Chat Transcript – February 7, 2011

Posted on February 9, 2011

Mike_Summey Hi broadway! Looks like we’re early.
Mike_Summey Hi SWMontana
broadway Hello Mike! Yes, we are
SWMontana Hi Mr Summey
Mike_Summey Hi rh & Greg
Greg Hi Mike!
rh hello
rh Mike, I was wondering how far you go into the finer details with your rehab. I have a property that’s in very good shape but the closets are really plain one-shelf affairs, the front door is a flat white slab and some of the paint on the exterior trim is aging. I was considering making some improvements, but my property manager is telling me not to bother because tenants don’t care and I won’t get any more money for rent. I’m very torn because I think it will enhance the appeal of the property, but at the same time I understand I may not get much return on my investment. How detailed do you go in your rehabs?
Mike_Summey SWMontana, is that you Justin?
SWMontana Yes it is
Mike_Summey Hi Charlie
CHARLIE Hey every body
newbie hello everyone
Mike_Summey Hi newbie
Roger Dawson Hi everyone. Greetings from Sunny Los Angeles
Mike_Summey rh, listen to your property manager. That’s what you pay them for. You will not be living in the property, so don’t try to keep it to your standards.
Mike_Summey Hi Roger,
Mike_Summey Hi gilbert & splat
rh Mike, along those lines do you do much landscape work on properties. I wanted to give one of my properties a little more curb appeal, but I became hesitant to spend much money when I found out I couldn’t depreciate the landscaping work.
Mike_Summey Hi lbmustang
Mike_Summey Hi Michael
lbmustang hello
newbie Mike: do you always go to the bank to fund your properties ? I know that at least sometime, you are buyinhg for cash and mortgaging later. do you always use banks. I know a lot of investors that swear not to use banks
Mike_Summey rh, I try to keep my properties well maintained, but try not to spend too much on things that won’t enhance the income.
newbie Rh– landscaping may increase income if it gets it rented faster (decreasing vacancy rate)
Michael De Good evening
Splat I am very new to this and read/listened twice. My question is do I need to start a business with the state? Audio sessions don’t talk about this.
Mike_Summey newbie, I don’t know any true investors who don’t use banks. A lot of wannabe investors listen to all the late night infomercials about quirky financing etc.
Mike_Summey Hi daniel
daniel.rei.cheng Hi Mike, I am a newbie too.
Mike_Summey splat, I’m not sure about your question. Start a business with the state?
newbie then how to keep from getting maxed out ? its seems that after a few properties for the avg person, your debt to income ratio would prevent you from getting more loans
Mike_Summey all newbies, we’re all friends here and are here to help, so don’t be bashful. If you have a question, ask it & we will try to answer it.
Mike_Summey newbie, you have to be patient and grow the business slowly as you capital improves. If you try to grow too fast, you will put yourself at risk and the bank too.
Roger Dawson Landscaping cannot be depreciated because it is considered part of the land.
rh Newbie, banks also look at your schedule E income. Your properties will eventually help your debt to income ratio.
Michael De Mike, how do you feel about College student housing
Roger Dawson Land cannot be depreciated. Only the buildings.
Splat For example, the business would buy and rent prperties, pay fees to upgrade/fix properties, have income & expenses and then I would collect as owner. Sounds like the answer would be no. I hear LLC’s have many protections worth using so assumed some “business” would be needed.
SWMontana Mike and Roger, after reading your books I believe I know your answer to my question. If I am looking for a “farm” in my area, and I have an option between a big city and its suburb, what is your advice on where to look…the city or suburb?
Mike_Summey Michael, if you rent to college students, have the parents sign and guarantee the lease and any damages.
Roger Dawson On college rentals consider that you need to make your annual income in nine months.
newbie any tips on insurance coverage for rental properties?
Mike_Summey Splat, LLCs do provide some layer of protection, but so does good liability insurance. I use LLCs primarily for estate planning purposes, not liability protection.
