Chat Transcript – October 4, 2010

Posted on October 7, 2010

jacobsentom Testing to see if I am online
Mike_Summey Hi gp, gtvny,
Mike_Summey & ncbob
gp evening mike
Mike_Summey How is everyone?
Mike_Summey Any questions before we get too busy?
Mike_Summey Hi Tim
Mike_Summey Everyone is awful quiet!!!
Mike_Summey Hi broadway
broadway Hello Mike
broadway Hello everyone else too!
Mike_Summey Anyone got any news?
Mike_Summey Hi Joshua, Justin & Ted
Joshua Hey Mike
gtvny any advice on short sales?
JustinB Hello Mike
Ted Hello Mike
JustinB Hello Roger
broadway I heard Sallie Mae is coming out with a new investor program
Joshua Mike, Roger, how are the purchases coming?
Roger Dawson Hi everyone
Mike_Summey Thereeeeers Roger Dawson
Mike_Summey Hi Greg
Greg_Boston Hi Mike!
ncbob Freddie and Fannie are starting programs with cash back at closing to help with repairs.
Mike_Summey broadway, I haven’t heard anything about it, but I’ve been out west fishing for the last week.
JustinB Just got done reading the Weekend Millionaire and I loved it. Learned alot
gtvny Mike your next book should be on short sales.
Roger Dawson Thanks Justin!
Mike_Summey Joshua, still buying. Currently waiting on the property managers to get a few recent purchases rented before buying more.
broadway Mike, I’m supposed to find out more information about it tomorrow. The only thing I know so far is that it allows for 10% down payments
Mike_Summey Hi Roeut
Greg_Boston @Justin: I’m half way through the book … it’s great!
broadway 🙂
Roeut Hi Mike
Mike_Summey Justin, Great thanks for the endorsement. Which book did you read?
Joshua Mike, nice work. I closed one last month and waiting on my mgmt co as well to do make ready and get it leased.
Roger Dawson I was talking to an experienced agent in San Diego about short sales. Agents hate them because they take months to put together and either side can pull the plug at the last moment.
JustinB @Greg yes it is, I have known Mike a long time and he and Roger are great at what they do
Mike_Summey gtvny, short sales are too much trouble for me. I would rather wait until the bank gets the property back and deal directly with them.
gtvny in Florida we have so many!
Ted I gave up on short sales too as they simply take too long . . .
Greg_Boston @Justion Seems that way!
broadway Short sales are frustrating to work with because of the mortgage companies lack of communication
gtvny how do you get to the bank once it’s out of short sale status?
Mike_Summey I made an offer last July on a property that was a short sale and it took until February of this year to find who actually held the mortagage.
Mike_Summey Hi Charlie
CHARLIE Hey mike and everybody
gp Mike i know you probably get this question every month, but can you tell me again the non-conv loan you take after buy for cash (5 year balloon at 15 year amortization?) just want to make sure I understand…
JustinB @mike the weekend millionaire
Mike_Summey gtvny, wait until the bank lists it for sale and then make them an offer directly. Find a Realtor who will work with you on finding properties.
gtvny do they list them immediately or does that take a long time?
Joshua Roger, I started a part-time MBA program and this weekend we have a negotiations class. Too bad you’re not teaching it!
Mike_Summey gp, I use a 5yr loan with a fixed payment and a 15yr amortization. The banks like that kind of arrangement because it keeps their maturity relatively short.
JustinB @mike & Roger since i have never purchased a property, how much would I need to get started
gp and you don’t have any problem with having multiple mortgages (no 4 or 10 mortgage limit). I need to talk to more banks i guess
Mike_Summey gtvny, sometimes they list quickly and sometimes it takes months. Right now there are always many bank owned properties on the market. Don’t get focused on just one…look at several.
Mike_Summey Justin, that depends on your credit score and the relationship you have with your bank.
