Chat Transcript – February 1, 2010
Posted on February 2, 2010
Mike_Summey Hi Ken, Luke & Trey
LukeL Hey Mike
LukeL Feeling better than last month I hope
LukeL Enjoy the snow in Asheville?
Trey Hi Mike
Mike_Summey any burning questions before we get too busy?
Mike_Summey Hi ciwa & Dennis
ciwa Hi, I’m new here 
Dennis Hi Mike
Mike_Summey We still have about 6-8 inches of snow on the ground.
Mike_Summey ciwa, we’re all friends so just jump right in any time.
ciwa I’m in Montreal… we’ve had our share
ciwa of snow, that is
Trey Yea I have several Do you prefer rural areas or closer to the city?
Mike_Summey ciwa, I think we’ve had as much here in Asheville as a lot of Canada has had.
Roger Dawson Good evening everyone!
Trey Hi Roger.
LukeL Hey Roger
Mike_Summey Hi Roger
Dennis Hi Roger
Mike_Summey Trey, that all depends. Usually with more people come more potential tenants and that is good, but not a rule set in stone.
Mike_Summey Hi Joshua
Mike_Summey I was ready for this snow storm. I had my tractor all set up to plow snow.
Joshua Hi Mike, how many have you bought recently?
Roger Dawson Trey are you third in a line like Bill Gates III?
Trey I live out in the country where houses have several acres and just trying to get an idea where to focus
Mike_Summey Joshua, I haven’t bought any since November. Been busy with year end stuff and trying to get the 18 we bought last year up and running.
Mike_Summey Hi David
Trey Roger yes I am the third. Lauriston Ivey Johnson III is my full name so I go by Trey.
Mike_Summey Trey, how far are you from a more urban environment?
Roger Dawson That’s neat
Joshua I just paid property taxes for mine and unfortunately in TX, the rates are so high so it sucks a big chunk of cash
Mike_Summey Joshua, I feel your pain.
Trey I live 30 miles south of Raleigh so I have Clayton and Smithfield within 10 miles.
David Hi Mike I am from Lowell michigan
Ken Seems the house flipping scene might be picking up speed. Not sure who these guys are going to flip the house to.
Mike_Summey Trey, if I were you, I’d probably concentrate on one of the larger areas where there are more people.
Mike_Summey David, glad you could join us.
Mike_Summey Ken, I know nothing about flipping! I’ve never sold a property, so that is totally foreign to me.
Ken Mike do you think it would be wise to also search what the unemployment rate would be in that area.
Ken Mike I know, but seems the cycle is starting again of speculation
Trey Okay sounds logical because there are many subdivisions within range.
Mike_Summey Hi Penny
Roger Dawson In Southern California we have a very hot market on low end houses fueled by the massive numbers of forclosures in some areas. My son just bought a house listed for $125K. He paid $135 and it still wasn’t sure that he would get it. Three years ago it sold for $300K.
Penny hi Mike.
Roger Dawson Hi Penny!
jason_seattle Hi Mike and Roger
Mike_Summey Ken, that would be good information to know. there are areas of the country where home prices are ridiculously low, but employment is also very high.
Mike_Summey Hi Jason
Penny Hi Roger and everyone.
Roger Dawson Hi Jason
Mike_Summey Hi OL
Joshua Mike, Roger, Do you guys protest your tax appraisal values every yr on your properties? Any advice? It is time consuming but I believe worth it.
Mike_Summey Joshua, we bought 13 properties in SC last year and protested the values on all of them. The value was lowered on every one saving us over $4,000 in taxes.
Trey Mike does any of your PMs have re-rent fees where they charge every time a new tenant moves in?
Mike_Summey Trey, we have that in AL where we rent near a military base. The fee is paid to other agents who bring tenants. It is very modest. $50 for a 6 months lease and $100 for a year lease.
QL Do you guys know when the banks are going to release more SFH inventory? I heard something about March 31 moratorium but I’m not sure.
Mike_Summey Hi broadway
broadway Hello Mike and Roger and everyone
broadway it’s been a while since I’ve been online here
Roger Dawson Joshua: That doesn’t apply in California where property taxes are 1% of the purchase price. That amount goes up 2% a year. I pay $4K per year on my home because I’ve lived here 30 years. If I sold the new owner would pay $14K in property taxes.
