Chat Transcript – April 6, 2009
Posted on April 7, 2009
Mike_Summey Hi ther livinfully. Looks like we’re early.
Livinfully I didn’t want to miss it.
Mike_Summey Others will be laong shortly.
Mike_Summey Anything I can answer before it gets busy?
Mike_Summey Hi Hawkeye
Livinfully I really need to know how to work around this new thing of lenders wanting 25% down for investlrs!
hawkeye775 hi mike
Mike_Summey There’s Roger Dawson
Roger Dawson Hi everyone!
Mike_Summey Livinfully, I’m afraid that is something we’re all going to have to live with for a while. The lenders got in trouble because of loose credit underwriting, so now they have gone to extreme the other way.
Roger Dawson It’s a beautiful evening here in LA. 70 degrees, bright and sunny
Mike_Summey Hi Bob
Bob Carr Hi Mike .. Hi Roger
Roger Dawson Hi Bob
Roger Dawson Hi Joshua
Mike_Summey Livinfully, if you can get a line of credit adequate to buy for cash, you can get better financing after you have a tenant.
Mike_Summey Hi Josuha
Mike_Summey Bob, how are things with you. Buying a lot?
Joshua Hi Roger, Hi Mike
Livinfully That is good to know.
hawkeye775 Roger, I was out your way a couple of weeks ago. It was cool while I was there though (Newport Beach and San Diego). It was a lot greener than last time I was there though.
Bob Carr Mike .. I have bought 9 so far ..still looking for more deals.
Livinfully There are some amazing deals in my town and it is killing me that I don’t have 25% plus enough to rehab. I’m looking forward to learning more here this evening.
Roger Dawson Hawkeye, out hills are usually gold by April but we had a late and heavy rain.
Mike_Summey Hi Jess
Jess Hi Mike
Joshua Bob, where do you invest?
Bob Carr Baltimore
Mike_Summey Livinfully, fortunately, I followed my own advice and got myself in a position where I could buy for cash now instead of trying to stretch and buy when the market was red hot and everyone was paying too much.
Roger Dawson The banks are being overcatious right how. Afraid of getting on the FDIC hit list, I would suppose. They want 20% down and a good credit score.
Mike_Summey Hi John
john IL Hi Mike and everyone
Livinfully That is why I am here to learn from the master Mike.
hawkeye775 I may finally be about to close on the deal that was originally supposed to close in December on my second property. One of the heirs owed the IRS (1/3 owner), and the IRS has been slow to release it. They wanted more money so one of the other heirs is going to lend them the difference. The IRS wanted 90% of appraised. Didn’t know they had the power to do that, but it looks like it has been worked out, and should be closing in a few weeks.
Livinfully And I am excited to see all the other folks here and look forward to hearing how they are managing.
Mike_Summey I just got an email a couple of hours ago from a realtor who has found 20 properties for me to look at this week.
Mike_Summey I will try to inspect them later this week and the make offers on all of them.
john IL So Mike how will you weed through them?
Mike_Summey Hi jheath
Joshua So Mike, how many have you acquired during the last month using the technique we learned last month?
Roger Dawson Hi Madmike
madmike Hi, Roger and everybody, this is my first chat, so I may be a little slow
Mike_Summey I will prepare offers on all of them and include a condition that I will only be obligated to buy one and will buy the first one that comes back accepted. The condition will say that once an offer is accepted I will hae on obligation to buy any of the others. That gives me the option to buy more than one, but not an obligation to do so.
Mike_Summey Hi madmike
john IL I understand that strategy, but how will you ever inspect 20 properties so quickly.
john IL How will you know that you’re not buying a dog?
Roger Dawson Mike I think you meant “have no obligation to buy any of the others.”
Mike_Summey By making numerous offers this way, I can truly play the numbers game. I can make multiple offers the same day and only be obligated to buy one property if I get an accepted offer. If I get more than one acceptance, I have the option to buy or not buy. It removes the arduous process of having to make an offer, get a counter, counter back, etc. over and over.
Mike_Summey Hi mark
Bob Carr Roger .. You think Michagan State is getting to him?
mark Hello
Mike_Summey Right Roger. my typing lacks a bit tonight.
mark Anyone in New Jersey in the room
Mike_Summey John, I use the inspection form that is available FREE on this website and the Offer Generator computer program to make so many offers in such a short time.
mark several rentals & a new home I built for sale & having difficultly selling it
Mike_Summey Mark, why do you want to sell?
