10. The Time is Now

In the next step in learning how you are going to get rich, you must be careful to avoid negativeness more than ever. I have been asked to start many men and women along my path. But I have noticed that if they were at all negative, it showed up in this phase of the endeavor. Perhaps the psychol­ogists would analyze this as a secret but real desire on the part of the subject NOT to get rich but to continue to wallow in mediocrity. I early learned the fable of the cave and the robe. It best demonstrates my point.

You have seen it in the experience with the tenants who were offered heat in the previous chapter. The story goes: Once, way back in prehistoric times there were two men who each oc­cupied a cave in the side of a mountain. Each summer they would hunt and fish and live quite comfortably. But each winter they would huddle in their bearskin robe and shiver and wait for spring again. To one cave-dweller, the robe and the gloomy cave spelled shelter and some measure of protection against the elements—and life. The other was a little more ag­gressive. He came to his neighbor and proposed, "Let us leave this misery and go down into the valley. We cannot be much worse off. Perhaps we may find a better life." But the other replied, "Oh, no, go away with your mad ideas. I have this cave and this robe, and I wouldn't think of leaving them. If I did, who knows, I might suffer terribly and be even colder. Then I'd wish I had my cave and robe back, and I might have lost them. Oh, no, go away."

So when, after a few weeks of more or less desultory hunting, the report comes that "guess there are no more like that to be had," I know we've got another fizzle in this one. After all, every single one of the men and women whom I've started and who had the right attitude is doing famously. I need only glance at their records to be positively reassured that the field is still ripe and rich with opportunity for those who are positive and not negative. For those who really, down deep, want to venture forth from the security of the little they have— their cave and robe. It soon shows.

So I ask you to approach this whole venture with certain attitudes. They are absolutely essential if you are to succeed. Let us begin with the first plaintive excuse for a withdrawing cave-dweller.

"You bought at the right time. It's too late now."

I have found that it does no good to prove to this fellow how wrong he is. He wants out, without losing face. In his view, 1946 was too late, and every year is either too late or "not the right time." So I wave him on. Let us look at the record.

True, I started to build my portfolio of holdings just when the depression started. But when the forties began and things started to get better, all things rose at once! The prices of the buildings went up—so did the rents, so the net is bigger than ever. It cost more to fix a roof and the tax bill was up. But so was the income, and each principle remained the same as in 1930, 1935 and 1939. The proportions were much the same. Only the figures were changed. The same formula was sound in 1946, as it was in 1936 and 1956. If there was a variation in this area it lay in our favor. One big item did not rise in propor­tion to other things. That was the real estate tax. In almost every area of the country the taxes may have risen 30 to 100 per cent. But the income from the same property rose 100 to 300 per cent.

Later in learning your value formula, you will see that it makes no real difference that we use the formula on a proposed building where the rents are $75 per apartment and the tax rate $75 per thousand—or use it on a 1932 building where the same flat rented for $22 and the tax rate was $25.

Since we are talking about the type of real estate investment that improves with time, we must quickly and permanently re­ject any crepehangers who say it's too late now. I’ve heard it literally hundreds of times, usually followed by "you bought at the right time. There's no such good buys now." And that lets that cave-dweller out. While I was learning what not to buy, I learned something that was most significant at the same time. I learned not to be afraid. It was a most important change in my thinking. And it was quite natural under the circumstances. When the real estate investment field held many mysteries that I did not understand, I had the usual fear of the unknown, of the things that might hurt me. But with knowledge and experi­ence comes confidence and fear fades. You, too, will soon ex­perience the same thing. You will examine, evaluate, and de­cide yes or no. After a little experience, you will not be afraid.

In 1946 I heard about a property on University Road in our town. It consisted of a long row of three-decker Aunt Tobys, a few of which had basement apartments, making them four-family houses as to those units. The location was excellent. I could see, and YOU could have seen had you been there, that there was every indication that there would be a demand for those accommodations for many years to come. Even though they were owner-heated, they easily passed all tests, and I shortly bought them at a package price—$57,000. To do it, I had to take over an existing mortgage of some $42,000, give a second mortgage of $12,000 and pay $3,000 in cash.