Trey Mike one PM I run across wanted $300 for a new tenant and I think that is way out of line.
Ken Roger thats something most don’t know. Some realtors FORGET to tell the buyer that the taxes will most likely go up
jason_seattle What metrics do you use to guage the best markets to invest in? In seattle I could collect $1000 on a $100,000 (wholesale price) house. I’ve talked to other people that collect this on properties elsewhere at substantially lower prices. I’m trying to guage what markets make the best sense.
Mike_Summey OL, I don’t know when they will release inventory in any large numbers. I spoke with the special assets manager of one of the large banks recently and he told me they had 58,000 homes in inventory. He said if the banks put all of their inventory on the market at once it would totally kill the market.
Mike_Summey Trey, I agree.
broadway I believe that Mike. That’s the way it is here in southwest Missouri
Roger Dawson Joshua: If I lived in an area that assesses property based on the current value, sure I’d appeal. There are services that will do the paperwork for you.
Trey Mike are you still using the fixed payment floating rate loans? I spoke to banker at BB&T and he didn’t know what I was talking about. Is it called another name?
Mike_Summey jason, I use the Offer Generator program, available in our online store, to compute what a property is worth. If the numbers don’t work, I don’t buy. I’ve found the OG is by far the best way to guage what’s a deal and what’s not.
Joshua Mike, how do you have time to protest tax values on the 250 plus properties you own? Assume you use a company, but they typically take 50% of your savings.
Roger Dawson Jason: Mike hates me using rule of thumb but if it will rent for 100 hundredth of the purchase price you can probable make it cash flow. But run the numbers the way that we teach you in the book. The software program we sell on our website will do it for you.
Mike_Summey Trey, you may have to educate your banker. I had to do that in the beginning. If the fixed payment is set up right in the beginning, there is no reason to change it for the term of the loan which is usually about 5 years.
QL In general, how many offers do you make before one is accepted?
jason_seattle Mike and Roger. I understand what you are saying about evaluating whether a deal works. I’m looking along the lines of finding markets that will give me the best bang for my buck. A lady in my investor association bought a duplex on ebay that rents for $1200 a month and she paid less than $10k. I think this was in the Phili area.
Roger Dawson Joshua, that would be 50% if the first year savings, wouldn’t it? Not a bad deal.
Mike_Summey Joshua, I don’t protest all of them every year. I only protest ones for which I can support a reduction in price.
Trey Mike, that makes sense now.
Mike_Summey OL, in the beginning I made offers for a year before I got one accepted. I had times when I’ve made 20-30-40 for each one that was accepted and then I’ve had other times when I got 6 of 10 accepted. It’s a numbers game.
Roger Dawson QL: we feel that if you haven’t had ten rejections you’ve paid too much.
jason_seattle oh and i do have the offer generator. It’s a great program. And for those who don’t own any rentals yet the 10% maintenance is great to build in. You will definitely spend money when a tenant turns over to keep the place nice.
Trey Mike, do you ever go to a foreclosing auction at the courthouse or do you wait for it to become a Bank REO?
Joshua Roger, yes 50% of 1st yr savings, but problem with TX is there’s no cap to how much it can go up in 1 yr. I’m finding that protesting is an annual event for me for all my properties
Mike_Summey Trey, I don’t go to the courthouse acutions. You are really buying a pig in a poke when you do because you rarely get to inspect the property before you have to bid on it. I prefer to wait until the bank owns them and then negotiate with the banks.
Mike_Summey Hi Ted
Trey Roger, I love the negotiating cds I bought. I have listened to them several times and have saved myself several thousand dollars already.
Ted Hi Mike
Mike_Summey Trey, I owe all my success to Roger and what I’ve learned about negotiating from him.
LukeL Mike or Roger, do you have minimum lease lengths that you have your PMs enforce? (6 months, 1 year, etc)
broadway Mike, that says a lot for Roger!!!! VERY GOOD ROGER!
Roger Dawson Thanks Trey: you made my day!
Roger Dawson Thank you Mike. That’s sweet of you!
Trey Mike, I have not been to an auction yet and I think the banks would not let them go but so cheap.