Roger Dawson You can always put “subject to interior inspection” if you can’t get access. But don’t take any chances. We found a bank owned property last week where the owner was so upset about being foreclose upon that he ripped out every electrical plug and light switch. The bank offered a $1500 allowance because of it.
john IL Hmmm. Just a system, no emotion right Mike?
Joshua Mike, how you bought any news ones since the last chat?
Mike_Summey John, that’s right. The difference between wholesale and retail in real estate is “Emotion.”
mark I am a builder and have built about 2-3 spec per year, this is are last spec till the market picks up
john IL I just ordered the offer generator today!
madmike I Have a question for anybody that can help. I own several investment properties in SC that I bought in 2006. I also have a couple in NC. My question is about insurance costs and how to keep them down. My properties in SC are more than three times the cost for a policy than the ones in NC.
Mike_Summey Mark, now is a great time for investors, but a lousy time for spec builders.
Mike_Summey Hi Boston & Penny
john IL Maybe a good time for investors to pick up a cheap spec!
Penny Hi Mike and everyone.
Roger Dawson Madmike: why so much higher in SC — because of fire hazard?
Roger Dawson Hi Penny!
Livinfully Madmike – I am in E. TN now and have found the insurance rates higher in my liitle town than they are for rentals I have in Asheville.
mark Three years ago I sould the same house for $650,000 now cannot get anyone for $409,900
Penny Hoger!!!ey there R
hawkeye775 I have found rates to be higher in TN than in NC as well.
Penny sorry, Hey ther Roger!!!
madmike Roger, that is my guess, but I’m not sure. I’m hoping someone can help me figue it out
mark Several houses we built the same floor plan
Mike_Summey madmike, I own properties in both states and I know what you are talking about. I have a blanket policy through Nationwide that covers all of my properties. That seems to be a better and less expensive way to go. I assume you are only insuring the structure and not buying homeowners policies.
hawkeye775 Hi Livinfully, what part of TN are you from? I live in Asheville, but have investments in Morristown, TN
Livinfully I an in Lenoir City – a little SW of Knoxville.
john IL Mike, what do you mean “insuring the structure” vs. buying “homeowners policy”
Mike_Summey Rates are better in NC because of our insurance commision.
Livinfully I miss Asheville a lot!
hawkeye775 Mike, how many properties do you need before you start looking into a blanket policy?
madmike Mike , How does a blanket policy work.
Mike_Summey John, when you are insuring a rental, you only need to cover the structure, not the contents. Fire and all risk coverage is much cheaper than a homeowners policy.
Roger Dawson Madmike: have you checked on any state programs? I have a house at Lake Arrowhead that nobody will sell insurance on. It’s four floors, wood siding and shake wood roof in a forest. I wouldn’t ask a fireman to try and save it if it caught fire. It would expode. But the state has a program for situations like that.
john IL My insurer makes me take out “landlord policies”
Joshua Mike, when you buy a property, how do you control your risk of a particular neighborhood going down hill over time?
Roger Dawson Hi Jess
Jess Hi Roger
Boston1 Hi Roger and Mike!
Mike_Summey Hawkeys, I think Nationwide requires 5-10, but check with a Nationwide agent to be sure. You are welcome to call my agent, Doug McKinney at 828-684-5020 if you would like.
Roger Dawson Mike buys the whole neighborhood and renovates it~
Mike_Summey Joshua, that’s hard to do, but a little investigation can tell you if there is a large number of homeowners vs renters. That’s a good place to start.
Mike_Summey Hi Kevin
hawkeye775 Thanks Mike. I’ll give him a call. Would like to talk to someone else anyway to compare rates.
madmike Roger, I am just beginning to check into things, to be honest I am just learning that the insurance agenst dont always have my best interest , he is in business to make money, just like me , not saying they are dishonest, but they are going to sell you all they can.
Mike_Summey Hawkeye, where are you?
