When the Greedy Poet Talks, People Listen
Yes, it's me again, the omniscient narrator, hovering over Tucson, scanning the city through the eyes of an eagle. It's midsummer, and the crinkled air rises from the asphalt. White light from chrome and window glass squints in the noonday sun. Cars move sluggishly through the palpable heat.
I downswoop into a shopping center, onto a telephone pole. There's the Greedy Poet with his little daughter Alison just going into a key shop. He wipes tiny beads of sweat from his receding hairline. Alison's Tucson Exchanger* T-shirt is wet against her back. They step inside the dark coolness gratefully.
* a monthly paper published by the Greedy Poet from 1978-1982, in which all these articles first appeared.
*****
The high-pitched whine of the key cutter masked the sound of the opening door, so the Greedy Poet jumped when someone clapped him on the shoulder and said, "Greedy, old man. How're you doing?"
"Jonathan Hugwell. I haven't seen you since New Year's Eve," said the Greedy Poet.
"And this must be Alison," said Jonathan. "How grown-up she is."
"Yes, she talks a lot now," said the Greedy Poet.
"I do not," said Alison. "You do."
"Like father, like daughter," said Jonathan. "What are you up to these days, Greedy?"
"I'm glad you asked," said the Greedy Poet. "We're in the process of putting together that real estate media center I told you about." [Another example of how the Greedy Poet was ahead of his time.]
"Yes, Daddy's going to show videotapes in the Mall," said Alison," and I'm going to watch them."
"The key concept is," said the Greedy Poet, jingling his newly-made keys in his pocket, "retail merchandising of real estate. We're not oriented--like the typical real estate office--toward telephones and cars. We'll be bringing properties to the people instead of taking them to the properties. That's why a high-pedestrian-traffic area is crucial."
"It's a great idea," said Jonathan. "Tell me more about the videotapes. What kinds of productions will you be making?"
"We'll be videotaping all our own listings, of course," said the Greedy Poet. "All our agents are photographers. In addition, we'll be doing aerial and ground productions of larger properties. Many of them we'll be co-broking with brokers in outlying areas, giving their listings exposure in the metropolitan center."
"And I get to ride in the airplane sometimes," said Alison.
"Terrific," said Jonathan. "How soon will all this be happening?"
"As soon as the Mall is completed," said the Greedy Poet.
"I'm afraid I won't be around to see it then," said Jonathan. "I guess you've heard that I've been transferred to Des Moines."
"Yes," said the Greedy Poet. "Congratulations on your promotion. When will you be leaving?"
"Sometime in January," said Jonathan. "We'll be able to spend another New Year's Eve together. But listen, Greedy, I'm going to need some advice and help in selling my house here and buying one there."
"Well, you came to the right person," said the Greedy Poet. "Did you read the last issue of the Tucson Exchanger ?"
"Yes, I did," said Jonathan. "And it gave me some good tips on how to be a cooperative seller. But financing is what confuses me. I'm really ignorant about things like wraparounds, carrybacks, blended rates, equity loans--every day I see some new term in the paper."
"Well, I can help educate you," said the Greedy Poet.
"Let's go somewhere and have lunch," said Jonathan, "and you can fill me in on some of these things."
"A wonderful idea," said the Greedy Poet. His stomach growled eagerly.
"Can we go to McDonald's?" asked Alison.
"Sure," said Jonathan.
"Now there's an excellent example of retail merchandising," said the Greedy Poet. "McDonald's. I'm going to be the McDonald's of real estate."
*****
You may be thinking at this point, dear readers, that this is blowing one's horn overmuch, but the Greedy Poet has no false modesty.
And now let us peer through the giant M of merchandising at Alison, Jonathan, and the Greedy Poet. Alison has finished her hamburger and is gleefully playing on the slides outside; the Greedy Poet is giving Jonathan his lecture on financing.
*****
"Let's suppose," said the Greedy Poet, "that your house has a value of $75,000, and has a $30,000 loan on it at 8.5% interest."
"That's exactly what it has," said Jonathan amazedly. "How did you know?"
The Greedy Poet smiled and continued. "Now, the ideal way for you to sell it, of course, would be all cash or cash to mortgage. But how likely is it that a buyer will come along who has $75,000 cash--or even $45,000?"
"I'd say that's not likely at all," said Jonathan.
"In fact," said the Greedy Poet, "if I had buyers with that much cash, I'd advise them to invest it in a larger property or in a home and some income property. They'd get a better return for their money that way."
"Well, then, being realistic," said Jonathan, "what other ways should I consider?"
"Here," said the Greedy Poet, reaching into his briefcase, "let me show you something that will illustrate." He pulled out a stack of professional-looking cards, large enough to be seen from the other side of the room.
"Man, you really come prepared, don't you," murmured Jonathan.