Mike_Summey Luke, usually mine are all six months except in AL where we are near a military base and there we accept 6 month leases.
Roger Dawson Thanks Broadway!
Mike_Summey Trey, the banks will usually bid the amount they are owed, which usually is the high bidder.
Joshua Mike, have you bought any VA foreclosures recently?
Roger Dawson Mike you need to clarify your answer on six month leases.
Trey Roger, I have loaned the cds to several friends and we have literally wore them out listening to them.
LukeL Thanks Roger was going to ask
Mike_Summey Joshua, I’m not sure if any of the foreclosures we bought last year were VA or not.
Mike_Summey Roger, thanks, I meant most of my leases are 12 months except near the military base where we take 6 months.
Roger Dawson I think that the VA and HUD market their own foreclosures, don’t they? And they give preference to civil servants like firemen and policemen.
broadway Mike, are you finding the banks to be more willing to work with investors now than 6-8 months ago? I’m thinking this many foreclosures will start to get run down very quickly
LukeL Ok thanks for the clarification Mike
Trey Mike and Roger, in the book you talk about raising the rents a small amount each year. Are holding level now or still raising rents?
Mike_Summey broadway, the banks are still being very tight. They have been burned very badly and are not likely to ever be as loose as they were a couple of years ago.
jason_seattle roger do you have any advice on negotiating with real estate agents to make offers on listed properties? It’s a lot easier to deal with the seller in person, but realtors often balk at low offers.
Roger Dawson We have a huge problem in California with angry people who have been foreclosed upon trashing the property before they leaving. Some of them even run ads on Craigslist that say, come help yourself to plumbing and lighting fixtures.
broadway Ok, I was thinking that the longer a house sits empty, it will start to deteriorate physically and devalue even more, costing the bank even more. they should be willing to cut their losses at some point and just get the thing sold
Joshua I believe VA foreclosed properties have excellent financing for investors
Mike_Summey Trey, I’m able to raise rents in some areas and am holding steady in others. It all depends on what is taking place in the market. In some markets speculators are offering properties for rent well below the market rate just trying to avoid foreclosure. It’s hard to compete with them when they do this.
Roger Dawson Jason: be sure that you’re giving the agent a list of reasons why you’re offering so little. They can use that to present to the seller.
Roger Dawson Jason: also challenge the agent: ‘If you can’t get this offer accepted I’d like to meet with the seller to explain my offer.’
jason_seattle thanks roger.
Joshua Mike, do you have a system in place with your mgmt cos to make sure you get that 2-3% rent increase annuallly when market allows?
Mike_Summey broadway, you are right in your assumption, but if the banks were to put all of their inventory on the market at once it would depress values so much they would lose far mor than just doling them out a few each month. The real estate market will not rebound until it has absorbed all or a substantial portion of the unsold inventory.
Trey Mike, what would a “normal” vacancy time for a house before considering switching PMs?
Roger Dawson Mike, we’re finding banks that are looking for house sitters here. A tenant stops and empty property from getting trashed.
Mike_Summey Hi sandy
sandy hello
jason_seattle Mike, how do you feel about month-to-month leases? Our primary landlord association in washington is advocating them.
sandy Roger – can you say that again. Banks are looking for housesitters? What do you mean?
broadway Mike, thanks, it does make sense. I guess the banks are just willing to bite the bullet and hold on as long as necessary and if/when the market picks up, ride it back up.
Mike_Summey Joshua, I don’t have anything in place formally, but they all know they are to get a small increase between each tenant is possible.
Roger Dawson Jason: I think that leases have disadvantages. They protect the renter from rent increases for example. If a lessee leaves during a lease it will be hard to get a judgment on them.
Mike_Summey jason, we will allow tenants to stay month-to-month after the initial term of the lease has expired, but if they do they have to pay more than they would if they renewed the lease.
Roger Dawson I didn’t mean hard to get a judgment. I meant hard to collect on the judgment.
jason_seattle Valid points. Thanks.
jason_seattle I’m near a military base and we do a military clause that requires 30 day notice to terminate a lease early with proper documentation.
Mike_Summey I’m amazed at the lack of people taking advantage of the super deals in the market right now. People were lined up to pay premium prices a couple of years ago. Where are they now that the deals are really there?
