The Greedy Poet Explains Creative Financing
His long, exciting, furry orange tail wiggled as he clawed his way up the tree. Another inch and I would have had it in my jaws. He stood up there on a branch, snarling at me. I knew it was all bluff. He wasn't coming down--we've gone through this a thousand times. I stared at him for a while and paced around the tree, carefully marking the side he always comes down on.
"Here, Charlie. Here, Charlie."
"Oh, it's Alison. She has something for me. It looks like a big juicy steak bone."
I bounded over to the door and took it in my teeth. "Aw, shucks, it's only a Milk-Bone dog biscuit."
Well, at least that was better than that mushy leftover spaghetti they gave me last night. I carried the bone over to my usual spot and watched the Greedy Poet through the window.
************
Tell us, dear readers, wasn't this a welcome relief from our typical omniscient narrator's point of view? Now, with your acquiescence, we shall pass through the eyes of Charlie, the dog, and through the glass of the Greedy Poet's window and watch him counseling his newest customers, Mike and Gretchen.
"We need more space," said Mike. "That townhouse just isn't big enough for us."
"And we'd like to have horse property," said Gretchen.
"What part of town did you have in mind?" asked the Greedy Poet.
"We don't really care," said Mike, "as long as it's easy to get to work."
"Good," said the Greedy Poet approvingly. "Location is less important these days than terms. Let's talk about financing. Now, you told me over the phone that you both work at Southwest Engineering Consultants, you each make about $25,000 a year, and all you owe is $200 a month on your car payments."
"That's right," said Gretchen.
"Obviously, then," said the Greedy Poet calculatingly, "you'll be able to make a good sized payment, but also you'll be needing some tax shelter. Why don't you consider keeping your town house as income property when you buy your new home. There are lots of tax advantages."
"That sounds like a good idea," said Mike.
"I don't see how we can do it," said Gretchen. "We only have about $3,000 in cash, so I'm sure we'll need to sell the town house to have enough for a down payment."
"Not necessarily," said the Greedy Poet knowlingly. "Many of the new subdivisions are doing creative financing with extremely low down payments."
"What exactly does creative financing mean?" asked Mike. "I've heard that term a lot lately."
"Let me give you some examples," said the Greedy Poet expansively. "Some developers will do what they call buydowns. They will pay the lenders the difference between the going rate of 15% interest and the 12% or 13% that they charge you."
"Why would they do that?" asked Gretchen.
"Most of them have short-term, high-interest construction loans on their new homes," said the Greedy Poet. "They can't afford to wait to sell. And the typical FHA and VA loans at today's interest rates have payments so high that many people can't qualify. So the developers are forced to think up new ways of financing. Actually, subsidizing your payments costs them less than waiting for the banks to do whatever they do.
"Other possibilities," he went on, "are substantial discounts for a large cash down payment, amortization over as little as 8 years instead of 30, and graduated payment loans, wherein payments start low and increase 7.5% a year for 5 years. Since, under such a plan, you would have to qualify only for the first year's payment, this would give you $25,000 more buying power than a fixed rate loan.
"The most creative plan of all, in my opinion, is exchanging, and some developers are doing that also. For you that might be a way to go."
"It sounds as if we're in better shape than we thought," said Gretchen. "But can we get horse property in a new subdivision?"
"Yes," said the Greedy Poet authoritatively. "I know of several. Let me show you." He pulled down a large screen from the ceiling, turned on a slide projector, and began projecting a series of slides. For each subdivision he showed maps, first a nine-mile-square area with a splash of color pinpointing the subdivision, then a three-mile-square area showing the location of schools and shopping centers near it, and finally a close-up of the subdivision itself and its immediate vicinity. Following this came photographs of model homes, both outside and inside. [Remember, dear readers, this was almost 25 years ago. The techniques so familiar to us now from the Internet are here in embryo form. Then, as now, the Greedy Poet was ahead of his time.]
"These are excellent pictures," said Mike. "Do you do your own photography?"
"All of our agents are media people," said the Greedy Poet proudly.
"How do you get such rich colors?" asked Gretchen.
"We photograph only during the first half-hour after sunrise or the half-hour before sunset," said the Greedy Poet narrowly.
The inside shots showed the custom decor thoughtfully provided by the developers. Gretchen admired the luxurious new furniture, the coordinated wallpaper and bedspreads, the lavish kitchens with place settings and plants. "When can we go look at these?" she asked eagerly.
Each production finished with slides of floor plans and lists of standard and optional features available.
And now, dear readers, lest you think this is becoming a bit tedious (like a sales pitch), let me, the omniscient narrator, rescue you from the devices of the Greedy Poet and briefly summarize the rest of the story.
Mike and Gretchen had seen a two-week tour of new subdivisions in less than one hour. Within another hour they had visited one that they picked out, had found just the home they wanted, and were discussing the merits of the property.
It was the last lot in a beautiful northwest horse-property subdivision. It had been on the market a long time. Why? Probably, according to the builder, because its back yard sloped down to a wash, on the other side of which was a through street, so that, entering the house, one immediately saw this street through the picture windows at the rear. By the time Mike and Gretchen saw it, this problem had been remedied by a handsome six-foot cedar fence around the level part of the back yard. (The Greedy Poet estimated that it might have cost $4,000; later he found out that it was nearer $7,000.) Gretchen loved the open floor plan, the picture windows, the enclosed back yard, and the desert landscape where her horse could roam. Mike was interested in the financial aspects of the transaction. He and the Greedy Poet soon concluded that the best way to buy the property was to take the $3,000 discount offered by the builder, rather than a buydown at reduced interest. Because he and Gretchen had such a good income, they could afford the full monthly payments.
Their advantages, then, were as follow:
And now, dear readers, for the sake of brevity (or, more accurately, for the lack of space), we will take our leave of you for the time being. But we shall return in the next issue of the Tucson Exchanger with the story of Gretchen's and Mike's exchange. Until then . . .
February 1982
[Unfortunately, dear readers, the next issue referred to has been lost--if it ever existed--and the Tucson Exchanger ceased publication in 1982. But the Greedy Poet was able to help Mike and Gretchen exchange their town house for another piece of income property. This was fortunate for them because a year later, that particular town house development began showing major structural problems--cracks and uneven settling--which of course greatly reduced its value.]