Chat Transcript – September 12, 2011

Posted on September 14, 2011

electricianhoward hi
Bill Have you been to the chat room before?
BozoB yes, I have.
BozoB you?
Bill This is all new to me
BozoB Well, welcome.
BozoB Where are you from?
Bill I am from Orlando
BozoB nice. May i ask what the real estate market is like there?
BozoB Howard, where are you from?
Bill Still slow too many people thought it would go up forever
BozoB btw, I’m from Hawaii. πŸ™‚
electricianhoward from toronto
BozoB I see. Have you purchased any property?
Bill Do we hear anything @ 8 or does Mike type also?
BozoB mike types also
Bill I don’t need my volume up loud then
BozoB naw. It will alert you when someone arrives to the room, but all conversation is done through the keyboard
BozoB Hello Matt
matt how you doing?
BozoB Always great. How are you?
BozoB JE, Hello there
matt can’t complain either.
Jan-Erik Hello
BozoB How’s it going with the investing?
BozoB Hello Mike
Mike_Summey Hi everyone
matt hi mike
electricianhoward hi
Mike_Summey Who is the Matt
Mike_Summey Hi Jeff
BozoB Hi Jeff
matt new to yoou website and forum. thought i would listen in
BozoB Matt, it’s more productive if you participate
Mike_Summey Welcome Matt. I just wanted to be sure you weren’t my son Matt who is in Iraq, but can occasionally get online.
matt you are right. i will be participating
matt no afraid not. coming to you live from mt. shasta california
Jeff M. It’s been a while since I last was on, but I’m looking forward to getting going now. I’m in Asheville.
Mike_Summey My son Matt just arrived at a base North of Bagdad today. He is the commanding officer of a company of Apache helicopters.
BozoB wow. Please thank him for his service next chance you get
Mike_Summey Will do!
Mike_Summey Hi gpllc
gpllc evenin all
Mike_Summey anyone have any good question ready for me tonight?
matt i do. but give me a sec because it wil take some time to write
Mike_Summey Just to let you know that the market is still wonderful for investors, I closed on 5 new properties last month.
Mike_Summey Hi Wayne
Mike_Summey That make 50 in just over 2 years.
Wayne Hi Mike
BozoB wow.
Jeff M. Mike, what’s the current climate with banks for new investors?
BozoB Hi Roger
Wayne Hi Roger
Mike_Summey The rental market is doing great too. I have the lowest vacancy rate I’ve had in many years.
Mike_Summey Hi Roger
BozoB Hi Trav
Mike_Summey Jeff, it is still tough for “new” investors unless you have some good cash reserves.
Trav Hey Bozo, Mike,and Roger
ROGER DAWSON Good evening everyone!
BozoB Mike, isn’t that always going to be the case/
Mike_Summey Hi Trav & nickg
Mike_Summey Bozo, yes it is. The days of get-rich-quick schemes in real estate are over. Banks have been burned so badly I don’t think they will forget for a long time.
Jeff M. What about if you have good cash reserves, but are trying to establish credibility with the banks for your first deal?
BozoB Honestly, I’m glad because get rich quick was also get poor quicker as well
ROGER DAWSON But Mike, what are they going to do with all those deposits?
Mike_Summey Jeff, do you have enough to make a purchase for all cash and then finance it later to get your cash out?
Jeff M. Yes, potentially, that’s actually what my wife was suggesting we do.
matt here goes: so my brother and i are interested in getting going in the reno, nv aquiring single-family homes. we have a line of credit set up with a floating 5% rate that has to be re-serviced every 12 months. we have to use this as a bridge loan for another three years until both our incomes will service the debt. by doing the numbers in our area, the numbers cash flow easily as is. but with the possibility of interest rates to hike in the coming years, it could stick us in a hard position. with a fixed-rate loan we would have no problem. so my question to you is looking forward at the general economy and interest rates in 2-3 years, do you think we should tread carefully with the loc?
Mike_Summey Bozo, the get-rich-quick coin has two sides. the other side is go-broke-fast! πŸ˜€
Mike_Summey Roger, deposit the money with the banks that are loaning the money. Consider the difference on what they pay you and what you pay them as the premium on insurance that you will always be able to service your obligations.
Mike_Summey Matt, do you have our Offer Generator computer program?
matt no but i have taken a look at it.
matt i have built my own simple one that i can re-calculate interest rates on overall cash flow
Mike_Summey Matt, I use the OG to calculate my purchase offers. It assures me that my purchases will cash flow from the beginning. Then I use a type financing that few people consider. It is Fixed Payment Floating Rate. My loans are all 5 year loans with a fixed payment for the full five years. That allows me to know what my cash flow will be. The rate floats with prime, although not I am having to agree to prime with a floor and a cap. Floors of 4-5% and caps of 7-8% Personally, I’ve used this type financing for over 30 years and I’m convinced it has resulted in me paying less interest that I would have paid with a fixed rate loan.
Mike_Summey electricianhoward, you’re being awful quiet! πŸ˜€
BozoB lol
electricianhoward i am in canada, totally different market.
