I have studied all three courses, Carleton Sheets no money down, Weekend Millionaire and The ABC of Real Estate Investing. There all pretty good.
Mike_Summey Ken, before we get going and miss the opportunity, why don’t you tell us about your new book and what you are planning for the proceeds. That way it will be in the chat transcript that get posted tomorrow.
Mike_Summey Hi nat
Mike_Summey Rolyn, the big question is, have you put what you’ve studied to work?
Roger Dawson Carleton, I think the economy has a way to go yet. Until banks are free to encourage borrowing again, it’s going to be tough.
Mike_Summey Carleton, I missed what the market did today. Fill me in.
ken_McElroy Thanks - My newest book is the ABC’s of Property Management - All the proceeds go to a kids cancer center.
Carleton Up over 400
Roger Dawson It jumped over 400 points and is over 9200 once again.
Carleton Ken, that’s great!
Mike_Summey Hi Penny
Roger Dawson Hi Penny
Carleton Hello Penny!
ken_McElroy About the economy - We havent seen anything yet!
Mike_Summey I don’t invest in the stock market, so I don’t care a whole lot what it does.
Mike_Summey Ken, I tend to agree with you.
Mike_Summey I think real estate still has a lot of correcting to do.
Carleton Ken, you mean the worst is yet to come or the future isn just unknown?
Penny High Roger. Carleton, & Mike! Got the trinity here tonight!
Roger Dawson A buddy of mine said: “This economy is like the world’s worst divorce. I’ve lost half my money and I still have my wife!”
ken_McElroy I am just now starting to see the spill over to commercial….office, multifamily etc
Mike_Summey I will be making offers tomorrow on four properties that originally were for sale at near $300K. I will be offering $126,500 for each…cash…close before the end of the month.
hawkeye775 Roger, Mike, or Carleton, Have any of you ever invested in vacation rental homes?
RolynProperties Mike to answer your previous question…No I haven
Mike_Summey Rolyn, it sounds like you are a professional student. If you’ve studied all the courses, it’s time to get out there and start making offers.
ken_McElroy Also - Watch for hundreds of more banks failing….
Mike_Summey Hi m&E
Roger Dawson Hawkeye, I think it’s a big mistake. I owned a property in Palm Spings once and lost on it. Stick to bread and butter rentals.
Mike_Summey Ken, I said in last weeks article that the $700B bailout bill was like throwing gasoline on a fire. What do you think?
Carleton Hawkeye, one time in NC. It was furnished and I rented it on a nightly or weekly basis. Even with good help it was a pain the the A.. Finally sold it and made about 10 % on my investment. Never again.
hawkeye775 thanks Roger, Carleton
ken_McElroy Hawkeye - Vacation rentals area a way for a seller to inflate the rent - due to short term rent and show higher occupancy….instant higher cash flow. Also, less can afford them now…..
Mike_Summey Hawkeye, I’ve never invested in vacation rentals. I consider those very high risk.
Mike_Summey Hi RGrimsley
hawkeye775 Risk was my biggest concern.
RGrimsley Hi MIke and Ken
ken_McElroy HI RGrimsley!
Mike_Summey hawkeye, in most vacation areas, things are great when the economy is booming and then terrible when it goes flat. If you can get through the flat times you can survive, but if not you can lose your shirt.
Roger Dawson Ken, please share some of your property management secrets with us.
ken_McElroy Carlton - I really think that consumer spending is over for a long time..
Mike_Summey Ken, why don’t you give us some reasons for using a professional property manager instead of trying to do it yourself.
Mike_Summey Hi lucaslen, you’re being very quiet. Feel free to jump in at any time with your questions.
m&e Ken I’m in upstate New York. What is the going rate for management in your opinion. I have been paying 6% in gross rent collected and a leasing fee.
lucaslen Hi Mike, just started reding your book and thought I would see what I can learn tonight
hawkeye775 Mike I got the offer generator software a couple of weeks ago. It’s good software.
RolynProperties Yes, I am a Professional Student. It’s not very profitable but I have this fear of a seller asking me a question that I don’t know the answer to.
ken_McElroy Roger - my new book on property management is selling well now because everyone is tryiing to figure out how to cash flow! They can no longer rely on rising markets…Management of property is a very specific job, its not just rent collection, which many think is the case.
Mike_Summey thanks hawkeye, what system are you running it on?
hawkeye775 xp
Mike_Summey hawkeye, thanks. I’m looking for someone who is running it on Vista.
