Chat Transcript – November 2, 2010

Posted on November 4, 2010

Roger Dawson Hi Mike!
Mike_Summey Looks like we’re the first ones here.
Roger Dawson Hi gp
Mike_Summey Hi gp
gp evening friends
Mike_Summey gp, where ya from?
gp McKinney TX, originally FL
Mike_Summey Where is that from Dallas?
gp Yes North Dallas, 10th best place to live acc. to Money Mag
Mike_Summey gp, are you familar with Al Lee
gp and a great place to invest
Roger Dawson Hi Ted and Liberty Brad
Mike_Summey Hi Ted & Liberty
gp No
LibertyBrad Hello
LibertyBrad I am not familiar either
Ted Hello Mike and Roger
Mike_Summey Hi Joshua
gp myrentproperty.com
gp ?
Joshua Hi Mike, Hi Roger
Mike_Summey Hi Greg
Greg Hi Mike & Roger!
Roger Dawson I’m in Southern California and there’s not much change in the RE market. Investors are snapping up bargains in the 100K to 150K range. These are properties that were selling for over twice that.
Mike_Summey gp, that’s him! He used to join our chat regularly and want to debate me on whether is was best to have cash reserves or be fully invested.
Mike_Summey Hi Sarah
Sarah Hi Mike,
Roger Dawson In the higher priced market buyers are having trouble getting financing. Even perfect credit and 20% down doesn’t guarantee you a loan.
gp interesting, he may have changed his mind about reserves after the crash.
Mike_Summey I spoke with him about a year ago and he said I had won the debate without even having it.
gp heh
Mike_Summey Has anyone been asked to prove your liquidty by a bank?
Sarah I’ve read your books and listened to your CDs multiple times, and have followed the chats for the last few months. I’m new to RE Investing. I live in Columbia SC. Since you work so close to here, can you recommend any specific companies or people in this area; banks, contractors, property managers etc. Thank you!
Ted Mike, I’ve not been asked that, but recently when I was having trouble getting the loan approved, I took the extra step of providing a very detailed net worth statement to push them along. learned a valuable lesson . . should have submitted that with the application.
Mike_Summey Roger, I’m seeing people with credit scores in the 750+ range having problem getting loans. Just think only a couple of years ago they were calling people with 550 scores to see if they wanted a loan.
Mike_Summey Sarah, my son Matt lives in Columbia. He is an Apache pilot that flies out of McIntyre.
gp No. i try to work with my credit union that i do all my banking with anyway.
Mike_Summey Good point Ted.
Sarah Mike, that’s great. My brother flies Blackhawks (not here). Does Matt invest in RE and would he be willing to talk with me?
Mike_Summey I’ve had no problem getting all the credit I needed, but three of my banks have asked me to provide copies of bank statements proving that I have the liquidity that I show on my financial statement.
gp Mike, wanted to ask you if/when the OG will be available for Win7
gp When I worked with previous mortgage brokers they asked for proof of funds. In FL they are requiring it with offers
Mike_Summey Sarah, he does. He owns several properties and has an offer pending now. He just flew to Enterprise, Al today to check on some of his properties. Flew back this afternoon.
Ted Mike, I may have misunderstood your question . . . yes, my bank has asked for statements to proof not only funds to close but funds for what they perceive are reasonable reserves.
LibertyBrad I just quit corporate America today to go fulltime as a RE Broker… Has anyone dipped temporarily their retirement (401k, rollover IRA…) and are there any tricks to that as I know I can use this money to make better money? My credit union is keeping all its reserves only for biz clients from 2009 and prior as they are so capped. (Houston)
Sarah Mike, are you saying he’d be willing to talk with me? I’d be so grateful!
Ted LibertyBrad, research converting your 401k to a self-directed IRA. There are many opportunities to use these funds for investments as long as you are careful to not tick off the IRS.
Mike_Summey gp, the OG will work with Windows 7, but there have been some installation problems reported, but other people have not had problems. We probably won’t update the program until the market starts to rebound. Most buyers of the program still use prior version of Windows or Macintosh.
gp LB, I haven’t but am planning to on our next property to pay cash on it. I’ve looked into it.
gp I get the install error.
Mike_Summey Brad, I don’t know a lot about using IRA funds to invest. My understanding is that you can use funds in a self-directed IRA to buy investment properties, but that about all I know. Just be careful withdrawing funds because you may get hit with a big tax bill if you are under 59.
LibertyBrad I am looking at rolling 401k into Roth IRA as there is no 10% penalty now for early withdrawl as well… but still have read that you must have good reason as in financial hardship of sorts… but then I heard it is really easy to withdraw, just as you are saying about the IRS getting ticked
Mike_Summey gp, have you trid to just proceed when you get the error message?
