The Greedy Poet's Fixup--Part II
When we left our hero pondering the tides of fortune, he had just about decided to make an offer for the property he had been inspecting. $25,000 for a lot in a good neighborhood with two houses, one in good repair and one in need of work, seemed reasonable. He calculated, "The main house is worth $25,000 as-is. By investing $3000 and some labor into repairs on the rear house, I could probably sell the total package for $35,000. That would be a profit of 25%."
He sprinted back to the gleaming golden bus.
"Hey, Greedy," said one of his colleagues importantly, "did you hear what Joe's client is going to sell this place for?"
"No," said the Greedy Poet wonderingly. "Has he had an offer already? The place just went on the market."
"The thing of it is," said Joe, the seller's agent, glibly, "he had this place for sale for three months before, but the other outfit never advertised it, and their agent quit to take a job selling insurance. Now as soon as I get hold of it, along comes one of these California investment firms with an offer of $14,000 cash, and he jumps at it. He's going to sign the contract tonight. I'll get my commission tomorrow--in small change."
"Wow!" said Bill incredulously.
"Really?" said Helen amazedly.
"$14,000?" said Lee disgustedly.
While the rest of the team hovered around Joe, plying him with their questions, the Greedy Poet sat alone in a corner of the golden bus, thinking furiously.
On the return trip to the office, the other agents took Joe aside, one by one, investigating the possibility of deals for themselves or their customers. But it was the Greedy Poet who latched onto him as they descended from the gleaming bus and said compellingly, "Let's go back and look at that property again--right now."
"What for?" asked Joe inquisitively.
"Anything an investment company can do I can do better," said the Greedy Poet confidently.
"You want this place for yourself? How much cash you got?" inquired Joe dubiously.
"Don't worry. I'll make an offer your client can't refuse," said the Greedy Poet authoritatively.
With Joe's elbow firmly in tow, the Greedy Poet re-evaluated every aspect of the property, in the process garnering the following facts about the owner:
Fact #1: Mr. Ruddinek, an elderly widower, had bought the house for $6,000 from an old lady who was in arrears on her taxes and anxious to get out before foreclosure.
Fact #2: Mr. Ruddinek had paid cash for everything all his life and was suspicious of credit financing.
Fact #3: After his experience with the other real estate company--three months on the market without one contact--Mr. Ruddinek was ready to take any offer that came along.
Fact #4: He had always wanted a new royal purple Cadillac, had put a deposit on the car of his dreams, and had arranged to pay the balance and pick up the car as soon as he sold his house.
I'll tell you what," said the Greedy Poet invitingly. "Come home with me and have some lunch. We'll write up an offer, and you can take it to your client. I know my wife will be just as enthusiastic about this opportunity as I am."
"Good enough," said Joe hungrily.
When they reached the Greedy Poet's modest dwelling, his little daughter Alison came running out to meet him, wearing a flowered flour sack dress.
"Daddy, Daddy," she cried eagerly, "did you make any money today so you can buy me a doll?"
"I'll buy you a doll soon, dear, and a house to put it in," said the Greedy Poet wryly. His stomach growled.
"Let's go in and have lunch," he said.
They found his wife in the kitchen, her faced flushed with the over heat, bending over a piping-hot casserole of yesterday's cabbage dressed up with cheese sauce and bread crumbs. She wiped her hands on her flowered flour sack apron and invited Joe to stay for lunch.
As the Greedy Poet had predicted, she enthusiastically approved of his proposed investment, and soon they were animatedly talking terms. Only Alison failed to enter into the spirit of things. "I'm tired of cabbage," she complained.
"Never mind, dear," said the Greedy Poet consolingly. "Soon we'll be eating corned beef too."
Here are the terms of the offer they had agreed upon by the time they had finished every morsel of the cabbage. (Alison didn't eat hers, so the Greedy Poet finished it with relish.)
Total price: $16,000
Down payment: 2,500
20-year loan 13,500 @# 9.75%
Monthly payments: $128.05
Joe left the Greedy Poet's humble abode at 2:57 p.m., offer in hand and an earnest money check for $200--the entire savings that the Greedy Poet family had laboriously scraped together and put aside for a rainy day.
"Darling," said the Greedy Poet's wife timorously," I know you've thought of everything, but where are we going to get the money?" She nervously twisted the corners of her flowered flour sack apron.
"Don't worry," said the Greedy Poet hearteningly. "Remember my eccentric rich Uncle Horace? He always wanted me to go into business and was disappointed that I spent so many years going to school, taking up writing and photography. I'm going to ask him for a loan. I'm positive he'll give it to us."
"But, dear," she said timidly. "I know you think of everything, but what if he should refuse?"
"We'll refinance our house," said the Greedy Poet assuredly.
"But dear--we only have 7 more years to pay off our mortgage completely. And we're only paying 5.25% on it."
At this point the Greedy Poet delivered his lecture on financing.
LECTURE ON FINANCING
1. By refinancing, you can consolidate all your debts and extend payments over a 30-year period, thus reducing the interest on things like credit cards (usually 15-18%) and making the total payment a much more manageable sum.
2. The dollars that you have in equity (the actual value of your property minus what you owe on it) are depreciating because of inflation. By borrowing on your equity to buy income property, you put your money to work, since property can be expected to appreciate.
3. Income property should show a return that will offset the increased interest rate incurred by borrowing to invest.
*****
At 3:49 Joe returned with a counter offer from Mr. Ruddinek, as follows:
Total Price: $21,500
Down payment: 7,000
20-year loan 14,500 @8%
Monthly payments 121.29
Joe explained that Mr. Ruddinek would not take less than $7,000 cash, the amount he needed to finish paying for his Cadillac [remember, dear readers that this was over 25 years ago] , but he had generously agreed to carry the balance at only 8%, thus making the monthly payments slightly less. Also he insisted on $300 more earnest money, for a total of $500.
At 3:59, Joe left with an amended offer, as follows:
Total price: $20,500
Down payment: 7,000
15-year loan 13,500 @ 8%
Monthly payments 129.02
"But, darling," said the Greedy Poet's wife inquiringly, "I know you think of everything, but where will we get the other $300?"
By way of answer, the Greedy Poet strode to the telephone, picked it up, and dialed the number of their credit union. When he hung up, he had arranged to pick up $300 the next day.
"Darling," said his wife, "you're wonderful!"
At 4:57 Joe returned breathlessly, waving a contract. "He signed it," he said happily.
At 5:02, as the door of Joe's Cadillac slammed shut, the Greedy Poet was on the phone to Uncle Horace.
"My boy," boomed Uncle Horace, "I'm so glad you finally came to your senses. I'll be glad to make you a loan--at 9.75% interest, of course. How much do you need?"
"Well," said the Greedy Poet, calculatingly, "I need $7,000 for the down payment and another $3,000 to fix up the place." He described the property in detail.
"Splendid, my boy," said Uncle Horace approvingly. "I always knew you had the makings of a businessman. I'll get a check in the mail to you tomorrow."
"Darling," said the Greedy Poet's wife adoringly, as he hung up the phone, "how wonderful you are. We're going to be rich."
"Daddy," said Alison eagerly, "when are you going to buy me a doll?"
October 1978