Mike_Summey Ken, you are so accurate about it bing more than just collecting rent.
hawkeye775 there are a couple of things that i’d change, but being able to save many offers, and have all the financing options on one screen is very helpful.
ken_McElroy Roger - a property can be managed if that person has proper systems and the time to do it but most do not.
hawkeye775 i’m still getting the hang of it.
RGrimsley Ken, what would you recommend as the best way to find a good property manager. I know what Mike and Roger recommend in their first book but I would love to hear what a property manager would recommend.
ken_McElroy Mike - Insitutions turn to professional managers when they have bank owned assets.
Mike_Summey Ken, one of the biggest advantages I find in using professional management is they screen credit and criminal histories on tenants and most individuals don’t. For that reason alone, the problem renters seek out individuals to rent from rather than going through a professional manager that they know will not rent to the.
Mike_Summey them
hawkeye775 Does anybody have any advice on dealing with the fluctuating interest rates? It seems they change a lot and if you are trying to generate offers, it can be tough.
ken_McElroy RGrimsley - Management is area specific and property specific. I look for the best person (not company) in a given area, I check references (on peoperties they manage currently) not ones on a list they provide.
Mike_Summey hawkeye, I usually base my offers on 1 - 1.5% higher than the going rate to give myself some room to negotiate.
ken_McElroy Mike- You are so right - something as simple as checking for credit will make a bad tenant NOT even apply to move in,
Mike_Summey ken, we recommend interviewing property managers, discuss your expectations and theirs and then select one you feel comfortable with.
Mike_Summey Hi Scottr
scottr Hi Mike how are you?
hawkeye775 Do you make your offer contingent on getting a certain rate? And if so, have you ever had a deal fall through because rates went up after the offer was accepted, but before you could get financing?
Mike_Summey Doing great Scoot. Hope you are too.
RGrimsley Have you guys found that traditional lenders want another 3/4 % on the interest rate if the loan amount is less than say $75,000? I’m getting that story from a mortgage broker. Maybe he’s the problem.
scottr Doing fine…just checking out the chat tonight
hawkeye775 I’m getting the same story, and a markup for being an investor as well.
ken_McElroy Mike - We do that as well, the loewst management fee should not be your deciding factor, but it is for many….
RGrimsley Hawkeye - Ditto on the kicker for being an investor.
ken_McElroy Mike - I liked your last newsletter, particularly ” the rich recieve interest” — That is what is going on now…
Mike_Summey hawkeye & RGrimsley, I don’t use fixed rate financing, which is one reason I add 1 - 1.5% to the current rate when calculating offers. Even if you can get fixed rate loans it’s still a good idea.
Mike_Summey Ken, you are exactly right. Although credit is very hard for some people to get, ones with good credit and cash reserves are being sought out by banks.
hawkeye775 What kind of financing do you generally use?
lucaslen Mike, you say you do not use fixed rate loans, why not?
RGrimsley Ken or Mike, have you used one of these companys that sell pre-printed real estate forms and if so, is there one you recommend or do you create your own either with or w/o an attorney?
hawkeye775 I noticed in one of your books that sometimes, you made offers with balloon payments to sellers. How do you calculate when/how to make that kind of offer?
Mike_Summey hawkeye & lucaslen, I have too many properties to qualify for the fixed rated rate loans. I may be able to get fixed rates on a large loan through an insurance company, but with smaller properties, I use fixed payment, floating rate loans that usually have a 5 year balloon. At the end of the first 5 years, the banks renew them for another 5 years.
ken_McElroy RGrimsley - I recommend you join a local association and get them as part of your dues. Updating the forms legally is expensive and boilerplate forms are typically not comprehensive.
hawkeye775 Are the rates less for that type of loan?
hawkeye775 And your adding 1 to 1.5%? And being floating, are you concerned with how much they can fluctuate?
RGrimsley Mike, on the floating rate loans are the fess comparable or less than on a fixed rate loan (recognizing fees always vary from lender to lender) and do you get tagged for a point every 5 years on the renewal?
Mike_Summey hawkeye, the loans are usually tied to the prime rate. Right now that is 4.5%, but if I were getting a new loan, I’d probably ask the bank to set the payment based on a 15-20 year amortization at a 6% rate. By doing that, more goes to principal until the rate goes above 6% and because of this I am ahead of the amortization schedule so the bank doesn’t adjust the payment. I know what my cash flow will be for 5 years.