LibertyBrad I will look into the self-directed IRA as that is new to me
Ted Brad and Mike, PENSCO and Entrust are two of the biggest firms that offer self-directed IRAs (I’m invested with PENSCO) and the have great free educational webinars about how to do it without getting in trouble.
Mike_Summey Ted, we have had a representative with Entrust in a previous chat, but it was several years ago. I may invite him back again.
Joshua Mike, I’d like to inspect a few of my properties with my mgmt co while they are still occupied to check condition. Do you do that from time to time with your mgmt co? I don’t want to give them more than 1 day notice because I want to see really how they’re keeping the property. What do you think?
Greg @LibertyBrad and @Ted. Yea, I’ve watched some of the free Entrust webinars on self-directed IRAs. Good stuff.
Mike_Summey Hi margaret
margaret Hi Mike
gp it won’t let me. I’ll email you the error later.
Mike_Summey Joshua, I do inspections all the time. You just have to give the tenants the required notice which in most cases is 24 hours.
LibertyBrad Will definitely look into those. I know that I would get frustrated having that $$ tied up doing very little if any upward over the coming years
Mike_Summey gp, do that and I’ll forward it to our programmer.
Greg @LibertyBrad. Beats going down in a Bear (stocks) market!
Ted On the IRA issue, there is a great book titled “IRA Wealth” by Patrick W. Rice. I’ve read it twice.
Sarah Mike, do you think Matt would be willing to talk with me? Can I give you my contact information outside of the chat room somehow?
Mike_Summey gp, I still use Windows XP and the program runs great on it. I use it almost every day to prepare offers. I probably average making 20-50 offers per month. I can calculate a new offer in less than 5 minutes.
LibertyBrad Well.. if you do your homework in RE investments, should beat any market!
Joshua Mike, thanks. In TX the contract actually says you don’t have to give them any notice at all to check property condition, but believe I should be courteous. If you see things that are obviously not being taken care of, what do you do? Have a private conversation with mgmt co, with tenant, etc?
Greg @LibertyBrad. I agree … now that’s … liberty!
Roger Dawson Sarah: Matt just got married 6 weeks ago. He’s kinda busy right now.
Mike_Summey Hi WPS
Mike_Summey Hi gtvny
wps Good Evening
gtvny Hi Mike, sorry I’m late, had to give the baby a bath.
margaret Mike, Can you tell me the pros and cons of holding your properties privately vs. LLC
Mike_Summey gtvny, I understand.
Mike_Summey Joshua, I never talk to the tenants. Most of them do not even know who I am. I pay managers to take care of things and I believe you should let them do it. If they don’t perform to your standards, fire them and get one who will.
LibertyBrad @ Joshua, why do you feel the need to inspect your properties? Is the mgmt company not reporting to you as you think they should?
gtvny Mike or Roger, how do you feel about using the 203K for a personal home then convert that to a rental after 2 years?
Mike_Summey margaret, I hold all my properties in LLC for estate planning purposes. I held them individually up until about 10 years ago. I know there are people selling the idea of using LLC for liability protection purposes, but I’m not sure that is worth the cost. It’s not that hard to pierce the veil of an LLC if you have a good case.
Mike_Summey Hi Jan-EriK
Jan-Erik Good evening Mike
Joshua Mike, that’s good advice, thanks. I will tell my mgmt co not to let them know who I am when we walk them. In your experience, what tactics have your mgmt companies used to get tenants to clean up or take better care of properties if you don’t like what you see when you inspect? Wanna know what to look for…
Roger Dawson GTVNY: I got started in real estate investing by renting out my home when I got transferred to a new city. You’ve got to be willing to live in a modest home for a while. I don’t know what 203K is. I was using FHA loans, which permit you to get a second loan if you get transferred.
Mike_Summey Joshua, look at the lease your management company uses. It should spell out what is acceptable and what is not as far as maintenance and upkeep. If it doesn’t, talk with the management company about incoroprating it into a new lease for future tenants.
Mike_Summey Has anyone got any offer pending at this time?
LibertyBrad I have a guardianship sale pending – flip property
margaret no do you?
margaret Mike, I love to hear of you successes!!!
LibertyBrad I switched from a hardmoney lender to a stretch of an all-cash sale
LibertyBrad yes… tell us about your deals!
Jan-Erik I have one waiting to close and one in negotiations…
Greg @margaret. If you’re looking for liability protection, I’d sugget speaking w/ lawyers that specialize in real estate. LLC is not the only way to go.
gtvny A local real estate agent had a seminar last week on 203K and it’s an FHA loan that allows you to borrow the full amount of the cost of the home plus a min. of $5k to max. $292 in repairs. You can add rooms if you want also. Seems like an easy equity play.