"I'm a media specialist," said the Greedy Poet. "So I use media--all kinds. Now this card--" he held it up-- "will show you how a buyer who had $10,000 might get into your house. Click
"High interest rates, of course, are the problem when you buy a house this way, I have a book here--" He held it up with difficulty. "It has 1,357 pages. Each page has information on 4 properties. That's--" He punched a few buttons on his calculator. "--5,428 houses on the market right now in Tucson, and most of them can't sell--won't sell-- because the sellers and buyers are waiting for interest rates to come down, and with payments like you see here--" He drew a wand out of his briefcase and pointed dramatically at the card. Several people at the next table put down their hamburgers and watched. "--a buyer has to be making between $35,000 and $40,000 to qualify for such a loan.
"The loan companies also charge points--prepaid interest. A point is 1% of the loan amount, paid in advance, and on FHA or VA sales, points must be paid by the seller. Currently points are running from 6 to 8. That means you as a seller would have to pay--" He punched his calculator again. "--from $3900 to $5200.
"Buyers have costs too. Usually they pay an origination fee of 1% of the loan amount, as well as other, smaller costs. The point I'm making is that new financing is costly."
A number of people at surrounding tables were now listening attentively.
"So how do we get around the problem?" the Greedy Poet went on. He took out another card and propped it against the wall. Click
"One way is for you, the seller, to carry back a second loan on the property. You let the buyers assume your present loan, and since it's a VA loan, they don't even have to qualify; all FHA and VA loans are assumable. Then you lend them $35,000--at a rate higher than the old loan but lower than current market rates--let's say 13%. That way both you and the buyers benefit. You get interest, and the buyers' total payment is $200 or $300 less than if they got new financing.
"Another way," went on the Greedy Poet, "is to do a wraparound, or an all-inclusive loan." He drew out another card and propped it up. A number of people in back were now standing up. Click
"This way," he said, "you lend the buyers the entire $65,000. You remain responsible for the underlying loan of $30,000. So every month the buyers pay you $668.60, and you pay the loan company $230.67. Your net is $437.93.
"Actually the way it's usually handled is that you set up a collection account with a title company, and you and the buyers each pay something like $1.50 a month. The collection service takes the buyers' check and deposits it, then writes one check to the loan company and one to you. That way you avoid the hassle of doing it yourself, and you have a nice neat record for income tax purposes."
Several people could be heard saying, "Good idea" and "Shhh, Terry, go play outside."
"Now you can see," went on the Greedy Poet, "that at the same interest rate, a carryback is better for the buyer, a wraparound for the seller. Here we've done the wraparound at 1% less, and it's still better for the seller. That's because you have a sizable equity in your property--equity is the value of the property minus what you owe on it. With less equity, the benefit would be less. But the point to remember is--" he paused and looked around dramatically at his audience, which by now was quite large. "--that the interest rate can be negotiated to benefit both buyers and sellers.
"All right now, let's suppose that you find a home in Des Moines that you want to buy and can't wait for this one to sell. You can take out a home equity loan, usually based on 85% of the appraised value of the property, minus what you owe. So you should be able to borrow--" He did a rapid calculation. "--up to $33,750. But let's take $30,000 as a round number." He propped up another card. Click
"Typically" he said, "you will pay a higher rate of interest on these loans than on first position loans. That's because the company is taking a greater risk. In case of default, the holder of the first loan is always paid off first; then, if there's enough left, the holder of the second."
"I wish I'd known all this when we sold our house," said a woman in the audience to her husband.
"Sssssh," said someone near her. "I want to hear the rest."
"At this point," said the Greedy Poet, "you take your $30,000 to Iowa and buy a new home there. You can now sell your house here, using wraparound financing." He drew out another card. Click
"You lend your buyers $65,000, just as before, and you remain responsible for both underlying loans. You charge 13% interest, as before, which is between the 8.5% rate of the first loan and the 18% rate of the second. This way you net very little cash, but then you've already got most of your equity out of the property. The thing to be careful of here--" He looked around. There was a hush upon the whole room. Hamburgers were drying on plates. "--is that unless you sell quickly, you will be paying over $700 a month for a vacant house in addition to whatever you're paying for your house in Des Moines.
"You asked about blended rates--" He pulled out another card. Click
"This is similar to a wraparound, except that it's the loan company that does the wrapping. They take back the original low-interest loan and refinance the property at a rate roughly equal to the average between the original financing and potential new financing at the going rate. This helps buyers by keeping their payments down, but also helps savings and loans (who do the bulk of residential financing), since they are losing money on loans that bring in less interest than they have to pay out--currently about 14% on CDs. And there are other similar arrangements. I can explain, if you're interested."
"I'd like one of your business cards," said a gruff voice from the audience. The Greedy Poet gave him one.
"Me too," said another voice. The Greedy Poet gave out another card, and then another, and another, and another . . . .
*************
And now, dear readers, let us leave the Greedy Poet, surrounded by outstretched hands, and ponder an earlier exchange between Alison and her father.
"Daddy," she said, "I think it's rotten that people can't fly like birds."
"Alison," he replied, "with imagination, they can do much more than that."
August 1981