ROGER DAWSON Mike an investor was telling me yesterday about being limited on the amount of loans he can get. Is that a problem for you?
matt interesting. thanks mike.
Mike_Summey electrician, where in Canada?
electricianhoward toronto
electricianhoward super hot. no cash flow
Mike_Summey Roger, that investor was talking about conventional loans that are sold on the secondary market. There is no limit on portfolio loans that banks are going to hold in their own portfolio.
BozoB As a borrower, do we have to concern ourselves with those things?
BozoB like knowing whether or not it will be sold or held?
Mike_Summey electrician, have you ever tried making offers asking for seller financing at very low or 0% interest. I’ve purchase several properties that were financed that way. It is a way to make the numbers work when they won’t with conventional financing.
Mike_Summey Bozo, the number used to be 10, but I think it is now back to 4-5. Just ask you bank before applying for a loan. If your credit is good and you have good cash reserves, the bank probably won’t mind keeping the loan.
BozoB In my current situation, I will probably have to stick with owner financing
BozoB But, I recently heard that there was a bill that would require owners/sellers to qualify buyers just as a commercial lender would need to do.
BozoB Have you heard anything about this?
Bill Could you explain the 10 and now 4-5 a little more please?
ROGER DAWSON That sounds like socialism to me BozoB
Mike_Summey I will be looking at 3 new properties tomorrow. I will probably make offers on all of them. the only way to grow in this business is to keep making offers. My last several have been rejected and one was pulled because someone else beat me to it.
BozoB Roger, indeed it does. It also seems to be a huge preventer from those of us with less than good credit histories
Mike_Summey Bozo, I’ve never heard of that. If you own a property free and clear and want to sell it to me and carry the financing, there is no law that says you can’t. What you may be talking about is the movement in several states to prevent sellers from carrying financing in a wrap around mortgage where the first mortgage is still in place. Many people have been burned in this type transaction because if the seller defaults on the first mortgage the buyer loses everything when the property is foreclosed.
matt mike, if your strategy is buy and hold, do you have a general guideline about the age of the properties?
nickg Hi Roger. I am going through a chapter 7 right now, and expecting discharge in about a week. So my credit is going to be in the dumpster for a long time. But I have stable work history, good compensation and am starting to save cash. Am I just out of luck as far as investing in real estate, or do I have options?
ROGER DAWSON Every so often we hear about speakers who have found a way to wrap underlying loans. OUr advice is clear. Don’t do it. YOu will get burned.
nickg (my question could go to either Roger or Mike)
Mike_Summey Bill, VA, FHA and qualifying conventional loans are sold on the secondary market. There is a limit to the number of these type loans an investor can obtain because they are loans to what are considered passive investors. Once you exceed the number, you are no longer considered a passive investor and your loans, no matter how small, are considered commercial loans that are usually held in the banks own portfolio of investments.
ROGER DAWSON Mike if nickg limited to seller financing? Or does he have other options.
Mike_Summey Matt, I try to stick to properties less than 25 years old unless the property is in exceptional condition and has no problem with lead paint, asbestos, etc.
matt got ya
matt thanks
gpllc Mike, is there a price range you also go for? Or do you just judge everything on the OG calculation?
BozoB Nick, if you’d be ok with it, can you share any anwers you find for yourself?
electricianhoward in toronto, the market is super hot, intest is 2.35%, people is bidding, like states before the crasn. do you have any advice for me?
Mike_Summey nickg, one technique I’ve used in the past is to combine a small first mortgage at a bank with a larger second mortgage with a seller. Right now, many sellers are to sell and will consider unsual financing arrangements. Let’s say a seller has a $100,000 property that they own $25,000 on but are making payment based on an original loan of $80,000. This seller may be willing to accept $25,000 to pay off the first mortgage and carry the balance themselves. Even with bad credit, you may be able to get a $25,000 bank loan and let the seller carry the balance. That eliminates the payment the seller was making and the bank has a 25% loan to value first mortgage.
Mike_Summey Hi drew21
drewr21 Hi Mike
matt what have you found with reo’s and how far below asking price the bank will take. in my neck of the woods it completely varies, sometimes they bite at something that is 10-20% below asking price and other times they are firm. what are you seeing?
Mike_Summey gpllc, I stick with properties I can buy in a manner that will allow me to rent them in the mid range of the rental market. Prices vary based on the structure of the deal.
Trav Mike, what are the mid range of rents in asheville
gpllc I see, you target your rent and then run the numbers. Do you have a target NOI range, if so what is it?
drewr21 I currently live in a house with two close friends, and have been wondering if I would be able to secure a larger loan with a lender based on having two signed leases in hand. Any thoughts?
Mike_Summey electrician, make offers, lots of them, that will work for you if accepted. If none are accepted that is the best indicator that the market is over heated. However, if one is accepted you can rest assured that it will make money for you in the future. Use our Offer Generator to compute these offers. It will prompt you if you create an offer that will not cash flow.
drewr21 *I am currently renting.
Mike_Summey Trav, $700 – $1200
Trav ok thanks
electricianhoward thanks
ROGER DAWSON I’m always amazed to find how different the ratio of rents to purchase price is. in some town properties sell for 130 times the monthly rent. Other towns it may be only 80 times the monthly rent.