Joshua Mike, Roger, I recently had an A/C condensor and copper from inside the house stolen on one of my vacant rentals in between tenants. This is the 2nd time this has happened on one of my properties. This is becoming quite common in Houston for scrap metal. Any advice on this?
Mike_Summey jason, that’s pretty much standard around military bases.
Trey Joshua, it was stolen from inside the house?
broadway Mike you mentioned earlier about paying more for a month-to-month lease, how much more do you bump the rent for that vs signing a one year lease?
jason_seattle Joshua. Out here the scrap metal buyers stopped accepting from non-licensed plumbers and electricians. Also, when you replumb, go PEX.
Mike_Summey Joshua, I’ve had that happen of 4 of my properties. I wish I could find an answer.
Ted Joshua, that’s pretty common in the inner city markets around Rochester, NY too.
Joshua Trey, yes, window broken and stolen from the attic. The “For Lease” sign screams come and take me to the thiefs
Mike_Summey broadway, usually a month-to-month is $25-$50 per month higher.
broadway mike, thanks! I’ve had that question come up before. That will be handy information.
Mike_Summey I had a commercial building trashed for the copper.
Roger Dawson Jason: I’d take the usual burglary defense moves: Find a Armed Response sign and stick it in your front lawn, have lights that go on and off, and ask the police to keep an eye on it. Better to have tenants waiting so that you don’t have vacancies.
Trey Joshua, I have seen the crawl spaces with master locks on them.
Mike_Summey I bought a house last year where the outside condenser unit had been stolen. I replaced it and the new one was stolen the first night after it was replaced.
jason_seattle I saw a TV simulator on smarthome.com that makes it look like someone is watching tv by putting on a light show. You can also get a security system that runs on cellular that you can put on a house temporarily.
sandy Hello, Roger: Could you explain this again: [Roger Dawson] Mike, we’re finding banks that are looking for house sitters here. A tenant stops and empty property from getting trashed
jason_seattle sandy, the banks are becoming landlords is what i think roger was referring too.
Trey Roger, how would go about keeping tenants waiting in line? Advertise even if it is rented?
Joshua jason_seattle, are you suggesting PEX on the A/C condenser lines? I think only option there is copper, but could be wrong.
Ted On the issue of security, I find it also helps to get to know the neighbors. I have found that in almost every area I have bought, there is an old-timer that watches the houses. I get a lot of comfort when they call me about things and it only costs me some courtesy.
jason_seattle no pex for the whole house plumbing if that is what was stolen. It’s cheaper to put in too and has no theft value.
broadway Mike, when you analyze an area for a potential rent price, do you try to undercut the price at first or just go with what the area will support? I’m sure some of that answer would depend on competition but, I’m assuming if you have no one in line to rent the home
Trey Mike, what would a “normal” vacancy be before you considering switching PMs?
Roger Dawson A tenant stops an empty property from getting trashed so banks will rent at a bargain price to keep the property occupied until the market improves.
Mike_Summey broadway, I never try to undercut the market. I’ve never found anything to be gained by pusing rents down in a market. I try to keep my properties in better condition so they will have more appeal in the market.
Joshua Mike, thiefs are so frustrating! I have thought about paying to build a cage around outside condensers when I replace them. Not sure how much that runs though. I’ve seen it around here a little.
Mike_Summey Trey, that all depends on the market. It might be 60 days in one market, 20 in another and 120 in another.
sandy Thank you. I missed part of the sentence and just read “A tenant stops an empty property”. Thanks. My misunderstanding
LukeL Roger, I keep reading your statement on the disadvantages of leases and can’t figure it out. You are saying that they prevent rent increases. Aren’t they necessary? Can you elaborate?
Ted To Mike’s last comment, I was told many years by a successful investor, that when the market gets more challenged, you have to spend money (on making the home nicer). I have found that I’d rather invest a little in extra to keep the rents up, than to cut rents.
Trey Joshua, almost makes you want to disconnect the AC and put it in storage until it is rented!
broadway mike, ok thanks! I understand you always preach keeping the house in very good shape so, I was just curious if you ever did that just to fill the vacancy, especially when you are just starting out.
