Chat Transcript – January 12, 2009
Posted on January 13, 2009
Roger Dawson Hi Josh and gpllc! Mike Summey will be joining us in a minute\
Mike_Summey Hi everyone
Mike_Summey Hi Ken
Ken Hey
Josh Mike, Roger: Happy New Year! In this economic environment, do you see owners more willing to extend owner financing?
Mike_Summey Hi ggggg
Mike_Summey Josh, owners are becoming more and more flexible as they see how hard it is for buyers to get financing.
Roger Dawson I think owners will be much more willing to carry back financing but will they be realistic on pricing? Bank owned property is probably a better buy.
Mike_Summey I think we will see a wave of owner financing over the next couple of years.
Mike_Summey Hi Joe
Mike_Summey Hi Mark
JoeR hey
Roger Dawson Hi MarkNC
gggggg Hi Mike
MarkNC Hi Mike, Roger everyone
Josh I own several houses (bank financed) the WM way, but have not had any luck finding owners willing to extend financing. Mike, do you have any recommendations on how to locate these? Where do you find them?
Mike_Summey We are experiencing the recession that I’ve been predicting for the last couple of years.
Mike_Summey Josh,
Mike_Summey Josh, the best way I’ve ever found to find owner financing is to ask and be willing to offer a higher price in exchange for favorable financing.
Josh Mike, thanks, are most you find listed with realtors? or For Sale By Owner?
Ken Mike could there be some tax breaks if the owner has to pay a capitol gains tax?
geoff Hi Mike
geoff Hi everone
geoff Hi Roger
Roger Dawson Hi Geoff
Mike_Summey $100,000 for 15 years at 9% is about $1000 per month. $180,000 for 15 years at 0% is also $1000 per month. Imagine offering $144,000 for 15 years at 0% for the same property. That is only $800 per month. Think about it.
Mike_Summey Josh, most of the properties I buy other than bank owned properties are listed with Realtors.
geoff How do you get the owners to trust you if you do something like that?
Mike_Summey Hi Lon
Lon Hi Mike.
Lon Hi Roger
geoff Do you get a small loan from the bank to entice them or show that you mean business?
Mike_Summey geoff, that’s the biggest question for everyone. Having excellent credit and other satisfied owners who have sold to you are big pluses.
Mike_Summey Hi kubits
kubits Hello
geoff Ahh, that’s good to know, as I have excellent credit, I could show that as proof. Is there anything on the lawyer side of things that are usually involved in something like that?
Mike_Summey geoff, I’ve used small bank loans with 1st mortgages coupled with large seller loans in a second position to buy several properties. I point out to the sellers that they are getting the money from the bank loan so even in the even of a default on my part, they are in no worse position if they have to pay the bank back to protect their mortgage.
geoff Ah! Makes total sense.
Mike_Summey geoff, I will pull a copy of my credit report and show it to a prospective seller. Legally the only difference between seller financing and bank financing is that banks can come after your other assets to satisfy their debt while sellers take back purchase money mortgages and their only recourse is the property being financed.
Roger Dawson Mike, I think that a lot of sellers wouldn’t know how this works, so the investor has to explain it to them.
Mike_Summey Good p[oint Roger.
Ken Roger your right. I mostly got “15 years to get my money” I guess they were not to motivated
gpllc If the seller has an existing mortgage, do they have to get permission from their bank to owner finance?
Mike_Summey I guess you all read in my chat notice that we are going to scale back on the chats to one per month.
Roger Dawson Mike, the recouse issue varies by states. In California the only resource for the bank is the property. They can’t come after you for any deficit.
Ken I seen that mike
geoff My best friend and I are going to be buying properties together, and we decided that making a LLC would be best, where we split everything 50/50, and we each have defined roles. Is there any advice and tips that you can offer from your experience?
Mike_Summey Roger, that is true unless you personally guarantee the mortgage, which most banks now require. Is that different in CA?
Roger Dawson Mike, yes it is different. Because we use trust deeds. They could foreclose as a mortgage but it
Roger Dawson it is a much harder process and few lenders would do that.
Mike_Summey gpllc, if the sellers have a large mortgage they have very little to finance as they can only finance the portion that they own. If they have a small mortgage, get a bank loan for enough to pay it off and then ask them to finance the balance.
Josh Mike, when you buy rent properties through realtors, do they require any rehab or are they usually ready to rent as is? If so, do you seller finance any repairs or just use cash?
Mike_Summey Roger, we use trust deeds in NC also, but when a borrower personally guarantees the loan the bank can go after their other assets in the event of a foreclosure if the foreclosure sale does not bring enough to pay off the bank loan. It’s called a deficiency judgement.
Mike_Summey geoff, I’m not a good one to ask about partners as I’ve never had one.
Mike_Summey Hi Penny
gpllc My wife and I partner 50/50. I’m not sure I could trust another person enough.
Mike_Summey Josh, there are as many different scenarios as there are properties. There is no set policy that I know of.
geoff well, with LLCs, do banks see you differently and give you different rates?