The rents ranged about $50 per flat per month. The average occupancy for the tenants was about 15 years. The paint on the old New England style clapboards was peeling badly. The roofs leaked. There were a few more things that made up a picture of ownership by a "milker," one who took everything out and put nothing back unless forced to. I keep Uni, as we called it, for some 9 years. In that time, as I gave it better (and less hoggish) management, the income was used to put the buildings back into shape. Some matters required money. Others required little money, only some experience and com­mon sense.

These were not depression times. Note the time element in this case. Try to put yourself into that year. In 1946, the war was just over. Prices had been rapidly rising. All my friends and "advisors" were certain that the reaction to the action of the past six years must surely come now. The war being over, things would drop fast. I cannot remember one of my friends who was optimistic. It was apparently universally accepted, without anyone rising to debate this "truism." "Things have been going up all through the war. Now, of course, they're go­ing to go down—and quickly."

I studied the proposition again. The location was tops. Every other element of good investment was here. I announced that I was going to buy it. The reaction among my friends and busi­ness associates was much head-shaking. "Guess Bob has finally flipped. Gone too far. He'll break his neck sure, now. Ridin' for a big fall. You watch." Some even came to me imploring me to stop and think. "Look, Bob, the war is over! You've got to realize that all those prices have been rising and things have been booming. But now it's got to go down! It's time to pull in your horns. You'll lose all you've got. I'm telling you for your own good ..."

But I refused to leave the standards I'd learned to accept. I didn't care whether things went down or up. I felt certain of two decisive things: (1) there would always be tenants who would buy my shelter in this location at a price I could sell at, and I would be making a fine profit. (2) nobody could build what these people wanted, where they wanted it, at a price to compare with mine. (That item of WHAT they wanted takes care of the item of government housing.) Remember, please, at that time I was not primarily seeking investments for resale. I wanted the income. I felt that I could have it in Uni. Let us see how the predictions of my friends and advisors worked out. Let us note how the element of time far from hurting us, helped us. In contrast to the previous owner of Uni, who had been squeezing his entire living from the block, I was willing to plough back what was right. I wanted a good building in which lived reasonably contented tenants. It wasn't difficult.

In a short while, I had straightened out the minor needs, out of the income. Often ten dollars worth of plumbing repairs, neglected, can be the source of what seems a giant of annoy­ance in a building. And a neglected repair may cost the land­lord one hundred times that sum in water bills. A few hours of a competent electrician straightened out other small but glar­ing needs. Besides, I installed some automatic electric clocks to turn the hall lights on and off, and the tenants were very grateful for the safety and comfort this little item brought them. They cost very little and did their job for decades.

Now I tackled the big items of the peeling paint. I'd learned that there was no permanent cure in painting a peeling house of this kind. So I had Sears come in (they do this type of con­tracting here as do many large sidewall companies), and they covered the outside walls with a high-quality hard asbestos shingle. Note this is not the cheap asphalt shingle used in many slums. These are solid, fireproof, heat insulators (insurance rates were lowered). They have a pastel coloring that is through and through the whole thickness, rather than a surface coloring that may be short lived. Now I had a good appearance and I would never have to paint again.

In the same contract I had new roofs installed and this pretty well absorbed the $12,000 that I'd cleared on the building thus far. But they looked so much better that the tenants were, with few grumbling exceptions, glad to pay a fair increase in rent. Note that these improvements were paid for out of the build­ing rents themselves. In other words, the same tenants paid for the improvements as paid for the increased rents they brought. But they were more than happy to do it.