Mike_Summey Hi Jason
Michael De At local college (WVU) , students have to sign 12 month lease
Jason Hello
Roger Dawson SWMontana: you need to consider the city. Many cities are being gentrified and are gaining in value. Many inner citties are undesirable and are difficult to rent — think Detroit.
Mike_Summey Montana, in the beginning I think I would stick to the suburbs until you get some experience. A good property manager can advise you on the best places to invest in your area.
Michael De What do you think about new construction rental?
Mike_Summey newbie, I carry all risk coverage on each property and a large blanket liability policy to cover any risks above the base policy limits.
Gilbert To start buying apartment buildings, do we have to use LLCs or others forms of entities or can we just start buying on our own name?
Mike_Summey Charlie, have you gotten a price on the paint job we discussed?
Roger Dawson Gilbert: You buy in your own name. The lender will require you to personally sign the loan docs anyway.
Splat You say zero down is best for return on investment, I’m sure banks don’t do many of these, so these are all loans you assume or creative financing?
newbie rodger and mike: do you know of any good references/ books on est rehabbing cost ? I am able to recognize what needs to be repaired , but no idea on how to est cost w/o getting a contractor in there
lbmustang We are military and currently stationed in TX (great market right now) and own a home in VA (currently renting out), do you think it is wise to buy in an area that we may not live in for long? Our VA home has been easy to manage but not sure if it would be hard with multiple properties!
newbie lbmustang which part of TX. I am in Hou
lbmustang right near, Dickinson!
Mike_Summey Gilbert, I bought in just my name for 25 years before shifting everything to LLCs for estate planning purposes. Using LLCs are good, but expect to personally guarantee any loans to the LLC.
CHARLIE Mike yes, and ann has the list narrowed down
Roger Dawson lbmustand: thank you for serving our country.
lbmustang u welcome!
Mike_Summey splat, about the only way to get 0 down financing is to buy the property for cash, get it fixed up and rented and then go to the bank for a loan based on the appraised value and cash flow.
Roger Dawson Mike: that makes you wonder why the seller of the property wouldn’t do the same thing.
Jason Hey Charlie and Roger
rh Splat, I’ve been working with banks lately to finance my property and I have to say that in this climate it’s better to have a down payment available to you. Banks are very skittish about financing non-owner occupied properties until you have some time to establish yourself. They prefer that you have some equity in the property.
Roger Dawson Hi Jason!
CHARLIE Hey jason how is the boy and mom to be
Mike_Summey newbie, it does take experience to be able to extimate repair costs. If you can find a good contractor that would be willing to help you that would be your best bet. Just keep in mind that you will have to give him/her enough work to make it worth their while helping you with the estimates.
Jason Boy is wild and Mom is ready to not be pregnant 🙂
Mike_Summey newbie, I use Charlie for that purpose in SC.
newbie the problem is getting a contractor that will view the property before being under contract 🙁
lbmustang Any thoughts on buying out of the area one lives in?
Mike_Summey newbie, I understand. That is a problem unless you can convince the contractor that you are for real and will ultimately give them work.
CHARLIE Newbie ask the contractor that you are using to give you prices per sq. Ft to paint, carpet,etc that will help in cost figuring
Jason lbmustang my brother is in the Army and thank you from here as well…We have property in Anderson, SC and Enterprise, AL, and I live in NC. We have property managers in place to manage these and these locations are where the market has been good for us lately
Mike_Summey mustang, if you buy out of area, find an area and concentrate on it. Don’t get scattered all over the country. I have 3 areas of concentration and keep adding to each one.
Gilbert Can we edit entirely the LOI of the Offer Generator and just email it to the seller/broker?