RGrimsley Fees, not fess, sorry.
Carleton Had an extebded phone cal and now another. Good luck to all of you. When you’re chatting with Mike an Roger, you’re chatting with the best. Have to sign off.
sparky37 Hi Mike
hawkeye775 Are these types of loans generally available to everyohe?
hawkeye775 everyone
Mike_Summey RGrimsley, I find the fees are negotiable. I rarely pay more than a 1/4% fee and often times not even that. Upon renewal, there is usually no fee, but there may be a $50 - $100 Hi sparky
Roger Dawson Hi Sparky!
Mike_Summey hawkeye, most of the time these are portfolio loans that the bank keeps and does not sell.
hawkeye775 Those loans sound very interesting. Would probably work great for a property I’m interested in right now.
sparky37 Hi Roger
ken_McElroy Mike & Roger - One of the very basic things I wrote about in this book is ” Poor management = poor profit” - This is true in any business. We have all seen it from time to time, a place that you will NOT go back to..
Mike_Summey Sorry about that. $50 - $100 documentation fee on renewal.
Mike_Summey ken, as you know, I’m a strong advocate for professional management. If you try to do it yourself, you’re not an investor, you’re just taking on a second job.
RGrimsley On the origination, though, is the lender looking for $500 - $800 in documentation fees, closing fees, etc, etc.?
hawkeye775 Ken, I’m just glad I don’t have to go collect the rent or get the phone call at 3 in the morning. Looking at properties is fun, but not managing them for me:)
Mike_Summey RGrimsley, on portfolio loans there is not as much documentation as is required for loans that are going to be sold on the secondary market to Fannie & Freddie and others.
RGrimsley Mike, great intel…thanks!
ken_McElroy Hawkeye775 - Boy isn’t that the truth! We just lost 106 units in Hurricaine IKE - in Houston….We had a few issues….
hawkeye775 What is the collateral on these loans? How do you qualify for them.
hawkeye775 Ouch
hawkeye775 That would be a second job, Ken.
Mike_Summey Ken, since the real estate bubble burst, we have noticed a sharp decline in the attendance for these chats.
Mike_Summey Hi pete & livinfully
sparky37 Mike that is the truth
hawkeye775 Seems like it would have picked up.
pete Hi Mike
ken_McElroy Hawkeye775 - Luckily, I used a local manager, They are still working non stop on resident issues.
Mike_Summey hawkeye, the collateral is the property.
RGrimsley Ken, when you are managing single family rentals, do you only provide the full range of services on a given property or do you have varying levels of service?
ken_McElroy Mike - NO worries - These are the best of times for buying, however.
livinfully Had trouble getting on. Glad to be here now.
hawkeye775 My first impression though is that the portfolio loans would be risky.
Mike_Summey ken, I figured out long ago that trying to manage properties myself was counter productive. The more properties you have the more time it takes to manage them and the less time is available to make deals. The profits for an investor are in the deal making, not the managing. If you have to manage yourself for a deal to cashflow you are paying too much and working for FREE.
ken_McElroy RGrimsley - We collect a percentage of what we collect. Our services remain the same, no special hidden pricing.
hawkeye775 But they would have a lot going for them upfront.
Mike_Summey hawkeye, I did a comparison of 50 loans I had over a 5 year period and in every case, I paid less interest with the fixed payment floating rate that I would have with fixed rate loans.
hawkeye775 Cool!
RGrimsley Ken, do you include the leasing in your management fee or do you prefer to separate those charges? Why?
hawkeye775 Do all banks/mortgage companies offer them?
pete Ken, as Mike just mentioned, he doesn’t necessarily wish to manage properties. For a person starting out investing in RE, would you recommend that he manage his first piece of property, to understand what it entails, or just hand over the managment to someone else?
Mike_Summey When banks make fixed rate loans they take care of themselves with higher rates. If you are willing to share the risk by using floating rates you nearly always pay less in the long run.
ken_McElroy Mike - The truth is that our management company is not profitable - We have 200 employees in it. I need it for my investments and due diligence. We use 3rd party companies outside Arizona.
hawkeye775 Do you still have to provide 20% down?
hawkeye775 When doing that type of loan?
Mike_Summey pete, I gave the first property I purchased to someone else to manage. I wanted to be an investor, not take on a second job. With that said, you should always learn as much as possible about management, but you don’t have to manage to do that.
ken_McElroy Pete - I recommend you use a professional company and learn from them
livinfully I started using a property manager shortly after I purchased my first property. It has been wonderful! I now live in another state and there is no management available in my small town but the town is growing so I am considering starting one with a close friend who is realtor.