Roger Dawson If you’re bying or selling on a short sale, be cautious. Buying a bank’s position does not wipe out any underlying loans the way that foreclosure does. If you’re selling a short sale does not protect you from a deficiency judgment. Also the IRS would
gtvny ok this one in particular would be a second home for my family but what you say makes sense.
Roger Dawson The IRS would consider the reduction in what you owed as income.
Mike_Summey gp, the loans I get are portfolio loans that the bank keeps. They don’t sell them. There is no limit on the number they will make other than their comfort level with you.
Ted gp, what Mike just said, goes for me too. I found that several of the local banks offer these portfolio loans once I figured out that was what I needed
Joshua Mike, in my area I have to choose between older homes (1950-1970) with no HOA or newer homes with modest HOA fee. Which would you prefer?
JustinB Sorry Mike, the book I read was the Weekend Millionaires Guide to Investing in Real Estate. Was wondering in chapter 9 i think you bought a property for $600 down, what does that number relate to today?
Roger Dawson Joshua: I hope that you enjoy the negotiating class. Perhaps they’ll use my Secrets of Power Negotiating book as the text. A lot of colleges do.
Greg_Boston Mike & Roger: Got laid off from my tech job. Don’t want to go back. Love real estate. Any thought on how to transition to a real estate job? W/ the eventual goal of building one’s own real-estate portfolio?
gp thanks, very helpful! 😀
Mike_Summey Joshua, as long as the HOA fee is factored into the expenses when you are making offers, it doesn’t really matter.
ncbob Mike do you tend to stay away from manufactured housing?
Mike_Summey Justin, when I bought that property, it was before you had to qualify to assume a loan. You can still buy for very little down by assuming someone elses loan, but you must qualify to do so.
CHARLIE Welcome dennis
Mike_Summey Hi Dennis
Joshua Mike, I hear ya, but still get concerned about HOAs getting ugly down the road and becoming investor unfriendly–like some of your and Roger’s experiences..
Dennis Hello everyone
gtvny Joshua, be careful with HOA’s. We bought our condo in Tampa, our HOA was $350 3 years ago. It is now $450 and they tacked on a $8,000 assessment for a new roof at $150 a month for 6 years and we have 13% owners not paying so it’s going ot go up even further.
JustinB @Mike OK thanks
Roger Dawson Joshua, remember that HOA means home owners association. They are not there to protect the investor owner. They also have the power to prohibit rentals altogether. If all things were equal I’d prefer the property without the HOA.
Mike_Summey Greg, many of the TV infomercial gurus will lead you to believe you can quit your job and get-rich-quick with real estate, but that mostly pie-in-the-sky dreaming. Building wealth takes time and I don’t know any easy or quick way to do it.
Mike_Summey Hi Jan
Joshua Roger, we are using Getting to Yes by Roger Fisher and The Mind & Heart of the Negotiator by Leigh Thompson
Jan Erik Good Evening
Greg_Boston @Mike. Ok, thanks!
Mike_Summey Joshua, that is more of a problem with condos than with single family homes where there is a HOA.
gtvny Mike, one of my property managers told me we can’t raise the rent this year. You preach to raise it even a little. How would you handle this situation this year in this economy?
Joshua Roger, agreed on your HOA comment, the problem is all things aren’t equal. The ones with HOA are siginicantly older (1950-1970).
Roger Dawson I owned a condo in the Palm Springs area. The HOA dues were $300, high but doable. The HOA decided to buy and manage the resort golf course and HOA went to $525.
Mike_Summey gtvny, there are times when it is difficult to raise rents, but in my opinion, the next decade will be one of the strongest rental markets we have everseen.
Joshua Mike, so have you started to acquire some SFH that are in a modest HOA (40/mo or under)?
Roger Dawson Joshua, those are both good books.
gtvny what factors will lead to future strong rental markets?
Mike_Summey Joshua, I have purchased two in the last year that have HOA of $150 per year. It is primarily for street lights and a reserve to repave the road in the future.
gp Mike, do you ( have you ) owned condos? I know you recommend SFHs which we’ve done until now, but we just bought a condo at auction. Maybe should have stuck with our plan.
