Quotations by Mike Summey

The price of real estate goes up for two simple economic reasons, scarcity and inflation. You can make money speculating in real estate if you spend enough time researching your market, have the capital to risk, can cover the carrying costs, and are fortunate enough for prices to go up rapidly. Of course, you can do the same thing in the stock market too. [2004] - Mike Summey

A large part of buying right is searching for sellers with limited alternatives. When sellers are not under any time pressure, it's hard to get good buys. When they are under a lot of time pressure, you can often get terrific buys. Some of the best buys we've made have been from sellers who called us back weeks after they turned down our original offer ("I hope you get what you're asking, but if you don't, call me.") [2004] - Mike Summey

Projecting that you're prepared to walk away is the number one pressure point to use when negotiating with sellers. Before going into a negotiation, develop some options. Time pressure, information power, and walk-away power are three powerful pressure points that when used properly will get you better deals in any negotiation. [2004] - Mike Summey

The less you know about sellers, the lower your first offer should be. Assume that you will end up midway between the two opening negotiating positions. Your initial offer should be an equal distance on the opposite side of your objective as the seller's asking price. Specific numbers have more credibility than rounded numbers. Always flinch--react with shock and surprise at the other side's proposals ("You'll have to do better than that.") [2004] - Mike Summey

Use the power of a higher authority to negotiate. Your higher authority is a vague entity, such as a group of business partners.You should never offer to split the difference yourself, but always encourage the sellers to offer to split the difference. Make a small concession just at the last moment. [2004] - Mike Summey

Net Operating Income (NOI) = Income - Vacancy Factor (until you have experience, a professional property manager will be able to give you a good estimate of the time required to re-rent the property) - Management Fee - Maintenance Reserve (depending on the age and condition of the property, you may want to vary this reserve from 5 to 30 percent or more) - Utilities - Taxes - Insurance - Other Expenses (such as common area maintenance, grounds maintenance, area lighting, and snow removal) [2004] - Mike Summey

A 10 percent return on investment (ROI) may be a very good deal if you can borrow the money to purchase the investment at 6 percent. [2004] - Mike Summey

The key is understanding why terms play a larger role than price when buying investment real estate. In reality, you can let the sellers set the price if they will let you set the terms of payment, or vice versa. [2004] - Mike Summey

Many properties that you can buy for no money down are ones you can't afford to own once you buy them. Often, the condition or problem that makes a seller willing to accept a no-money-down offer transfers with the property and leaves the new owner taking on the same problems that defeated the seller. Many no-money-down deals depend on your ability to flip the property to another buyer quickly before the cash flow requirements of ownership kick in. Once you get one or more properties free and clear, another more conventional way to make no-money-down deals becomes available. You can borrow against a free-and-clear property and pay cash for the new purchase; then it becomes a free-and-clear property. [2004] - Mike Summey

Apartment houses and commercial properties offer greater opportunities, but these tend to come with higher risks, more problems, and require greater knowledge. The cost of buying an apartment building as a multiplier of the total rents is much less than for single-family residences. If you have your expenses under control and factored into your purchase price, they could show a better cash flow. You acquire tenants much faster. And it's easier to raise the rent in apartments. [2004] - Mike Summey

Commercial properties offer a wide range of leasing options, which require you to have greater knowledge and a better understanding of financing alternatives to be successful with them. Properties with triple net leases are very attractive to own and require little attention while they are under lease, but when they go vacant, it can take months or even years to get them re-rented. [2004] - Mike Summey

When attempting to buy property at substantially reduced values, two things are most likely to produce favorable responses from buyers: cash and rapid closings. [2004] - Mike Summey

Of all the relationships you will build, banking relationships are the most important. When you have four or fewer properties, the Federal Deposit Insurance Corporation (FDIC) views you as a passive investor and it classifies your loans differently than it does after you have five or more. At this level, your loans become investor loans and are viewed as having higher risk than the first four. A good rule of thumb is to maintain enough cash to cover 3 to 6 months of expenses even if you have no income. [2004] - Mike Summey

if you find only a few vacant houses, it shows that the neighborhood is desirable. A shortage of For Sale signs indicates a stable neighborhood. Ideal properties for beginning investors are ones that need attention, like the ones in the risky neighborhoods, but are scattered throughout desirable communities. [2004] - Mike Summey

Before going into the offer, explain that you are an investor and that you have carefully analyzed their property to determine what you can pay for it. You may even want to acknowledge the fact that they might be able to get more for the property if they can find a buyer who wants to live in it. Tell the sellers that you do not expect them to make a decision on the spot. Suggest that they study your offer overnight before making any comment about it one way or another. [2004] - Mike Summey

The brokers will more than likely point out the positive attributes and leave it up to you to find the negatives. [2004] - Mike Summey

We suggest that you allow the agent to present the offer to the seller without you if they prefer, but reserve the right to meet with the seller if the agent can't get the offer accepted. This challenges the agent to push for acceptance. [2004] - Mike Summey

Buying one house wont' make you wealthy, but buying one or two a year, year after year, will. Wealth is not the standard of living you enjoy; it's your ability to sustain that standard of living if you suddenly can't earn income. Wealth is an income stream. [2004] - Mike Summey

Be very wary of acquiring properties that are a considerable distance from where you live and regularly travel. [2004] - Mike Summey

For security, each new purchase should not exceed 15 percent of what you own at the time of the purchase, which means if you own 40 units it's probably safe to buy a 6-unit property. [2004] - Mike Summey