Mike_Summey livinfully, find a realtor you like and can work with and train him or her. I had to do that years ago when I was starting.
ken_McElroy RGrimsley - we include leasing in our fees.
Mike_Summey hawkeye, there is no 20% down requirement on portfolio loans. The bank can do what it feels comfortable doing.
RGrimsley I used to own a dozen or so rentals and managed them myself and got burned out and sold and then started again later w/ 3rd party managers. Don’t go down that road of doing it yourself as you’ll sell yourself short.
Mike_Summey Hi swtb
ken_McElroy RGrimsley - I have a sample management agreement in my book ” The ABC’s of Property Management
pete Got it … I have to tell you, though, that I had started reading your book [Ken] and you do provide some very good advice on handling your own property and tenants, especially on how to keep the good ones.
Mike_Summey RGrimsley, good advice to everyone here and all those who will read the transcript later.
livinfully Yes, I have a great realtor here who has helped me find several great investments and we are beginning to plan now for the property management service.
ken_McElroy Pete - The key is to retain your tenants - It is the most overlooked issue with property management - I aslo have more tips on www.kenmcelroy.com
Mike_Summey Those of you who haven’t gotten started yet, I believe the coming few years are going to be the best I’ve seen in my lifetime. Ken would you agree with that?
Mike_Summey Hi Ashely
ashley73737 hi Mike
hawkeye775 Mike thanks for all the information.
Mike_Summey Ashley, as you can see I’m having trouble typing tonight.
ashley73737 lol
Mike_Summey hawkeye, that’s why we host these chat, to help our students.
ken_McElroy Mike - You are correct! I already found a bank financed deal with 10% down @ 5% interest. 308 units…
RGrimsley Ken, thanks for the advise on keeping good tenants. Can’t wait to buy and get into your book.
hawkeye775 Thanks Ken
ken_McElroy Thanks everyone!
Roger Dawson Thanks Ken!
RolynProperties Thanks for that Mike!!
Mike_Summey Ken, I’ve been using lines of credit to pay cash when purchasing and then secure term financing once I own the properties and have them rented. I find I can get the best deals on problem properties by doing this, but it’s just one way to buy.
RolynProperties Hey Mike how did you get over the fear of doing your first deal?
Mike_Summey Rolyn, by doing it! Like anything else, doing it for the first time is always the most difficult and gut wrenching, but until you do it, the fear only grows.
ken_McElroy Mike - Good idea - I am also seeing lines of credit NOT renewed - We are looking at this right now….small business needs this!
hawkeye775 Rolyn, have you read the Weekend Millionaire Mindset book? Great read that might be helpful.
RolynProperties Thanks Hawk I will take a look into it.
Mike_Summey Ken, thankfully, my banks are increasing mine, but I’ve got a 30+ year history of making things work and that goes a long way. No one can get that when they first get started. I couldn’t either.
RGrimsley Rolyn, how did you get over your fear of kissing a girl for the first time? You just “DO IT” as Nike says. With real estate, though, you have pros like Mike and Roger and Ken showing you the way. Read Mike’s first book and go out and just do it. You” surprise yourself and make money in the process!
ken_McElroy Mike - Awesome. We are seeing banks that are in trouble and therefore it is not the borrower but the bank!!!
RolynProperties Hey Mike…I don’t remember in the course you mentioning how you financed your first deal. Did you do it with no cash?
Mike_Summey Ken, I want to thank you for joining us tonight. Our hour is up, but if you want to stay a few minutes longer please feel free to do so.
Roger Dawson Good night everyone
sparky37 night all
RolynProperties G night Roger
RolynProperties Thanks Rgrimsley
Mike_Summey Ken, fortunately my credit lines are not with any of the large banks that are in trouble.
ken_McElroy Mike - Thanks again, I need to go but will join anytime you ask! Keep on educating! Talk soon.
Mike_Summey One of my banks recently told me that I was the only customer they had that was more conservative than they were.
RGrimsley Thanks for your time, Ken!!!
RolynProperties Thanks Ken
hawkeye775 Thanks everyone. Good night.
Mike_Summey Goodnight all. I have to go as well.
Mike_Summey See you here next week.
RolynProperties I will try, (Westcoast time)
ashley73737 good bye
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