Mike_Summey Ted, that’s what I was trying to say. Thanks!
Roger Dawson LukeL: with a month to month tenant you can raise the rent any time you want. If they have a one year lease you can’t raise the rent until the lease is up.
Mike_Summey HI Brian
broadway thanks Trey
brian_in_pd Hello Mike and everybody
Ted Mike, I know you were saying that . . . I guess i was just reiterating.
Mike_Summey broadway, I have always found it better to spend money to keep a property attractive than to spend it in the form of a rent reduction.
LukeL Roger, Mike said that most of his were 12 month leases but sounds like you prefer a month to month so you can do more revenue management on the fly?
Joshua Trey, I have a clause with one of my mgmt co that allows me to pull it if still vacant after 75 days of being “made ready” or 90 days from tenant move out. On one right now we are pushing 65 days.
Mike_Summey Joshua, I have that same clause in my property management contracts, but I only give them 60 days.
broadway I like that thinking too Mike. It makes for a good point to make sure you are in a decent neighborhood too! Noone wants to live next to a dump either!
Roger Dawson Luke, you can argue you it both ways. I know that Mike has got judgments on tenants who defaulted on their leases and got paid off many leases later, when they needed to clean up their credit, but it’s a long shot.
Trey Joshua, I believe Mike said in an previous chat that he switched PMs after some time and it was rented the next day.
Mike_Summey I can’t believe we don’t have 100 people in the chat tonight with as many opportunities as there are in the market right now. Why is it people are like sheep? If everyone is buying they want to buy regardless of whether or not it is a deal. When the market cools and prices fall, no one wants to buy. Totally backward, isn’t it?
QL I don’t see any deal here in southern CA…
Joshua Mike, I know! You gave me the idea–like so many other great advice you and Roger have given! I tried to negotiate 60 days but 90 was best I could do! My other mgmt co wouldn’t go for it period.
jason_seattle yes, but the more risk the more reward. I think we have a couple years to make out in the down market. More mortgage resets are around the corner
Trey Mike, nobody wants to stick their neck out or they have got burned.
QL I put in numerous offers but none of them get accepted. Or the listing would be pulled after 5 days on the market
Ted Mike, in our market it’s not actually loaded with deals as upstate NY never got hit as hard as some markets and Obama’s incentives have actually caused values to maintain/increase in the past year. Darn Obama 
broadway Mike, yes it is but, I know investors that are scared to death of investing anything right now and they have tons to invest too
Mike_Summey Joshua, did you give them the option of 60 days on not managing for you at all?
jason_seattle broadway.. I’d like a private money lender if your freinds have cash burning holes in their pockets 
Mike_Summey broadway, are they investors or speculators?
broadway jason, lol
Roger Dawson QL: there are some real bargains in Riverside and Fontana
broadway mike, yes they are investor, at least that’s what they call themselves but I agree with you, now is the time to get the real bargains
Mike_Summey Ted, the only real way to find deals is to make offers. You’ll never find them coming to you. As the old Chinese proverb says, “Man sit in chair with mouth open for very long time waiting for roast duck to fly in.” 
MattT Hello all – Toronto Ca.
Mike_Summey Hi Matt
broadway I’ve got to run. Good to chat with you Mike and Roger and everyone else.
Joshua Mike, yes and they basically told me to get lost if I needed it that bad. They’re good, but when they have 500 properties or so, my few aren’t enough to sway
Roger Dawson Goodnight Broadway
Mike_Summey We’re nearing the end of the chat, so if anyone has a question, now is the time to ask it.
broadway hope you all have a great evening and great day tomorrow investing!!!!!!!
Trey Everyone I must go. I have two little ones to put to bed. Mike and Roger, I have read all the book you have published and have thoroughly enjoyed them. I thank you for all of the information.
Roger Dawson Thank you Trey
Ted Mike, I realize that . . . I love to put in offers but frankly there are few houses sitting on the market very long in this market . . . our market really is somewhat of an anomally.
Mike_Summey Thanks Trey
LukeL Thanks for taking the time Mike and Roger
Mike_Summey Ted, that’s what people have been telling me about the markets in which I invest for the last 40 years. Believe it or not, by making offers I’ve bought quite a few at prices no one believed.
