4. Learning the Facts of Life

In the past ten years I have been called upon, perhaps 1000 times professionally and as a "friendly courtesy," to advise others on the purchase of real estate. If there has been one outstanding and common error, and there most certainly has, it has been that the prospective buyers either played down or, in some cases, entirely overlooked the most important re­quirement and element of all good real estate evaluation. It has happened countless times. The client or friend comes to me with a slip of paper bearing figures on a property. He wants me to say it's a marvelous buy.

He starts to espouse the fine features, the "clear profit" that his figures show. I am unimpressed. As soon as he sums up with "what do you think?" I am ready with my standard opener. "Be honest now, precisely how good is the location?" In the next ten seconds I have my answer to how I am going to advise on this one. If he begins with pursed lips, or a faraway look as he gropes for words that will not be too prejudiced, and will still be not too far from the truth, "depending on your view­point," I know he is covering up for a poor location. It figures. After all, he has been offered a "bargain." The figures "prove it." That's what he thinks. But unfortunately the figures never prove it. Not in this vital regard.

The reason he has been offered a bargain MUST be suspect. Nobody gives anything away, least of all an owner of a piece of real estate that is making good money. Therefore, we must examine it minutely to see WHY he is offering so much for so little. Please do not take the above to mean that there are never good buys. And do not conclude that there are not good bargains occasionally. In fact there are. There are even oc­casional fantastic buys. We will treat of them here in due time. But generally when anything is being sold for far less than its seeming worth, you must examine it carefully. That is simple common sense.

Thus when the friend says, "We-e-ell—I wouldn't say it's really bad," I know the answer. It shortens things. I throw the burden right back at him. "My advice is that if you are sure the location is good, buy it." Of course this leaves the fellow with no more help than when he came in. But it's his own doing. He knows what's right. He simply is trying to convince himself he's found a bargain when he hasn't. You must resolve here and now, unshakably, that you will never let yourself be blinded to truth about location by the aura of the lure of the bargain or big profit it is made to look. You must never relax this vigilance. It will make or break you.

In the course of the next two years I went through hell. As the punishments of buying poor location gradually increased their pressure on me, I fought back. I had invested my bitterly accumulated mite. I dreaded accepting the conviction that I had erred. The finger pointed and said, "You goofed! This is not the way." I desperately slapped that finger aside and shouted angrily, "I will make it good. I will make it be the way!"

In many ways this may be compared to the basic training a soldier goes through. It is the training designed to change the individual's thinking and actions to a new and different concept and path. And it's a punishing thing. There is much resentment and rebellion against the truths of this new way of life that are being thrust upon you. Many a new draftee or enlisted man has written his friend from basic training camp, "This is HELL!" It is. And it needn't be for you. You see, I came out of training having learned only one thing. All that flailing away at the stone wall, all that spanking and disciplining I took, only left me with one piece of information. That was the sum total of the entire experience. You shall have that piece of information without the pain. Try your best not to learn it the hard way as I did. It will at least delay your rise to your million. It may completely bar you from it. It is this: Never compromise on location. It must be Good-location-or-I'm-not-interested— period.

In time I was forced to admit the truth. Sure, I was a fighter. I didn't give up on anything if I still could stand up. But this I couldn't lick. As I tried to inventory and evaluate, certain re­markable things thrust themselves into view for my amazed consideration. You too, should examine these as I did, for your elementary basic education.

I had three good properties and three bad ones. The three on High Street and High Street Place were good. The stuff on Pond Avenue, Villa Lane, and Brook Street were losing propo­sitions—not to mention the ulcers they gave me. And this in spite of seeming contradictions. The good properties were shabbier! More, they were obviously shabbier. And in equip­ment, layout and decor, less desirable. Any housewife or even husband could see that. But, darn it, they rented quickly and stayed rented! Whereas you had to scratch and scrounge to find tenants for the bad properties, and when you did, they soon moved and you were hunting again. So what was the answer?

In contrast to the experience on Brook Street and the other bad ones, let us examine what happened in the same regard in the good ones.

Typically, High Street Place was in a desirable location. In 1933 Mr. R. moved in to the top floor at No. 7. He was still there with his family in 1955 when I sold the property (under very special methods that leave a long-range income-without-bother picture that will make you drool when we come to it).

Mr. B. moved into the first floor in the same house in 1933. He was a carpenter and in those lean years sought work from me at 75^ an hour. He paid $22 per month. In 1955 when I sold the property to Mr. G., Mr. B. was still occupying the same apartment but his income had gone from some $30 per week to about $200 per week. His rent had increased with the times, too. He pays some $50 per month for the same flat. But he still lives there as I write this.

Do you see shades of the Aunt Toby experience in this? In the ensuing years, there were many many more properties that fell into the Aunt Toby class. Good location meant good income —and steady, unbroken income. And that's what we buy them for. When I bought No. 16, I got a list of the tenants from the seller, Mr. L. In this building the general rule as to all tenants that were considered "regulars" was 30 to 35 years occupancy. The ones who were considered recent occupants had lived there only 15 to 18 years!

In the Freeman property that was slummy and rundown when I bought it, Mrs. R. had been a tenant for 29 years and Mrs. F. still lives there, too, after 37 years. Most of the other 12 tenants have long tenancy records, too. And the buildings are shabby and have few conveniences.

Let us ask the big—and I do mean BIG—question—WHY? The answer is embodied in one single word—LOCATION.

To analyze this simply we must begin by realizing that in the ownership of real estate we are selling one of the three essen­tial needs of life: Food, Clothing and Shelter. Let us examine how the great merchandisers of one elementary need—food-operate. When your local food supermarket puts a product on the display shell it does so with the belief that the woman wants it and will buy it. If the store buyer does not believe that it is what the public wants, he will not stock the item. In simple terms the store is giving the consumer what the consumer wants. This principle carries through to many other parts of the chain's operation. Giving the customer what she wants is the guiding factor in deciding on many things: The style of shop­ping, lighting of the store, arrangement of the racks, parking facilities, choice of products offered, such as stockings, maga­zines and utensils. They all do the same thing—give the public what it wants. And the food chains know the score! I am con­tent to learn from their methods and wisdom, for I, too, am selling an essential of life to the same consumer—shelter. 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 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.

Are You Ready To Move Onto The Next Lesson? Click Here….