Mike_Summey Drew, probably not. Until you have been at it a while and have a track record, the banks are probably going to underwrite you loan as though you were going to have to pay it all by yourself.
Trav Mike on that info what is the highest price I should be looking at in the asheville area…like a foreclosure
drewr21 I figured as much, but I don’t have the means to acquire a property in my area (Seattle Metro) right now.
drewr21 Thank you.
drewr21 (By traditional financing, at least.)
Bill Roger with the different ratios how do you spot a “Deal ” if it is so different from town to town?
Mike_Summey Trav, forget about price! If you find a property that produces $1,000 NOI, you could pay $180,000 at 0% interest, but only $118,500 at 6% interest. That’s why I recommend the Offer Generator for everyone. It does all these calculations for you as you enter the data you are prompted to enter. You can easily compute 50 different ways to buy any given property.
Mike_Summey The Offer Generator is the best tool I’ve ever used to calculate offers. You never know what a seller will do until you ask and the way to ask is with a written offer. Between a low all cash offer and a high seller finance offer at 0% financing, there are literally hundres of options c
Mike_Summey that can fit the needs of many sellers.
ROGER DAWSON Bill, in our book we go through how to calculate the cost of repairs, figure the net income and deduct maintenance, insurance, taxes, utilities and management. That gives you the amount of your cash flow, which is how you figure out how much you can afford to offer. Don’t make an offer until you have run the numbers!
ROGER DAWSON Hi Penny!
BozoB Hi Penny
Mike_Summey Roger, that is what I was saying earlier. The Offer Generator does all these calculation for you.
Mike_Summey Hi Penny
Penny Hi Roger!
BozoB welcome back πŸ™‚
Mike_Summey Having problems Penny?
Penny oops..hello everyone
Penny fingers typeing to fast make for quick exit on computer keyboard
Penny typing too fast
BozoB What is the most reliable way to find out the market rents for an area?
BozoB that is pretty much where all calculations begin right?
BozoB lol
Mike_Summey I’ve known Roger for nearly 30 years. He can tell you that I’ve been doing things the same way for as long as he has known me. When none of my offers are accepted, it is the best possible indication that the market is overheated. When offers start being accepted it is also an indication that things are coming back to reality. In 40 years of investing, I’ve never had a down year or bought an property I lost money on. Something to be said for a record like that.
ROGER DAWSON Ask a property manager. They are happy to talk to a potential investor.
BozoB Thanks Roger!
BozoB what are the first 3 pieces of information you need to know when you are doing your research? In your opinion
ROGER DAWSON I think that a great deal of Mike’s success is that he’s a brilliant number guy. He doesn’t get emotionally involved in the purchase – he runs the numbers.
nickg Mike, on your recommendation re options for financing for someone with bankruptcy….roughly what interest rate should I expect for the bank loan?
Trav Mike, I use 1200 a month rent on the OG and get around 95k with nothing down and no closing cost or repairs..guess I am over estimating on the other expenses
Mike_Summey Bozo, Roger is right. Talk to a professional property manager in the area to get information on rental rates.
Mike_Summey Trav, that sounds about right.
BozoB Trav, I would think that would depend entirely on the property
BozoB is that not so?
Trav ok thanks
Trav thats at 6 percent 15 yr fixed
Mike_Summey Bozo, rental rates for similar properties, the amount of repairs needed to put the property in marketable condition and the rate at which you can get money.
BozoB Excellent! Thanks Mike!
BozoB that is very helpful
Mike_Summey Trav, see the three things I just told Bozo and apply that to your calculations and see what you get.
ROGER DAWSON Good night everone! Good investing!
Mike_Summey Hi alphaneuf
nickg Mike, on your recommendation re options for financing for someone with bankruptcy….roughly what interest rate should I expect for the bank loan?
Trav Ya I really need to talk to a property manager
Mike_Summey nickg, I can’t give you an exact rate, but you can count on it being considerably higher that if you had good credit. The fact that you had a bankruptcy is an indication to the banks that you didn’t properly anticipate financial problems. They will want you to pay a premium for this mistake undil you can demonstrate that you have leared to handle thing.
alphaneuf Hi, Mike, my name is Albert Phaneuf. I live in New York City, am a real estate agent and an appraiser. I have your book invesdting in real estate. Great book. It helps me understand the numbers I saw in appraisal school, but did not understand
Penny signing out here as well…late to chat and early out…will try harder next month
BozoB Aloha Penny
Mike_Summey alphaneuf, thanks for the comment. If you haven’t read Weekend Millionaire Mindset, you should get it and read it. It really helps you to understand what is needed to become successful financially.
nickg Thanks Mike. Have a good week
Mike_Summey Goodnight all! See you here next month. October 3rd.
matt thanks mike
Trav Thanks Mike
BozoB Aloha everyone!
alphaneuf Hi, Mike, Al again. I will send some questions to you another time. I did get the mindset. I will read it again. I have most of your books. I am also an investor, I do it for the longterm. Thanks. Goodnight.
Bill This was fun
BozoB πŸ™‚

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