Splat My sister works for property management company with many East Coast owners. Banks are foreclosing many of them so market is ripe but I have no experience. I have a friend who is in this business for 35 years. Had Kurt Cobain as renter once. Would a partnership be worth it for this potential deal?
newbie mike and rodger: it seems that small mult-family (2-4) units would almost always be more proftiable/ cash flow than a single family homes. But I know that you guys focus on single family. Is my assumption completely off ?
Mike_Summey Gilbert, you can do all the editing you want to the letter produced by the OG or you can save it as a word document and bring it up with Word or other text editing program and edit it there.
rh Mike, I know sometimes you have gone back and made offers on the same property six months later. I can’t remember the offers I made two months ago. How do you keep track of them?
lbmustang Jason, thanks to your brother for his service, and I think Mike told me his son is a pilot in the service. Thanks to all that serve. Am in my 26th year!! Always love these chats and learn so much. Finished Millionaire Mindset and had ordered the Real Estate Ones! Can’t wait to get them!
newbie has anyone had any experience renting out a garage apt that is on the same lot as a single family home
Roger Dawson Newbie: I believe in having a range of properties. Multi-units for good cash flow and single family for rapid appreciation and ease of selling in case you need to raise cash (Mike doesn’t believe in every selling so he won’t agree with the last part.)
Mike_Summey newbie, we recommend single family homes as a starting point because they are the easies to finance, easiest to manage and easiest to get out of if you find you just don’t like the real estate investing business. Once you get some experience you can then move into the larger properties.
lbmustang That’s funny Roger, cause I remember Mike saying last chat that he never buys property with the intent to sell.
CHARLIE Rh that is why you find a good agent and he can keep you in formed. If he is good enough he can almost make the offer for you.
Mike_Summey rh, I keep a file of all the offers I make. I have a new file for each date. Sometimes I will make 10-15 offers in a single day, so I have lots of rejected offers.
newbie are you having better experience with REO now than non-reo properties ?
Roger Dawson Newbie: find out from the city if it’s legal. Some will require a car port but let you convert the garage into a rental. Other areas are very strongly againsr two families living on one lot.
lbmustang Newbie, I would check with the Homeowners Assoc. if there is one too!
Mike_Summey mustang, if you have to sell an property to make a profit, you’re not an investor, you are a speculator and sooner or later you will get burned.
lbmustang I know! I love that you said that last time. That statement made such an impact with me. Helpful info!
Roger Dawson We are very down on investing where you have to deal with homeowners associations. They are seldom friendly to absentee owners and often have the power to prohibit rentals.
newbie roger and mike: what has been your best strategy for finding motivate sellers ? Are you just finding properties on the MLS and making offers or advertising to find motivated sellers ? Do you use “wholesalers”–ppl who find deals and get them under contract and assign you the contract
lbmustang Thanks that was good info about buying where there are associations.
Splat Plus Home Associations would cut into profits and limit freedom of property mangagement.
Mike_Summey newbie, it depends on the market. I’m having more success with REOs in SC, but more success with individual sellers in AL. It depends on the market.
Mike_Summey Hi Penny
Penny Hi Mike. I made it.
Mike_Summey newbie, if you can find a good real estate agent who will act as a buyer’s agent for you that works well. Charlie does that for me in SC.
Penny Hi Roger and everyone!
Roger Dawson LBmustang: I assume as a serviceman that you can buy a home with a GI loan everytime you get transferred? If so, that’s a great way to build a portfolio.
Roger Dawson Hi Penny!
Splat I don’t think VA loans can be used for investment properties. Could be wrong.
lbmustang Not sure, would have to look into it.
Mike_Summey Hi jdodier
jdodier Hi Mike good evening! Hope you are well.
Gilbert Will buying apartment buildings on your own name give you any protection when sued by tenants or other greedy parties?
SWMontana Charlie, are you using your MLS service to find property in SC?
Splat I had to request paid off house to have my VA loan re-established once loan closed. But the VA loan has a ceiling limit so you may be able to use the VA loan to its ceiling 4 investment.