Mike_Summey margaret, I’ve been doing this for a long time, so I have some advantages most people do not have. I can tell you this…banks are looking for good loans. They have so much money sitting idle it is unbelievable.
Joshua Mike, the leases spell out the details, just wondering how you enforce? In other words, if they’re paying rent on time, do you still have mgmt co evict for breach of contract if property still is not being kept up after a reinspection?
Mike_Summey Hi Sparky
sparky37 Hello Mike and Roger
Mike_Summey Greg, good advice to Margaret. It’s hard to beat a good liability policy.
Joshua LibertyBrad, my mgmt cos do a good job, but I think it’s important to get out an inspect every once in a while. I always inspect in between tenants, but this will be my first time while my properties are occupied.
Mike_Summey gtvny, I’m not familar with the 203K.
Mike_Summey Joshua, I try to take each of my bankers to ride and look at the properties they are financing at leas once a year.
gtvny hmmm, odd that both you and Roger never heard of it. I’ll research it more.
Ted gtvny, I believe you will find that 203K progrma might only be for owner-occupied deals.
Greg Thanks Mike.
sparky37 Mike, how do you see the markets in NC & SC? Are they improving or still going down or stabile?
gtvny Yes Ted, they did say that but I think you only need to stay their one year. But if you buy a 2/1 in an amazing neighborhood and convert it to a 3/2 it could be a huge win.
gp Mike, for a OG cash offer, is the Purchase Price field automatically providing the ‘max’ cash offer for the desired NOI?
LibertyBrad Joshua I agree… one of my friends clients had 20k of pot growing in his 2 story quiet suburban home 2 months after the new tenants moved in. Insurance did pay for the FBI breaking the door down
Mike_Summey One area that’s hard for me to advise people on is getting a “conventional qualifying” loan. That’s a loan that will be sold on the secondary market. In nearly 40 years, I’ve never applied for that type loan.
Joshua Mike, how long do you wait to do a reinspection if the property is not up to snuff the first go round? 14 days, 30 days?
Mike_Summey sparky, I think the markets will continue to go down until all of the unsold inventory has been absorbed. That could be years into the future.
Ted And those “conventional” loans are the ones that you hear about the limits of 4-10 loans per borrower. A real pain for an active investor.
Roger Dawson Margaret: you asked about LLCs. They don’t protect you from lawsuits. You need an insurance policy if you’re worried about that (I’ve never been sued and have never sued anyone other than tenants who wouldn’t pay their rent). LLCs don’t help you get financing. You’ll have to sign a personal guarantee anyway. LLCs are helpful for estate planning.
Mike_Summey gp, on a cash offer the OG allows you to input the rate of return you want on your cash and then it shows you the amount you can pay to get that return. Of course any price you negotiate below that amount is only increasing your return.
gp got it.
Mike_Summey Joshua, I require my property managers to do an inspection within 30-60 days after a tenant moves in. If the property is not being kept up to expected standards, they then reinspect monthly until things are done properly.
Mike_Summey Ted, that is correct.
gp have you ever done a wrap mort. to aquire the property? I wasn’t sure how or if I could generate that type of offer in the OG…
Joshua Mike, thanks. Have you ever had your mgmt co evict a tenant (even when they always paid rent on time) because they couldn’t keep the property up to standards during the reinspections?
Mike_Summey Joshua, yes I have.
gtvny Mike?Roger, in your books you preach about ensuring you raise the rent each year. I have one PM that told me I can’t raise rent this year due to the market conditions, would you take their word or challenge them on it?
Ted gp I’d be interested in that answer too . . . I’ve understood that most loan docs prohibit a wrap around them these days . . .
Joshua Mike, great thanks, very helpful advice for when I go out in a week or so. Appreciate it
Mike_Summey gp, give me more information. Are you talking about buying a property from someone who sells you the property without paying off the existing mortage and then makes a new mortgage that wraps around the existing one?
gp yes, placing it in a trust, and the buyer refinancing later to eliminate the previous note
Roger Dawson Wrap around loans are pretty much a thing of the past. Any transfer of title means that the lender can call the underlying loan. There are some RE gurus out they saying they have a way of doing so the lender doesn’t find out, but we would never do that.
Mike_Summey gtvny, there are some situations that prevent raising the mortgage each year, but they are rare and usually apply to areas where major industries have left the area leaving more product on the market than it can support. Even in a tight market, a $5-$10 per month increase is not enough to run off a tenant. It will cost several hundred dollars for them to move.
gtvny Great, Thanks!!
Joshua Mike, how do your mgmt co’s independent contractors charge? Per job or per hour? If by hour, how much?
