The Greedy Poet Counsels an Investor
The Greedy Poet got out of his car and strode purposefully up to the undistinguished-looking gray building. An inconspicuous sign read "Arizona Department of Public Safety--Air Rescue Division." He opened the door and called out in ringing tones, "Anybody here?" His confident voice echoed through a seemingly empty building. But the Greedy Poet was undaunted. Making his way assuredly down the hall to the rear of the building, he suddenly almost ran into his customer, Gavin Steele, emerging from the men's lavatory.
Gavin was dressed in a freshly creased uniform which enhanced his debonair good looks. "I just got a call," he said. "An accident on the highway. I'm on my way right now. Give me the contract and I'll sign it." He glanced at his watch and switched off all the lights except one.
The Greedy Poet was equal to the situation. Quicker than the flick of a Bic, he had opened his briefcase, whipped out the contract, and uncapped his pen. He handed it to Gavin. "Sign right here, and here, and here," he said commandingly.
As soon as Gavin had crossed his last "t," the Greedy Poet whisked away the contract, gave Gavin a copy, and was out the front door, latching his briefcase as he went.
Gavin emerged from the rear door of the building, loped across the yard to where the sleek 7-passenger helicopter waited. The setting sun glistened on its scarlet and white stripes. His paramedical partner already aboard, Gavin bounded into the big whirlybird like a panther. The engine coughed, sputtered, then fired up. Its huge blades chopped at the air. Quickly, surprisingly, like a giant grasshopper, the machine jumped into the air on is mission of mercy. The Greedy Poet watched, exhilarated by the speed of the moment.
*****
Driving home, the speed of the whole transaction was on the Greedy Poet's mind. That very morning he had met Gavin for the first time, although they had had numerous previous telephone conferences about properties Gavin was interested in. Gavin had seen an ad that morning for something that was just what he had been looking for and had asked the Greedy Poet to check it out for him; then they drove out to together to the propety to inspect it. It looked good. A clean, modern, well-built house with a pool and a basketball court on 3 acres in northwest Tucson, not far from the new Mall. The house itself was set on a hill with fantastic mountain views in every direction. There were building sites for two other houses already marked out and surveyed. At $95,000, it was an excellent buy, and the Greedy Poet had so advised his customer.
"I think you're going to have to move fast on this," he said, "if you want to be sure to get it."
"OK," said Gavin, "let's move." And he did. The contract was on the seller's table that afternoon.
*****
As the Greedy Poet drove into his garage, his little daughter Alison ran out to meet him. "Daddy, did you sell another house?" she asked.
"Sure did, sweetheart," said the Greedy Poet. "What are we having for dinner?"
"Cabbage rolls," said Alison. "Yuck! But me 'n' Mommy made some brownies for dessert."
"Good," said the Greedy Poet. "I'm starved." They went inside.
The Greedy Poet opened his briefcase, transferred Gavin's folder to his SOLD file, kissed his wife, and sat down at the table. His wife, her face flushed with cooking, busied herself dishing up their dinner.
"Darling," she said, "how wonderful you are!" She put a steaming plate of cabbage rolls before him.
"I know it," he said, helping himself to the three largest ones.
*****
The Greedy Poet finished the last of his cabbage rolls and belched with satisfaction. "Bless the Irish," he said. The telephone rang. Alison ran to answer it.
"Greedy Poet Enterprises" she said, and then, "Yes, here he is." She handed the phone to her father.
"Hi, Greedy, old man," said a voice on the other end. "This is Alan Campbell."
"What's up, Alan? How do you like your new townhome?"
"Oh, fine. But what I'm calling about is--I'm ready to take your advice and buy some investment property."
The Greedy Poet groaned inwardly. His mind flashed back to the hours and hours he had spend with Alan before the latter had bought the townhouse he now lived in.
* * * FLASHBACK * * *
TIME: 10:00 on one of many nights
SETTING: a vacant townhouse, the 32nd visited that evening
DRAMATIS PERSONAE: Alan and the Greedy Poet
The Greedy Poet opens the door with his lockbox key and enters, holding high a double-mantled Coleman lantern. Alan follows, holding a flashlight. A rat jumps out from the corner and snarls at them.
Alan: How long has this one been vacant?
Greedy: (scrutinizing a listing by the light of the lantern) Two years.
Alan: Well, you never know--there might be a bargain here. Perhaps the seller is desperate.