Joshua More homeowners the better I presume? It seems that stat could change quickly in a few years it seems?
hawkeye775 asheville
hawkeye775 (candler)
Mike_Summey Hi annie
Mike_Summey Hawkeye, Doug McKinney can help you with your insurance needs. He has taken good care of me for many years.
madmike Mike, I own six investment properties, so I will check into that blanket policy, that sounds like it could help. thanks
Mike_Summey Joshua, yes, the more homeowners the better. Also, look to see how many for sale signs there are in the neighborhood. If a large % of the homes are for sale, that alone could indicate there is a potential problem.
Mike_Summey madmike, where are you lacated?
Roger Dawson Madmike: insurance needs vary from person to person. I remember an agent who sold me up to the deluxe policy. When I had a claim I was delighted that he’d sold me on it.
madmike Mike, near
madmike MIke, sorry about that, finger hit the button, near Rockingham, NC
Mike_Summey madmike, I believe Doug McKinney is licensed to write in NC, SC & TN. Maybe he could help you. He knows all the details on Nationwide’s blanket policies.
madmike Roger, I guess that is true also
Livinfully We had a statefarm agent speak to our REIA recenly about all the different insurance options and needs for investors. Very informative.
Livinfully That was the first time I had heard about blanket policies.
madmike Mike, I will definitely contact him. I am very optimistic
Joshua Mike, on your upcoming offers with the “clause” will you submit 2 options? 1 cash offer and 1 seller financing offer?
Mike_Summey Everyone, you can usually get better rates from a direct writer like Nationwide than through an agency that represents several companies. It cuts out the middle man.
Mike_Summey Joshua, on the offers I am making now, I’m making cash only offers to close in a week. That puts an extreme amount of pressure on the sellers without you ever having to get into a negotiation. Every seller knows that their offer is just one of many and that I am only obligated to buy the first one that accepts my offer.
hawkeye775 Mike, how long do you usually hold onto a property before you refinance it or finance it? How long do banks want to see a rental history before financing?
Mike_Summey Hawkeye, when I buy for cash and then finance later, I’ve yet to have a bank ask me how long I’ve owned the property or what I paid for it.
Bob Carr Mike .. when I called Doug 2 years ago after exceeding 10 properties he was very helpful .. by helping my agent here in MD.
hawkeye775 Do they need to see any rental history?
madmike Mike, I actually have a question about refinance as well, Is there a lender out there that is better than others,
Mike_Summey As far as the bank is concerned, I own the property free and clear and just want to put financing on it. What difference does it make how long I’ve owned it.
Mike_Summey Bob, that’s good to know.
Mike_Summey Hawkeye, rental history is probably more important if you are a new investor than it is for me with a nearly 40 year history.
Kevin Hey Mike – I’ve got two properties. One has been vacant for 7 months…the other for 3 months. My property manager’s not a real go-getter and I’m starting to believe that his unassertive ways in marketing them have a good bit to do with it. I am becoming *very* discouraged. Interestingly I’ve shopped around for other property managers in my area (Atlanta) and they’re either not taking on new properties or I don’t get a good feeling about them or their contracts/terms are very unreasonable. I have two questions: 1) is this normal to have 2 properties in highly-populated areas of a metro area on the market for so long (at reasonable rent rates nonetheless) when supposedly this is a great time to be renting? and 2) do you have any suggestions on groups/associations outside of the local REIA for me to be able to seek out trustworthy property managers that may be able to do a better job in placing renters for me? Any other tips?
hawkeye775 Mike or Roger, how do you deal with a client who says they are going to miss a months rent? My first renter who has paid every month for 9 months said she couldn’t pay this month, but would pay double next month. My property manager took a notice of eviction over and had her sign it. Is this what you would recommend?
Mike_Summey Everyone, be sure to use the inspection form you can print for FREE on this website. It will help you identify what needs to be done to a property and with experience you will soon be able to come up with good estimates yourself.
madmike MIke, when I bought four of my properties in 2006, I bought them all under one loan, Was this a good idea, it seems to be harder to refinance without se
Roger Dawson Remember that the definition of value is “What a willing buyer will pay a willing seller when both are informed and neither one is under pressure.” What you paid for the property has nothing to do with the value.
madmike perating them
Kevin Sorry – I didn’t realize you were on as well Roger…feel free to chime in on my question too. 
Mike_Summey Kevin, look in the yellow pages under property managers. there should be several who specialize in management. Then interview several of them. I had my son Matt do this in Enterprise, AL and he had to interview 5 before he found one he liked. All of them are different and you will always be better off if you take the time to find one that is compatible with your personality.