CHARLIE Swmontana yes i use the mls and properties managers inform me of people wanting to sell also
jdodier Mike, as I stated in my email what should I be doing to obtain financing. I am young and I currently have a two unit investment property that I bought with FHA financing, I live in one of the units. I have a good amount of savings and great credit, but I want to put down as little as possible. Its alot tougher these days so I feel kind of stuck. I definitley would prefer not to use a hard money lender.
Mike_Summey mustang, I don’t think you can use you VA loan but once at a time. If you get a VA loan, and you get transferred, I think you have to sell or refinance that home before you can open up you VA loan for use again. My son Matt has not used his VA loan even though he owns several homes. I think he is waiting to use it on a primary residence when he settles down.
Roger Dawson Splat: You wouldn’t be able to buy a property for rental purposes with a VA loan but if you lived in the property until you had to move I don’t see how they could call the loan.
newbie I am under contract for a property. The interest rate is really loan but there is a balloon at the end of yr 5. What factors would you consider in refinancing vs paying loan off in cash. Of course, if you pay off the loan your cash flow will increas, but your return on cash would decrease. In this market (buyer’s market) would you use so much cash ?
Mike_Summey Gilbert, carry liability insurance to protect yourself. Anyone can sue you for any reason; but that doesn’t mean the can get anything. They will have to prove that you are liable.
newbie interest rate is low* (several typos above)
Splat Another wealth program says manufactured/mobile home investing is a great place to go since prices are low along with maintenance. Also worst case, replacement cost is much lower than new stick build. What do you all think?
Mike_Summey jdodier, if you can get together enough money to buy one property for cash, get it repaired and rented, then get a loan, you can often get all of your cash back out and do it over again. Just be patient. Don’t thy to do too much too fast. If you ony buy one property a year for 15 years, you will be quite wealthy as a young man.
newbie roger: doing any speaking engagements in TX coming up ?
jdodier Mike: will you be on the east coast at all in the next few months?
newbie several yrs ago Rodger spoke to the real estate investment club I participate in
Mike_Summey newbie, at the end of 5 years, just renew for another 5. I’ve never used anything but loans with 5 year balloons. The banks make the loans that way so their maturity dates are not stretched out too far. You may have a rate adjustment when you renew, but that adjustment can be both up and down.
Mike_Summey Splat, mobile homes depreciate in value. Enough said.
Gilbert Is liability insurance just like an asset protection?
jdodier Mike, when you say get together enough cash you mean to pay the full 20% down payment requirement for rental properties or actually by the house with 100% cash?
Mike_Summey jdodier, I’m not doing any speaking right now. I’m too busy buying properties.
Mike_Summey Gilbert, liability insurance protects you from lawsuits filed by tenants and other for things like falls and other injuries sustained on your properties.
newbie for insurance purposes: if the
Mike_Summey jdodier, I mean to buy the property with 100% cash and the finance it later.
lbmustang is that liability insurance bought on each property or is it a policy that covers you personally?
Gilbert Many thanks Mike
newbie for insurance purposes: if your llc owns the property do you get liability for the LLC and yourself personally ? or just yourself personally ?
newbie liablity insurance that is
broadway Mike, how much liability insurance do you get based on the value of the house? is it 100% of the value or more?
Mike_Summey mustang, you can buy what is called an umbrella policy that covers you in many instances other than just liability on your rental properties. An umbrella policy covers above and beyond things like homeowners and auto policies as well as the all risk policies on your investment properties.
Mike_Summey Hi dena
dena gettleman hello
Mike_Summey newbie, the insurance policies I carry cover me personally an all of my LLCs.
Mike_Summey broadway, the liability insurance is not tied to property values. You cover the value of the properties with an all risk, fire, storm, etc. policy which is based on the value of the property. The amount of liability coverage should bear some relationship to your net worth. You’re protecting that from a damage suit in which you are found liable.
broadway Thanks Mike.