Mike_Summey gtvny, the recent FREE credit and minimal loan documentation created a situation where or better renters were able to buy homes. Unfortunately, these are the very people who are now losing them in foreclosure actions. Many of these people found out that owning a home is more than just making the mortgage payment. Many of these people are now coming back into the rental market wit a mindset that they will never do that again.
Roger Dawson gtvny: even if you don’t raise the rents this year, I would still send the tenants a letter explaining that you are waiving the annual rent increase because of the economy. Get them used to thinking that the rent will go up each year.
Mike_Summey gp, I own several condos, which is why I can write from experience about the potential proplems. I don’t buy any today.
Joshua Mike, do you have a formula of sorts you use to determine your % for maintenance on an offer? You’ve said it ranges from 5-30% for you and it s dependent on age and condition of home, but wondering if there s a methodology I could learn from you for my offers?
gtvny also another negative with condo’s is lenders are forcing you to purchase H06 insurance so add another $500 per year to your condo costs.
Ted On the subject of condos, in an earlier life I managed a few thousand condos for a large management company. All I can say, is that a lot of the volunteer board members that run them have no business experience and can do some downright stupid things that hurt your real estate business . . . and often intentionally becaase they don’t like “renters”.
gtvny great point Mike. They have to live somewhere,might as well make money on it.
Roger Dawson Ted, thanks for the input. It validates what we hear a lot from investors about dealing with HOAs.
Mike_Summey Joshua, I may use 5% on a brand new home and as much as 30% on an older home that is going to need a lot of work in the near future. When buying houses, you should always consider the remaining life of roofs, heat & air conditioning systems, paint, etc. That wi what determines how much you will need to reserve in order to have the money to repair or replace these items as needed.
Mike_Summey Ted, very good point and I couldn’t agree more.
gtvny this is a question ot any one that has a septic tank. One of my SFH has a septic tank and it constantly gets full and needs to be pumped at $250 per pop. I had a new drain field installed at $3K last year and it still gets full after a strong rain. Any suggestions on what to do?
Tim Mike there are some 1 or 2 yr old TH listed for between $89,000 and 99,000 (were about $109,000 4 months ago). I am thinking of going in with a offer around $75,000. Even though that is not 70% of market value the ROI on the 20% down ($15,000) is more than 20% annualy since they will rent for $1100 to 1200 per month with about $350 cashflow after NOI and debt service. Is this still a good deal even though I am paying close to market rate?
Mike_Summey Everyone, I think the Charlie in the chat is one of my buyer’s agents. You may want to direct some of your questions to him as he knows how I work.
Roger Dawson gtvny: Thankfully, I’m not an expert on septic tanks. I have one where I live but I’ve been here 30 years and never had a problem. I don’t even know where on the property it is.
JustinB @mike how much a year does a single family rental home you own average in repairs and other miscellaneous things cost?
Mike_Summey gtvny, you may want to go to Lowe’s or Home Depot and get some septic Helper (yeast) to put in the toilets regularly. I have my managers add some twice a year to the houses I have on septic systems.
gtvny Roger, consider yourself lucky. My tenant is great and she puts up with it but not sure how much longer she will. My PM has brought in some “experts” but non one has any good solution.
gtvny Ok, worth a try. Thanks Mike!
Joshua Mike, thanks, that’s very helpful. Some of my earlier acquisitions, I probably should have built 25-30% in and only built in 10%. They’re still ok, but roofs coming due.
Mike_Summey Justin, that varies widely. Some years there will be no repairs and other years there will be several. That’s why I refer to it as a maintenance “reserve.” You set aside money each month so you will have it when you do need to repair something.
CHARLIE HI PENNY
Mike_Summey Hi Penny
JustinB @mike are the houses you have on septic also on wells?
Penny hello Mike…such troubles with signing in.I’m here until my computer kicks me out!
Mike_Summey Justin, only a few of my properties are on wells…probably less than 5%.