Roger Dawson You can’t let tenants slide on the rent. It only gets tougher for them. They should understand that paying the rent even comes ahead of groceries. You can always bum a meal off someone, but it’s hard to find someone who will give you a place to sleep.
Mike_Summey hawkeys, that’s exactly what my managers do. Everyone has problems from time to time, but if you let them by without paying you are simple allowing them to hand you their problem. I tell my managers regularly that I have hired them to manage my properties, not loan my money.
Mike_Summey madmike, that is one of the 14 biggest mistakes we have in our real estate investing book that new investors make. Once you get out of it, NEVER use a blanket mortgage again.
Kevin I’m unfortunately scraping the bottom of the barrel – have done just this. Thought I had found a good one until they required me to add them as an additional insured on my policy to the tune of several hundred dollars a year. Anyone else had any luck when they were getting desperate to rent their properties?
hawkeye775 My property manager called me first, but his immediate recommendation was to give her the foreclosure notice.
mark It regards to late paying, isn’t sometimes to let them pay late if they do not have the rent on time instead of evicting them & losing a tenent & then fixing up the place & waiting for another tenent ot be found?
madmike Roger, I have been there with the rent sliding, I am a very easy going person. I have been told every story there is. I run a business where we finance as well, so i definitely have to have a good property manager that will stick to their guns in a situation. And my emotions are out of it.
Roger Dawson Well said Mike.
Kevin Mark – given my situation I’d think so but you still have to look at this as a business and make tough decisions.
Mike_Summey Kevin, it should be the other way around, they should be adding you as an additional insured on their policies. For you to insure them would be like a doctor asking you to carry his/her malpractice insurance.
mark sometime those decision can cost ever more money. But each problem has it own problem
Kevin Exactly! Interestingly this was the standard language on the Georgia Association of Realtors contract…
Roger Dawson If you new tenant told you they were behind a month at their last place, would you rent to them?
Mike_Summey mark, my experience is that if they are facing eviction, they are much more likely to find the rent money. Also, it lets them know that if they have financial problems and they want to ride someone, it can’t be their landlord.
madmike Mike, well whoops is all I can say. I realize now because of the problems, that is was not a good idea. I got a good deal on the houses and have a good positive cash flow.So, I am okay, but it is still a little hard to do anything.
mark Thanks Mike
Boston1 hi Mike and Roger, I have read all of books and love the advice. I am looking to buy my first place in the Boston metro area. I was thinking of buying a 2-3 family, living in one unit and renting out the others, so my situation is a bit different than what you advise in your books. Do you recommend that I still value the property based on the rental income it might generate (including the owner occupied unit)? Also dare I ask your thoughts on managing the property, should I still hire a management firm?
Mike_Summey Kevin, there is no law that says you have to use the STANDARD Georgia Association of Realtors agreement. You know that agreement is written all in their favor, not yours.
Joshua Mike, when you make offers for seller financing how do you determine if they have significant equity or own free and clear? Through the realtor or do you just submit it and see if they bite?
Kevin Exactly…of course, they didn’t want to budge.
Roger Dawson madmike: see if there if a release clause in your blanket note. Typically you have to pay off the property you want to sell or refinance and increase your ownership (by paying down the loan balance) of the remaining properties.
Jess Hawkeye, why not give the tenants a rent discount instead to encourage the tenants to pay promptly. I’ve always used that and it always work. However you have to find out if the rent discount works or applicable in your part of the world.
hawkeye775 I’m not so keen to give a rent discount when this renter has signed a lease, and other than not managing their money well her financial situation hasn’t changed.
Mike_Summey Boston, by all means use the income approach when valuing the property. If you plan to live in one unit, consider the rent as your payment for living there. By all means, if you plan to live in the unit, have it professionally managed and don’t let anyone know you are the owner. That will save you a lot of late night calls and other headaches.
Mike_Summey Joshua, the only way to find out if a seller will finance is to ask.
Mike_Summey The way to ask is with a signed offer requesting the financing.
Boston1 thanks, Mike!
Livinfully Boston, I lived in one of my units for 4 years and had property management co. take care of the other unit. Just be sure the PM knows you don’t want the tenants to know you are the owner.
hawkeye775 How much do you work with someone the first time they are behind if they can come up with the money in the first couple of weeks?
