Chapter Three

Fantasy Land

The writer is an almost retired building contractor, developer and speculator, who has specialized in residential housing.

If you are interested in real estate as a possible investment, I am confident this book will add to your legitimate knowledge of the subject.

I said, at the start, that I am "almost retired." I find life rather boring if each day does not present an opportunity to accomplish something. Thus I occasionally buy a piece of land and oversee the construction of a single-family dwelling. When completed, I put it on the market. It is a speculative venture, but one which I have repeated many, many times, before retirement.

I enjoy "holding open" each house. I know that someone is going to fall in love with the place and, more importantly, will be in a financial position to purchase it. What I do not know is whether that person will be the first one or the hundredth who looks at it.

At this point, I think that you should meet the second young fellow who prompted me to get started writing this book. I was sitting in the living room of one of my new houses, waiting for a prospective buyer, when I saw a couple heading up the front walk.

The sign on the front door said, "Please remove your shoes and walk in." As a point of information, we were in Hawaii, where it is customary to remove one's footwear before entering a private dwelling.

I greeted them at the door and told them that the house was empty and they were welcome to enter and look it over. The man appeared to be in his early thirties and the girl about twenty-two. He said, "We saw your sign and would like to look at the house, but we don't believe it necessary to remove our shoes, since they are clean." This clearly indicated tourists.

I said, "If you have been out of doors, I can assure you that your shoes are stained to some extent, and the sum total of dozens of small stains would ruin my expensive carpeting."

They grasped my point and slipped their sandals off. I told them to look around to their hearts content and check with me in the living room if they had any questions. I had three chairs in the room, and that was the extent of the furniture.

After a few minutes they returned and introduced themselves. They were tourists, from California, and lived in the same area in which I conducted my business before I retired to Hawaii.

Now they had come to the island for a ten day visit and had fallen in love with the place as so many do. They wanted to buy a house and settle here.

The man, whose name is Ben, said they were favorably impressed with the house and were interested in buying it. He said my three bedroom, three-bath house was a little larger than needed by two people, but it would provide plenty of room for visits by members of both their families.

He looked towards the girl, apparently for a sign of agreement and was rewarded with a sweet smile. "By the way," Ben said, "I haven't asked you about the price."

I said "The house and lot, Fee Simple, are $299,500." (Fee Simple indicates an outright deed to the land as opposed to rental or other.) "There is a vacant lot on either side of the house," I continued, "I own them both. If the buyer of the house should wish to purchase the lots also, I would sell them for $50,000 each. Then my total selling price would be $399,500."

Ben didn't bat an eyelash. He said, "We may not take the lots, but we want the house, so let's talk about that." This time the girl's smile was even sweeter. He said, "How about the financing?" I responded that I wanted to be cashed out. "But what about the mortgage," he asked, "Can it be assumed?"

I said, "There is no mortgage. I finance all of my own deals. The property is clear."

"Then would you carry a mortgage for us," he asked?

"No, I want to get out from under completely," I answered. "You would have to arrange financing."

I asked him what he did for a living. He said, "Right now, I am working for the Post Office, delivering mail, but I think I can find something to do on the Island."

I told him that he would not have the slightest chance of arranging a loan, as a newcomer, without a job. He said there would be no problem about that, because he intended to secure his financing from a California bank before he quit his Post Office job.

I called his attention to the fact that banks do not make 100% unsecured loans, except possibly to Poland, Brazil, Argentina and other third world countries. He would have to come up with an equity payment of at least 20% of the purchase price, or $60,000. He admitted that he was a little short of cash, particularly since his present ten day trip was proving to be quite expensive. However, he assured me that he could deal with the problem very easily, if I was willing to cooperate in order to make a sale.

He came up with several different types of offers that afternoon, all of which were ridiculous, since they involved none of his cash. The last one followed these lines. I was to accept his note and deed of trust for the $60,000 down payment, but I must not record it for 60 days. That would give him time to secure a bank loan covering the necessary $240,000.

I pointed out that the bank would require the down payment be in cash and not in the form of a note. Furthermore the cash must be deposited with the real estate Attorney or Title Company that handled the transaction.

He overcame that obstacle by saying his brother had a home, which was almost paid for. He was sure the brother would gladly raise the $60,000 by means of a new mortgage to pay off my note. Then Ben would be free to proceed with the bank loan.

I was becoming a little irritated. I had spent about two hours pointing out unworkable flaws in the offers which he made. Actually, he should have been making them to some kid who was running a lemonade stand on his front lawn. Still he was nonplused when none of his offers were close to acceptable.

I said, "I am sorry, but I am going to have to bring this discussion to a close. As a matter of fact, there is probably not a single delivery employee in the United States Post Office who draws a large enough salary to qualify for a $240,000 mortgage."

He paused to think about that disagreeable fact, whereupon I said, "Do you know Ben, your approach all afternoon indicates that you have been taking one of those real estate courses where you buy property for nothing down and sometimes even take a little cash out of the deal."

Ben answered, "You are right. I just finished the course. I have even been to the home of the guy who gave the lectures. He has about four million dollars worth of property himself. You should see the papers he has hanging on the walls of his study."

I didn't ask, to what kind of papers he referred. He started to talk again. "Do you know, one of the offers I made to you this afternoon was exactly like on in his text book. The only difference was in the size of the figures. But it didn't work with you."

I said, "If I had more time, I would tell you why it didn't work."

He responded, "I will be up this way tomorrow, and I will bring a copy of the example from the book. But now let's talk about one of your lots. We would like to buy one and build a house on it."

I told him that neither lot would be available until after the house had been sold. At that time, I would probably sell an individual lot for $55,000, although prices were rising. Further, any deal I made must be for cash only.

He tried several other types of offers on me to no avail. Finally, I asked him if he would be kind enough to allow me some time to attend to a few other things that day.

We parted company, and I had the queerest feeling of having spend the afternoon lying on the floor, while being trampled on by a group of playful kindergarten children.

Copyright ©1995 Robert A. MacDonald, All Rights Reserved.
Last revised: May 10, 1998.