Get Rich From Real Estate (continued)
The same good principles necessary to success in supplying a consumer-need apply here as well as to food.
Reduced to terms of application to my problem of inability to sell the shelter
of the bad properties, I was trying to sell the consumer something it didn't
want, poor location. Sometimes the supermarket might put a product on the
shelves experimentally to test public reaction. Some people would "try" it, then
never buy it again, or return it for refund. That product would come off the
shelves quickly. The chain isn't fool enough to try to sell it simply because it
can buy it at a bargain. We in real estate shouldn't be that stupid either.
When we are offered a bargain in real estate we must never forget that we are
not buying something we are going to consume, we are buying WHAT we are going to
be offering to the public.
If we are to avoid the unenviable position of owning a thing for sale and being
unable to find a customer for it, we must devote our best judgment to the points
about the property that will most influence the acceptability of our product
(shelter) when we offer it for sale. And the most important single feature of
ALL property is location! Hence when you start looking over a proposition,
examine the most important thing first. Put yourself in the place of a
supermarket buyer who is considering buying a warehouse-full of a certain style
of canned beans. Let us say these beans are ill-smelling but usable. Would the
fact that the price is very low overcome the fact that you know something about
these beans that makes it reasonably certain that you will not be able to sell
them? Are you planning to eat a million cans of beans yourself? No! You are
buying something for the single purpose of selling it!
The difficulty of selling the shelter in bad locations is comparable to the
difficulty in selling beans that smell, or taste horrible. If you see the thing
in that light, you need never err in this regard. Irrespective of HOW the
figures seem to prove it is a good proposition, you do not want it. The figures
may be compared to those that are presented to the market buyer. The owner of
the beans shows him that the beans may be sold at a
LEARNING THE REAL ESTATE FACTS OF LIFE
Price lower than current market, and still leave a fat profit to the store. The
buyer simply will not buy it. Neither should you be tempted by the figures.
So much for the factor of location. Since it pervades our thinking and is an
absolute governor of results, we have emphasized it by good and by horrible
example. It would be pointless to waste more time and space belaboring the
point. Let us examine further steps in our journey.
DUMPING THE DEADWOOD
It was time to stand back, appraise and admit the folly of the three bad
choices. No sooner did a tenant move in than he was looking for another place.
Only a fool would persist and beat his brains against a stone wall by trying to
make the public accept what it didn't want. So I set about unloading the bad
ones. I advertised. I talked them up. I passed the word around. Soon this
produced results. Others wanted to own income-producing real estate, and had not
learned the lesson that still had my head spinning. Mind you, these were
depression times. The amount of ready cash was the all-important point in all
business. So I tried to make the things attractive by small down payments. This
worked fine. By the way, in the intervening years nothing has happened to change
my mind about this as a wonderful method in selling real estate— particularly
real estate that is otherwise hard to sell.
In talking to one (we'll call him) Farrow, I said, "I've got one piece of real
estate that I'll sell for a ten-cent cigar!" Mr. Farrow was a bit of a wise guy.
He thought he had me caught in a legally binding offer. He pressed his point.
"Where?" I answered, "The brick house at 114 Brook Street." Quickly he took me
up on it. "OK. It's a deal. I'll take it," and he smirked in his triumph.
So we sat ourselves down and made a contract! Right then and there. For and in
consideration of one ten-cent cigar.
DUMPING THE DEADWOOD
I acttually sold all my right, title and interest in and to the real estate
situated at 114 Brook Street, Brookline, Mass.—a brick 3-family house, occupied
by 3 tenants, for one ten-cent cigar. Believe it or not, to this day I firmly
believe I stuck him. He took over the mortgage, signed up on a new note, handed
me the cigar (which I still have framed, as a reminder of what NOT to do in Real
Estate) and he marched down to the building and informed the tenants that he was
the new owner and would be around the first of the month for the rent. He got a
bit of a surprise.
The tenants had news for him. They gave him notice that by the first of the next
month they would move out! This fazed him only a little. He had so little
invested that it still didn't seem possible that he had taken on a loser. But he
learned. In the ensuing years, while he hung on trying to make the public accept
something it didn't want, he learned something that I had paid heavily to learn.
I heard he was trying to sell it from time to time, and then lost track of the
whole painful affair. By the way, I don't smoke.
It was time to push the unloading of the other boner—The Pond Avenue-Villa Lane
Group. To anyone who had not learned his elementary lesson, the figures were
mighty attractive. They were so attractive that you could easily overlook the
slummy location. And I finally found a customer who did. Here again the allure
of a low down payment—really a token amount —sold the property. The idea of
owning an 18-apartment unit in Brookline, Mass, (a highly desirable residential
town) with only $1000 down was too much for Mr. J. He beat the down payment
figure from $1000 to $500, and I let him win. He assumed the old mortgage of
some $7,700 and signed a second mortgage to me of $500, which he eked out in
time and paid off.
When I had finally gotten rid of these properties, I licked my wounds and
contemplated the future. The depression had brought business to new lows, and
then established even lower lows. Still, people had to have shelter. Many who
owned properties in the deluxe class (for those times) were suffering.
DUMPING THE DEADWOOD
Their $75 and $100-a-month tenants had moved into my $30 and $40 flats. The
deluxe apartments stood vacant, and these vacancies brought attendant worries.
In order to keep from losing the building to the mortgagee, they HAD to have
rental income to keep up the payments, or at least pay enough to forestall
foreclosure. So the owners started to improvise inducements to get tenants to
move into their buildings. You would see ads offering "free rent for 6 months"
or "will pay your moving costs" and the like. Even without saying so, it was
assumed the owner would completely redecorate. That was standard in the demands
of new tenants. Of course these measures imposed new burdens of themselves. It
cost a substantial amount of money to redecorate an apartment throughout. Things
got so bad among the big owners that they were driven, in this and many other
localities, to form associations. The prime purpose of these was to agree among
themselves to abandon the practices that were pyramiding with each owner trying
to outbid the other until it became absurd. To some extent these measures
worked, but it fell far short of solving the problem for many.
However, these troubles never brushed me. I owned what the public wanted. I
offered the public the shelter at a price it could afford to pay and a location
it wanted to live in. As soon as I learned a few more lessons in management
(which we will discuss later), I reduced vacancies and bad debts to less than 3
per cent of the gross! This was not only unheard of, but unthinkable in those
days, and still is, in the trade generally. But it is perfectly possible for any
other to achieve this fine record if he knows:
What to buy (and what to stay away from), Where to buy, How to finance, How to
manage.
You will learn these things well in this book.
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