Mike_Summey Keep in mind that the harder it becomes to buy a home and the more that are foreclsoed and the owners kicked out, the more renters there are. People have to live somewhere.
Boston1 Livin, good idea..to not let the other tenants on to you. Since it would be my first deal I want to be “as close to action” as possible.
hawkeye775 Mike, so far I’ve had no luck with seller financing. When offering seller financing what are the benefits that I should be stressing for the seller?
Kevin Mike/Roger: I recently found out I owe the IRS a bunch more money than what I paid them throughout the year last year (ah, the joys of accomplishment). I bought my most recent property as a foreclosure (using your cash flow techniques of course) and have good equity on it. I’m considering getting a HELOC on that property to help ease the pain…and once I have that paid off I can use it for down payments on future properties…Any thoughts on this? Downsides other than the obvious of having my equity tied up?
Mike_Summey Hawkeye, my standard way of working with late payments is to give a 10 day notice after 5 days late then file for eviction on day 16 if the rent is stillnot paid. If the tenants want to stay they have to pay the cost of the eviction, the late fee and the rent. Usually you only have to do this once to teach them that if they are short of money they need to ride some other creditor besides their landlord.
Penny Gotta run. Goodnight all.
Livinfully Boston I learned a lot about the property that I hadn’t known before and it helped me make improvements and increase the rents.
Mike_Summey Hawkeye, right now is a good time to get seller financing since bank financing is so difficult to obtain. The prime prospects for seller financing are older people who have equity and are looking to convert real estate equity into an income stream.
Mike_Summey Kevin, that strategy could work.
Joshua Mike, could you tell the group some detail about your most recent purchase?
Roger Dawson Kevin, isn’t a HELOC just for homeowners on their residence?
hawkeye775 There are a couple of duplexes that I would love to get the owner to seller finance. The realtor I’m working with is trying to sell her on the idea, but she just wants to be done with them.
Kevin I don’t know…you guys tell me.
hawkeye775 It seems like a lot of people would do it just for the tax benefits. No big capital gains bill.
Livinfully It is my understanding that HELOCs are for personal residences only.
Mike_Summey Joshua, I discussed this earlier in the chat. Because there are so many deals on the market right now, I’m making numerous cash offers at the same time and only committing to buy one of them. The last group of oofers brought 2 acceptances out of 9 offers and it all tool less than 12 hours.
Kevin If I can’t do a HELOC on an investment property are there any alternatives to get that equity out so I can use it to my advantage?
Joshua Awesome! What was asking price and what did you pay?
Mike_Summey HELOCs at far more difficult to get today than they were a couple of years ago.
Kevin Mike: but can I even get one on an investment property?
Boston1 Livin, the property would be considered owner occupied, yes? With the tax benefits? I am a first time homebuyer
Mike_Summey Joshua, one was asking $145,000, we got it for $85, 177. The other was asking $165,000 and we are closing on it tomorrow for $75,906.
Mike_Summey Kevin, that all depends on your credit and your relationship with your bank.
Roger Dawson When asking sellers to carry back financing, don’t overlook the possibility of putting the loan against an existing property that you own and have more equity in.
Joshua Wow, incredible! They must be way more desperate than my area! I made 7 offers, none accepted.
Mike_Summey Hi melloc, your late! We’re just about to wrap up. Someone said there was a basketball game tonight.
madmike Mike, what deals, I guess that is why they say cash is king. Someday I’ll be there.
Livinfully Boston – yes,it is owner occupied which can help with interest rates, insurance rates and taxes.
Roger Dawson I have company so I need to leave. Good investing everyone!
Livinfully Yes there is game starting right now!!!
Livinfully Go Tarheels!
Mike_Summey Thanks all of you for joining us tonight. I hope it was helpful. I’m going to watch the game. See you here on May 4th.
hawkeye775 Mike, who was your agent again and number?
Livinfully Boston – happy to talk further with you if you like.
Mike_Summey Hawkeye, Doug McKinney 828-684-5020.
Boston1 Thanks livin
Mike_Summey Goodnight all.
hawkeye775 Thanks Mike. Goodnight everyone.
Boston1 Good Night!
madmike Goodnight everyone. Red Sox are on, been waiting . Thanks for all the help.
Boston1 Go Sox!!
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