Mike_Summey Penny, we’ve missed you!! 😀
Penny Hi all
JustinB Hello Penny
Mike_Summey Justin, are you the local golf pro?
Roger Dawson Hi Penny!
Penny hi Justin
Penny and Roger
Joshua Mike, for the 4-20 unit complexes you bought, were they publicly listed with agents on the MLS, or did you find them in a more non-traditional way?
Penny so happy to finally get in the chat after missinbg several weeks
Roger Dawson Penny, I find that I cannot get in on Chrome. I have to use Firefox.
Mike_Summey Joshua, almost everything I have purchase was listed with a Realtor. Charlie may want to comment on this. He finds properties for me all the time.
Mike_Summey Need to step away for about 1 min. Be right back.
JustinB @mike yes the local amateur. Its Justin Byerly, I just finished the book and I am very interested.
Joshua Charlie, do you find any 4-20 unit apartment complexes listed with agents? They seem to be pretty rare here.
CHARLIE Joshua there is alot of sfh and complexes listed in the mls and as a agent you get to know alot of owners of properties and from time to time they call and ask for help to sell a whole complex
gtvny Mike, I own a few properties rolled up into 3 mortgages and a heloc. Looking forward, with banks not as willing as they were previously to lend how do you get around the 4 mortgage rule and at the same time put less than 20% down?
Mike_Summey Sorry, Had to go get a glass of water.
Mike_Summey gtvny, the 4 mortgage rule only applies if you are trying to get conventional mortgages that can be sold on the secondary market. If you get portfolio loans that the bank plans to keep, there are no limits.
Mike_Summey gtvny, it is not a good idea to put more than one property under the same mortgage.
ncbob What interest rates should we look for in the portfolio loans?
Mike_Summey Justin, which book??
Mike_Summey ncbob, currently I’m getting loans at prime with a 4.25 – 5% floor and a 7.25 – 8% cap.
JustinB WM’s Secrets To Investing in Real Estate
Mike_Summey Justin, there are three more in the series. Read the Mindset book next. It will help you in many ways other than just real estate.
gtvny What is the process for getting portfolio loans?
Ted ncbob ncbob, I don’t have Mike’s buying power but if you are interested in what the little guy gets, we just did 3 portfolio loans; 20% down, 6.42%, 20 year amortization with a 10 year call.
JustinB @mike ok thanks alot
Mike_Summey ncbob, that means I will be at prime when the rate is anywhere between the floor and the cap but it will not be lower that the floor nor higher than the cap.
Joshua Mike, if cash flow is a lot better on apartments, how come you’ve never bought a little larger complexes like 30-50 units?
Mike_Summey gtvny, talk with your banker. Let them know that you understand that there is a limit on the number of marketable loans you can have, but ask if they will consider making you loans that they will keep in their bank’s portfolio.
Mike_Summey Joshua, I don’t want to get in a position where the tail can wag the dog if something happens with the larger complex.
ncbob Thanks Ted
ncbob and Mike
Greg_Boston Mike and/or Roger, do you recommend investing in real estate via self-directed IRAs?
gtvny Mike, are there any advantages to incorporating the properties you own?
Roger Dawson Greg, I wish I knew more about that but I understand that it’s a good way to put your retirement funds to work for you.
Joshua Mike, sorry to bombard with questions about apartments. So have you found seller financing deals or did you buy them cash like you do for your SFH?
Mike_Summey On a lighter note, I just bought my sons a small airplane today. They are both pilots, but I can’t get them insured to fly our big plane until they get more fixed wing time, so I bought them a small single engine they can fly for a few dollars per hour to build time instead of over $1,000 per hour in the big plane.
broadway Mike, can you adopt me??? 🙂 Just kidding
Mike_Summey Greg, there are advantages and disadvantages to using self directed IRS to invest. I don’t know enough to properly advise you on the subject.