Mike_Summey gp, Roger is correct! Stay away from that type deal. What if the seller defaults on the first mortgage? You could make payments for years and still lose everything.
margaret Thanks everyone for your feedback. That was what I was thinking, but wanted some reassurance. Appreciate ya’ll.
Roger Dawson Even if you don’t raise the rent, I would still notify the tenants that you are waiving the annual rent increase because of the economy. You want them to understand that rents normally go up every year.
Mike_Summey Joshua, usually small jobs are by the hour. I require at least two bids for repairs over $500.
Greg Re. financing, anyone pitching deals to “whales” (wealthy people) at their local real-estate clubs (REIAs)?
gtvny Thanks Roger!
Mike_Summey Hi Jess
Jess hi Mike and everyone
Mike_Summey Things are a bit slow tonight. I guess everyone is wringing their hands and trying to figure out who to vote for tomorrow.
Roger Dawson Mike what are you paying handymen in the Carolinas. In California we have to pay about $35 an hour, which sounds high to me. Even our house cleaner gets $20 an hour.
Mike_Summey Roger, in NC I pay $12-$!8 per hour.
Mike_Summey $18
Mike_Summey Hi jace
jacepharm@gmail.com Sorry im so late
jacepharm@gmail.com ke
Mike_Summey Does everyone in the chat have the Offer Generator?
jacepharm@gmail.com Mike quick question before you log off
margaret yes
jacepharm@gmail.com Mike:Do you recommend purchasing property in a state other than your home state and using a property manager
gtvny yes I do
LibertyBrad Offer Generator? No.
jacepharm@gmail.com Yes I do
margaret “buy what you know”, right?
Mike_Summey jace, I invest in NC, SC and AL. In each state I have a group of properties that meet the criteria we talk about in our book. In each market, all properties are withing 10 miles of each other. I can visit a market and see all the properties within a day.
LibertyBrad can you me what the offer generator is anyone?
LibertyBrad Ahh.. the OG that was mentioned before
Mike_Summey Liberty, if you don’t have it you need to get it. It will save you a tremendous amount of time and money. Ask anyone in the chat who has it.
gtvny Mike, are trips to visit the properties tax deductible? I recall once a year but I’m not 100% sure.
jacepharm@gmail.com Mike-I am from NJ and have been speaking to a property management firm in Memphis TN and all looks good but not sure about the distance
Mike_Summey gtvny, every trip is deductible.
gp Does it include/generate the base contract?
LibertyBrad Its just a program to download off your site?
jacepharm@gmail.com Mike-They sell, and manage properties…Is that a good or bad sign?
Mike_Summey gp, no it does not. It will generate a “Letter of Intent” that if acceptable to the the seller can be transferred to contract form. The reason it does not generate the contract is because laws vary widely from area to area.
wps jace wher in NJ are you located?
jacepharm@gmail.com wps-Paramus, NJ.
wps I’m in Central Nj
Mike_Summey Liberty, it is available for $69.95 at www.weekendmillionaire.com/store/
LibertyBrad ok… I will check it out.
gtvny he Jace, where in NJ? I own homes in NJ and Florida.
jacepharm@gmail.com WPS-what about you
jacepharm@gmail.com gtvny-Paramus NJ
gtvny I’m from Lyndhurst and own property in Toms River.
jacepharm@gmail.com thats awesome
gtvny I work for a company in Franklin Lakes.
jacepharm@gmail.com gtvny-I own properties in Hudson county, Union City, West New York and PAramus
gtvny Very close to Paramus.
gtvny you have all the city traffic.
jacepharm@gmail.com Yes
jacepharm@gmail.com I like the low vacancy rates
gtvny Are you having a hard time raising rent this year?
Mike_Summey Does anyone have a question you didn’t get answered before we wrap up tonight?
LibertyBrad Thanks for the advice guys on the self-directed IRA… will investigate more and also the OG. Baby time calls.
sparky37 Gt – must be BD
jacepharm@gmail.com Mike-Thanks for the answer…So I guess it ok to own outside of nmy home state
gtvny goodnight everyone!
jacepharm@gmail.com GTvny-Good Night
gp Thanks again Mike/Roger. Always helpful.
Mike_Summey jace, what you want to be careful about is getting scattered around so much that you can’t look after your investments. A good rule of thumb is to keep them concentrated within about 10 miles of your property manager.
jacepharm@gmail.com Mike-Excellent! Thank you
Roger Dawson Good night everyone. Next month I’ll be speaking in China but I’ll be back in the chat in January.
jacepharm@gmail.com Mike-That is extremely helpful
jacepharm@gmail.com Mike-Have a good night!
Mike_Summey Well, the time has passed quickly. have a good month and I’ll see you here December 6th.
Mike_Summey BE SURE TO VOTE TOMORROW!!!!
sparky37 Good night Mike

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