LukeL Learn something new every chat
Roger Dawson Our pleasure, Luke
Ted Mkke, agreed, I’ve truly stolen some of the deals i got this past year, it’s just that I want more.
MattT Mike I am about to make an offer on a commercial & want to knw whre do I list my negotiation on that offer. My RE agent just seems to have a ton of escape clauses . .
Mike_Summey We’ll be here again on March 1st, so get your questions ready and join us. Tell you firends about the chat too.
Dennis Good nite all, see you next month
Roger Dawson Goodnight everyone!
jason_seattle have a good night
MattT Drats too late
Penny goodnight everyone.
jason_seattle matt
jason_seattle what r offering on
Mike_Summey Matt, does your agent work for you or the sellers? Unless he/she has signed an buyer’s agent agreement he’she works for the seller.
MattT Commercial / residential
jason_seattle is it apartments?
MattT I feel that
Mike_Summey Goodnight all!
Mike_Summey See you next month!
LukeL Night Mike
MattT No single doctors surgery
jason_seattle is it currently occupied? Are you a doctor buying for yourself?
MattT It looks like a good deal, however I need to neg the deal
MattT No. fully renovated. Beautiful interior. should lease in a second
MattT Thanks for yr help
MattT Don’t know where to put the negotciations on the offer.
jason_seattle it’s difficult because you don’t have an existing income stream. It makes it worth less than if it were rented
MattT that’s right
jason_seattle You need to figure out what it would rent for and what your expenses would be. You could look at the owner’s records (actual) to get an idea, but usually you won’t see those until you make the offer.
MattT I see
jason_seattle I’d say make the best conservative estimate you can, look at current market cap rate, deffered maintenance. Then decide what cap rate you want to but at and start higher.
jason_seattle You also need a longer due diligence period to verify your numbers.
jason_seattle That is why you have so many escape clauses
MattT Ok . . . right.
jason_seattle not sure if that is helpful. You might know all this.
MattT the property is listed @ 258,000 . .
MattT I feel 225,000. . . is a break even
MattT Everything is new so a building inspection won’t come up with much
jason_seattle I’d just say that you should have a reasonable idea of the probable numbers and vacancy. Value depends on cap rate and is arbitrary.
MattT 8.5 cap
jason_seattle also your depreciation is different than residendial.
MattT How so?
jason_seattle for tax purposes commercial property is depreciated over a longer period (39) than residenctial (27.5) based on straight-line.
MattT Right on. good information!
jason_seattle 8.5 cap seems like an average price for a vacant medical building. You are limited on your tenant.
MattT yes
jason_seattle If i were buying apartments that might be good if the market average is 5 or 6. Since it’s new you aren’t repositioning. I’d aim for double digits if you can. It’s really tough because there is no existing income so all this is arbitrary. Talk to commerical property managers to figure out rents and vacancy.
jason_seattle Also, consider your financing. I doubt you’d be able to get much without a demonstrated income stream. Expect to put more down or ask for owner financing.
jason_seattle Matt, best of luck to you. If it doesn’t feel right don’t buy.
MattT I’m going to ask other local medico’s in the area. . find out thier rates, but I think asking other agents is probably a better idea
MattT Many thanks. great Stuff.
jason_seattle yeah, talk to commercial managers. You would probably need one to rent it if you buy anyhow.
MattT Just a quick one . .
MattT What do you mean by “more down”
jason_seattle remember you’ll need good data to convince someone to pony up $$$. You are essentially generating pro-forma rents and that = imaginary.
MattT I get it
MattT hard evidence
jason_seattle LTV. You might only get 60% and you’d have to put the remaining 40%. Unless you are buying the place well below value.
MattT I don’t know what LTV means
jason_seattle loan to value. Its the amount financed compared to the market value. In residential FHA will do 96.5% LTV (or 3.5% down for the buyer)
MattT Ahhh, I read that before.
jason_seattle it’s also the measure used to determine private mortgage insurance (PMI). Usually 80% LTV is the cutoff for requiring it. That is why banks used to like 20% down (before this mess)
jason_seattle anyhow. Have a good night!
MattT Many thnx, Jason – see you next time:)
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