Greg_Boston @Mike. Ok, thank you.
ncbob There is some sort of rule to work through a uninterested third party to use RE investing for an IRA. check with your accountant.
Mike_Summey gtvny, I hold all of my properties in LLCs, but only for estate planning purposes. You should consult a good estate planning attorney for the best advice for your situation.
Roger Dawson Recently Mike flew me from Florida to NC in his King Air. It’s a georgous plane! and if he’s going to adopt anybody it’s going to be me. I’m tenured on that.
gtvny Ok thanks.
Ted Greg_Boston, you might want to go to the www.pensco.com. I have a self-directed IRA with them that I am hoping to begin to use for real estate. It all seems very complicated to get started but from what I can tell it can have some great benefits
Mike_Summey 😀
Greg_Boston @ncbob: thanks.
Penny 🙂 Roger
gtvny Roger, do you have umbrella insurance coverage?, is it worth it?
broadway That’s a good one Roger. I’d have to differ to you, that’s for sure. I love flying though. It’s the greatest. King Air is definitely a Cadillac
Mike_Summey Ted & Greg, I understand that you can’t borrow money in a self directed IRA, which eliminates the advantages of being able to use leverage.
Joshua Mike, sorry to bombard with questions about apartments. So have you found seller financing deals or did you buy them cash like you do for your SFH?
Greg_Boston @Ted. Thanks.
Roger Dawson gtvny: I’ve never had umbrella insurance but then I’ve never been sued and I’ve never sued anyone other than tenants who wouldn’t pay their rent. Mike’s a believer in it, though.
Ted Mike_Summey, I’ve been told in the books and by my PENSCO rep, that you can’t personally guarantee the debt . . . but you CAN borrow. Clearly though that makes it tougher to borrow 🙁
Mike_Summey Joshua, I have found that seller financing is more prevalent when buying apartments that SFHs.
gtvny you were sued by tenants that wouldn’t pay their rent?
Mike_Summey Everyone, get our Offer Generator program and make some offers this month. I’d like to see you all back here next month with a report on how many offers you made and what happened.
gtvny Offer Generator is great, works for me!
Mike_Summey Charlie, tell everyone how many offers I make with you each month.
Joshua Mike, for 12 SFH and one 4-plex (that’s extent of assets), how much liability insurance coverage would you recommend? Rule of thumb?
Roger Dawson Broadway: Did I ever tell you about the time Mike flew me into Tallahassi airport inches in front of a massive rain storm? He took five years off my lifespan.
Mike_Summey Joshua, umbrella coverage is very cheap. I personally carry $10,000,000 and it is less than $1,000 per year.
gtvny Mike, Roger says you say yes to Umbrella Insurance coverage?
CHARLIE Mike we make as little as 10 offers a month and have made as many as 20 in a month
Mike_Summey Roger, you are not supposed to tell that kind of stuff!
broadway Roger, no I’ve not heard that story. That would cause some tense moments. I’ve flown to Birmingham Al, in the clouds until about 1000 ft from the runway. That’s tense enough for me
Joshua Mike, Nationwide?
Mike_Summey Joshua, yes!
Joshua They’re excellent. Thanks Mike and Roger as always! Excellent stuff!
Roger Dawson I have to run. I’m off to Grand Rapids early tomorrow to conduct a seminar for hospital execs.
Mike_Summey Broadway, Roger can be a woooss in an airplane. It was nothing but a short approach in front of an approaching storm…although a very short approach.
gtvny bye Roger!
broadway Mike, LOL, I understand…..the passenger alwayse seems to have a different perspective don’t they!
gtvny Mike, this was my first time in the chat, thanks for the great information. See you next month!
CHARLIE See everybody next month, mike lets go fishing
Mike_Summey Everyone, it has been nice. I have a full day tomorrow as well so I’m going to sign off too. See you here next month. Transcript will be posted day after tomorrow instead of tomorrow.
Dennis goodnite
gp thanks again mike
broadway Thank you Mike and Roger too!!! everyone have a great month!
broadway g-nite!

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