Greedy: I'll call the agent in the morning to make sure it's still on the market. (His stomach growls, thinking of the cabbage and potato casserole waiting at home)
Alan: (walking around, peering into corners with his flashlight) Hmmm. Poor construction. Look at that floor, Greedy. I could stick my ankle in that crack.
Greedy: This is one of those Jerry Construction homes. They build on garbage dumps, where land is cheap.
Alan: You think we could get the seller to come down $10,000?
Greedy: Well, the financing may be a problem. He's got too many loans on it.
Alan: You're right. This isn't a good buy. Let's check out another subdivision. (He heads for the door.)
(The Greedy Poet's stomach groans aloud.)
* * * * *
"Well, old man, can we start looking tomorrow?" asked Alan.
"Of course," said the Greedy Poet. "What time shall I pick you up?"
*****
By 5 p.m. the next day, Alan and the Greedy Poet had inspected their fourth house. The Greedy Poet had 58 more listings ready.
"What do you think of this one?" asked Alan.
"Well," said the Greedy Poet avuncularly, pointing dramatically toward the house they had just left, "let me give you my investment lecture."
INVESTMENT LECTURE
1. Price. the house is well-built and in good condition. It's located in an excellent neighborhood and is priced lower than most comparable houses.
2. Leverage. Leverage is using other people's money to make money for yourself. The less of your own money you put into an investment, the better it is and the more you have for another investment. Here for $4,500 you can get into a $45,000 property and assume the FHA loan without having to qualify. All FHA and VA loans are assumable without qualification.[Remember, dear readers, this was 1980. Alas, it is no longer true.]
3. Appreciation. My 3-year, in-depth market analysis shows that property in this area has been appreciating at approximately $5,000 per year.
4. Depreciation. Buildings and equipment (but not land) get run down and wear out. So the government allows you a deduction on your taxes of the value of the building over a period equal to its useful life expctancy (for buildings usually 20-25 years). There are various methods of depreciation, but the easiest to understand is the Straight Line method. For instance, say this house is worth $35,000 and the land is worth $10,000. You divide $35,000 by 20 and you can deduct $1750 from your income tax each year for 20 years. Of course this is an oversimplified explanation. I suggest you consult your tax accountant for more information.
5. Deductions. Any repairs and maintenance on the property (except labor you do yourself) are deductible from your income tax, Your payments for the first few years will consist almost entirely of interest, and this is also deductible.
6. Income. You can rent this house for $350 a month, which will help to offset your payments. This figure is on the low side, but it will keep your vacancies to a minimum. Don't bother to advertise. This is such a good rental area that all you have to do is put up a "For Rent" sign and someone will tap you on the shoulder before the second hammer blow.
7. Negative Cash Flow. The amount you pay in excess of the rent you collect is a loss, which is also deductible from your tax.
8. Saleability. First of all, the financing is excellent. The assumable FHA loan will make it easy to transfer to another buyer at any time. The house is in a good neighborhood, near a park, close to schools, shopping, and transportation, which makes it attractive to homebuyers, but because it's in a good rental area, it's also attractive to investors, like yourself.
You come in with $4,500. You acquire a $45,000 piece of property, which will appreciate in value $5,000 a year. You'll be able to write off taxes and insurance of $450 a year, negative cash flow of $1,560 a year, interest on your loan of $4,800 a year, and depreciation of $1,750 a year, plus any improvements you make and the cost of repairs. So in one year you will have sheltered at least $8560 of your total income, which is $4,060 more than you invested. (Again, this is only a rough estimate. Be sure to consult your tax accountant for specific details.)
My conclusion is that this is an excellent investment, and I advise you to buy it now.
* * * * *
"Greedy, old man," said Alan facetiously, "you wouldn't happen to have a typewriter, would you?"
"Why?"
"To write up my offer, of course," said Alan. "You've convinced me to buy it. Why wait?"
The Greedy Poet strode to the trunk of his car, tucking the 58 listings away in his briefcase as he went. He opened the lid, pulled out a portable typewriter, set it up, and inserted a sheet of paper.
"All right," he said, "what offer do you want to make?"
Alan looked at him admiringly. This man was never at a loss.
"Full price," he said. "$1,000 earnest money, and closing within two weeks."
The Greedy Poet smiled and began typing as the moon rose over the Tucson Mountains.
May 1981