Roger Dawson Sorry for my absense. My internet connection went down and I couldn’t get it back.
newbie roger- coming to tx for any speaking engagements this yr?
Mike_Summey SWMontana, are you in Dillon?
Splat So say you make an offer for $85,000 with $15,000 on a valued property of around $120k. Do banks consider this an easy loan as long as your credit is good? I’m still stuck on how to get the zero down thing to work.
SWMontana Yes I am 🙂
Roger Dawson Newbie: you asked about speaking engagements in Texas. No I don’t, but you can see me in Poland in March, Malaysia in April and Trinidad in June.
Mike_Summey SWMontana, I thought so!
lbmustang Thanks for all the great info again, gotta run! Good night! See ya next month!
dena gettleman is the chat an hour?
newbie roger- too bad. i spoke with some people who attended one of your speaking engagements several yrs back and they truly enjoyed it
dena gettleman i suppose i missed it if so
Mike_Summey Splat, until you get some experience, I’d forget about zero down loans. They are a thing of the past if you’re trying to get financing to make the initial purchase.
Roger Dawson Thanks for the compliment Newbie
Mike_Summey dena, the chat lasts an hour, but we started about 50 min ago. You’re a bit late.
CHARLIE Swmontana do you fish
SWMontana Mike, when I was asking about the city vs suburb, I was refering to Bozeman vs Belgrade. Any thoughgts?
newbie mike- do you participate in tenant selection. i know that your property mgt does a lot of the screening but do you have the final yes/ no.
SWMontana Charlie, Yes and I do and I will look forward to seeing you in August
newbie if so, what are some of the things you look for in a tenant?
Mike_Summey SWMontana, not really. I don’t know either market well enough to advise you. Read the books and apply what is in them. That will tell you which way to go.
SWMontana Mike_Summey Got it.
rh Splat, I’m a new investor and banks are certainly willing to provide me with financing, but they have been very, very cautious and they scrutinize my finances carefully. In this climate, and with my level of investing experience, I don’t think I’ll be able to get financing on a property above the purchase price. At least not yet. 🙂
Splat Thanks on the banks info. I have a pretty good relationship with one and hope to use it much more soon!!
Mike_Summey newbie, my property managers make 99% of the decisions. They only call me if they have a situation in which they aren’t sure about what I want them to do. I like it that way because I’m an investor. I don’t want to manage the propeerties. I know the managers will occasionally do things different from what I would do, but that’s the price I pay for not having to worry with tenants.
dena gettleman Well, i can see that this is my type of conversation. I will try to not be late next time.
newbie thanks for the great info!
Roger Dawson Good to have you with us Dena
Mike_Summey dena, 😀
Splat I understand the reasoning for property management but do they deal with a person with just one or two properties? Do they typically charge more for a low number of rentals? I guess I could ask them……
dena gettleman thank you. I love investing in houses.
CHARLIE Mike call me tomorrow, got new properties to look at
Roger Dawson You’ll find someone willing to handle your rentals with the expectation that one day you’ll be a source of big income.
broadway Mike and Roger, thank you again for another great chat. You all have a super February………..make it profitable!!!!! 🙂
broadway g-nite to all
rh Splat, I have a property manager who only manages one of my properties. Everyone has to start somewhere.
Mike_Summey Splat, property managers have many more clients with just one or two properties than they do with people like me. Most property manager will take 10% of the rent they collect as their fee. Once you get numerous properties, you can negotiate this down a bit. Just be sure to plan on paying the management fee when you are calculating your offers. The Offer Generator prompts you to do this.
Roger Dawson Thanks broadway. Good night everyone. See you next month.
Splat Thanks much and I’ll be a regular to this forum.
Mike_Summey I’ve got to run also. Thanks to everyone for participating tonight. I’ll see you next month.
Michael De Good night All
SWMontana Very good learning experience.
rh Good night everyone.

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