Penny Hi Mike
Mike_Summey I guess one reason I’ve never had a partner is because I’ve been very patient and I’ve also listened to the horror stories of people who have had bad experiences with partners.
gpllc They see take into account your differing credit score, but give you a meshed rate. We both have decent credit so it’s not much of an issue.
Roger Dawson Geoff, you asked about investing with partners. The key thing is to have in writing what happens is something goes wrong. Think of any possibility and agree up front how you’re going to resolve it.
Mike_Summey geoff, I hold all of my properties in LLCs and have no problem with the banks. As long as you are willing to guarantee the LLCs loans until it has enough equity to stand good for its own loans you should have no problems.
geoff Ah, thanks gps, roger, and mike! : )
Mike_Summey geoff, I will add that all of my LLCs are single member LLCs with me as the sole member.
geoff you don’t have just one LLC that covers all your properties?
Roger Dawson Hi Penny!
Mike_Summey geoff, I have several LLCs that each hold blocks of properties. One also owns my airplane.
Penny Hi Roger.
Mike_Summey Has anyone bought anything since our last chat which was before Christmas?
kubits What determines the size of an LLC before you start another?
Penny happy New YEAR!
Josh Mike, do you probe listing realtors to find out if the seller would consider financing FIRST or do you just make an offer with that included and see if they bite?
Mike_Summey kubits, there is no particular number. The reason for the LLC is more important than the number of properties. I have one LLC that owns just one property, but I plan to develop a large building on that property. I have others that own close to 100 properties.
Mike_Summey Hi jess
jess Hello Mike
geoff it seems as though and accountant or lawyer would best be able to guide when its time
Mike_Summey Josh, I will often make two offers. One for cash, which may involve getting part of the money from a bank and another for owner financing. Usually the owner finance offer is much higher than the cash offer, but with very favorable terms.
Mike_Summey geoff, that is correct
Roger Dawson An LLC doesn’t protect you from getting sued, does it?
Mike_Summey I bought a brand new 3 BR 2 BA house with double car garage, about 1700 sq. ft. just before Christmas for $75,000. It was a bank foreclosure.
Josh Mike, so if they don’t have very much equity, they will most likely take the cash offer? My problem is I’m having a very difficult time finding owners with a lot of equity willing to finance.
geoff wow, how much rent do you get from that?
Ken Josh, I have found out that Divorces and Deaths are the best to target.
Mike_Summey Roger, an LLC offers some protection from lawsuits, but that’s not the main reason I use them. I use them primarily for estate planning purposes. While the LLCs offer some liability protection, I prefer to use insurance coverage and strive hard not to create any liability situations.
Mike_Summey Josh, following the recent unrealistic runup in prices, there are many people who actually have negative equity (they owe more than the property is worth). You can’t deal with these people without getting their lender to accept a short sale for less than the loan balance.
Mike_Summey geoff, it will rent for about $1000 per month.
geoff that’s a nice christmas present!
Mike_Summey Everyone, imagine every possible situation that could put a seller in a position to need to sell quickly, divorce, illness, accident, retirement, job transfer, loss of job, etc. etc. That’s where the deals are to be found.
Mike_Summey Don’t everyone talk at once! 
Josh I’m asking too many questions!
Ken For divorces I get 5 court houses that send me monthly listings. I only pay for the shipping and thats if they remember. I have my web browser set up to locate the deaths, Usually they make a list in the paper on notice of deaths so pay up. I then send a post card to those that looks like a random post card.
Ken Hope that makes sense.
geoff im thinking of getting a line of credit to buy properties with, but to refinance it seems as though banks would only give you 80% of the appraised value, how do you make this work out?
Mike_Summey Ken, both of those are good strategies. Anything you can do to make contact with motivated sellers is usually good unless you do it in a way that offends people.
Mike_Summey geoff,
jess Does anybody have any idea to secure good tenants? Recently I have bought a property. The average rent is about 450 to 600. I’m advertising my rent at 750 because my unit is a notch above those that are renting out now due to extra installations and renovation. I have tried all techniques in the book to get good tenants, but unsuccessful. Most of the people who viewed the place said that the place is nicely renovated and so forth, but they are just not interested. Well, can anybody please give some guidance as I find the occupancy rate at that location is near 100%. Or maybe I’ve priced the rental too high? Kindly share your thoughts.
Josh Ken, how do you have your web browser set to locate recent deaths? Do the courthouses offer a service where they mail lists of recent divorces?
Ken Yes, mike i didn’t know about the death one or even the divorce one so far so good. also when i get a hot lead I stop in at the court house and I can look up that indiviual and see what trouble he is in.
Ken Josh I think they post those once a week.
Mike_Summey geoff, if you can’t buy at 80% or less of the appraised value, you are paying too much. Use the line of credit to buy the property for cash and then after you own it outright, ask a bank to make an 80% loan. If you bought it right, the 80% loan will usually get you back all of your cash and then some.
Roger Dawson Jess: it seems to me that either the rent is too high or you haven’t exposed it to enough potential tenants.
Mike_Summey jess, I only use professional managers for that very reason. They are the experts and I let them do their job. They will know if you are overpriced or underpriced and most good management firms will require credit and criminal history reports on prospective tenants.
Mike_Summey Hi sparky
Roger Dawson Hi Sparky!
sparky37 Hi Mike & Roger
sparky37 sad that chats will be cut 1 a month
geoff mike, is a good rule of thumb, if they have it listed at $75k, and you can buy it at 80% of that, you’re in good shape?
Ken It’s hard for me to attend
jess Roger: thanks for your thoughts. Well, I have told the potential tenants that I’m willing to negotiate the rental with them if they are really interested. The problem is that nobody would even want to negotiate the rental. That’s what i find that something is amiss here.
Josh Mike, I bought a 4 plex not too long ago. My mgmt company is having a hard time renting it. It has been listed for a couple months now. I’m starting to get a little concerned. Thoughts?
Mike_Summey sparky, the economy has cut participation. We used to have 50-100 people in the chats, but with the downturn the number has dropped off considerably. For that reason, we decided to cut back on the number of chats and hope it will pull more people in since there won’t be held so frequently.
sparky37 Mike, I understand I remember when there was tons of people here and even the regulars are hardly here (Al Lee, Santos,etc) it is just nice to know I had chat on Mondays that was beneficial to my future. Have to reprogram my schedule for 1st Monday
Mike_Summey geoff, use the Offer Generator to compute offers. Let the rent and expenses determine what you should pay. If a property worth $50K is listed at $75K, buying it for 80% of the list price is not a deal. On the other hand, if it is worth $100K and the seller desperately needs to sell and lists it at $75K, paying the full asking price would be a good deal.
jess Mike: yes I do hire the professional managers to let out the place. They have been looking for potential tenants and even telling that I’m willing to negotiate the rental if there’s anybody interested. However, all I heard from the professional managers is just a mere silence and I’m beginning to get worried about this. Any inputs?
Mike_Summey Josh, vacancy rates vary from market to market. If the property is ina a market that is flooded with properties for rent, it may take a while.
Mike_Summey There are some markets that are so flooded with properties for rent that there are 3 properties for each renter. You have to get really creative in those markets. Remember, its all about supply and demand.
Josh they’ve told me this time of year is the slow season. Rents here in Houston have not climbed as one might expect. I have been having a hard time increasing rents even 1-2%. I’ve chosen to not raise on some just to keep the tenants from moving.
Ken Jess I had one PM, I got tired of them so I Put up a For Rent sign just above theirs and with in 2 days I had it rented by a nurse at the local hospital. Everyone that called told me how rude the PM was. I now have a new PM.
geoff Ken, same thing happened to me, if they arent performing and I don like the, I try and find another
geoff found an awesome one, and they did better in a mnth hen the last one did in a year
Mike_Summey Ken, good point. That’s why you should always do a careful and in depth interview with a property manager before hiring him or her.
Ken Geoff I took my realtors advice on what PM to use. what a mistake. I interviewed 3
Ken now I have a good one.
sparky37 Mike, what is your vacancy rate now?
Mike_Summey I use several property managers and I have an agreement with them that if they have a property that stays vacant for 60 days I can take it and give it to another manager without notice. Interesting how a little competition works. Just remember, property managers can always find another tenant, but owners are much harder to come by.
Mike_Summey sparky, I’m about 5-6%
sparky37 Mike that is very good
Mike_Summey sparky, it wouldn’t be that high if I was willing to compromise on tenant quality.
geoff I found that if you have a good PM and you’re properties are in very good to excellant condition, it’s very, very easy to find tenants
Josh Mike, are there years you don’t raise rents a tiny bit to keep the tenant from moving? I just wanted to do 1-2% and couldn’t even do that?
Mike_Summey geoff, I agree.
sparky37 Mike, I have always liked your business philosophy and believe in it 110%
Mike_Summey Josh, right now if you are able to hold rents you may be actually getting a raise. A dollar today buys more than it did a few months ago and will probably buy much more in a year than it will now.
Roger Dawson I have a house guest, so I need to run. Good investing everyone!
geoff Mike, any advice when doing fixer uppers? I find them more intriging them turn turnkeys
Mike_Summey Thanks sparky.
sparky37 Mike Your Welcome
Mike_Summey geoff, are you talking about fixer uppers to sell or to keep?
geoff it seems as though with fixer uppers you know what’s exactly in it, and in the end better cash flow
geoff to keep
Penny Good night all
Mike_Summey geoff, I once bought 43 properties in one transaction. They were practically ghetto properties that needed a lot of work. Two of the building were actually condemned by the city. I spent over $1,500,000 on rehabbing them and now they are nice rentals that cashflow very well.
Ken night everyone see you next month?
Mike_Summey Everyone, I need to run also. I’ll see you here on February 2nd. Goodnight
sparky37 Mike, Have a good night and I look forward to the next chat
Josh Thanks Mike!
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