For some nine years I continued to derive a fine return from the buildings and, although we will dissect the transaction in greater detail later, it seems timely to point out how the dire predictions "that this is the wrong time" turned out. In 1955

I sold the block for $130,000. I took $15,000 down. I and my wife hold, as tenants by the entirety (and well explain this later) a mortgage for the remaining $115,000 for 30 years, which will pay us precisely $209,523.60 in interest and princi­pal payments in that time. So we will have cleared from our original $3,000 investment:

Net earnings during the nine years we held it                     $ 44,000.00
Down payment when we sold it                                        15,000.00
Total of payments in 30 year mortgage                              209,523.60
Total                                                                                $268,523.60

Not bad for a $3,000 investment. And just bear in mind please, that this is not the best of my deals nor even the second best!
I was offered this property for $35,000 in 1932 and refused it, largely because it was heated and shabby. I arbitrarily rejected all such offers. At that time, I didn't know much about heating.

As I write this, we've been receiving our payments on the mortgage regularly. And the fellow who bought it from me has been paying steadily and promptly for some five years and is doing fine, thank you. As each year passes, our security grows better and better, and we're not worried. Even the collection of the payments is done for us automatically by my bank! We may be loafing on the Riviera and the money is being deposited in our account regularly and dependably. That's only one of our deals. There are better ones. And you can do the same thing, if you are not negative nor a cave dweller.

Let us choose a typical case among those whose fortunes I've guided. We will study one which has most of the action taking place in 1959, to confound those whose plaint is about this not being the right time.

About two years ago, Ed R. came to one of my classes in Real Estate Investment. He had a driving force behind him. He wanted to leave a killing job he held as an executive in a large firm. He was not negative. Just as most others have done, he asked me the standard question: "Bob, are you sure it's not too late? So many of my relatives and friends insist that the time for buying properties at good prices and with good returns is all over." I told him my standard answer and he decided to go ahead.

True, Ed R. had some money saved, and he was able to ac­celerate the process much more than one who starts with one to two thousand dollars. But his case still proves that it is never too late. As he acquired each three-decker or six-family Aunt Toby (and you will learn the methods of finding them in good time), he put it in order and started the flow of income. Ed did not drain income for living expenses. It was not long before the accumulated income showed a balance of $1,500 or so and he bought another. Today, as I write this, about two years after he started, Ed has some 82 tenants. The income grosses some $6,000 per month, and every tenant heats his own quarters. There are no janitors. I am not at liberty to disclose (he is my legal client) the exact net to Ed, but it is obvious what is being paid off on mortgages. Paid off, by whom? By the tenants! Sure, that's what we started out by saying—this is a wonderful busi­ness! And taxes bite into you but little, too. There are a few other typical and significant facts I should mention about Ed's enterprise.

... Bulletin: he has quit his job and is moving up to the final step as described in Chapter 25. His income is secure, far more secure than it ever could be on the job. If he should be sick, for instance, the income continues unbroken.Then, as you can see, the net cash in hand leaves him in a position to take advantage of any new buys that come along— out of his profits. That's what may be termed the pleasantest kind of pyramiding. Because, let me emphasize this, Ed has almost never bought a building in which he was required to invest much more than $1,500. In almost every case, the bank loaned some 80 per cent of the purchase price, the seller took back a second mortgage for perhaps 10 per cent and Ed put the remaining 10 per cent down in cash. In a few more years the second mortgages will be paid off and the amount cleared each month will rise substantially.

There are a few other sidelights that are typical in these cases, and they have emerged in Ed's case too.

Ed has become known as a buyer of these properties. Every real estate man and woman in the area has an eagle eye out for these properties to make commissions by selling them to Ed. He has become the buyer of three-deckers in the entire area. Owners and even banks seek him out when they have one for sale. Some brokers solicit owners of three-deckers to sell, and if they get assent, contact Ed. A few weeks ago, I attended a passing of title on some more of his acquisitions. He had just been asked by a bank to take over a neglected three-decker with a store in the first floor and three apartments above—price $5,000. He was "out of breath" with the pace of his absorption and his rise, and asked my advice. The location? Good. Value formula shows it to be a good buy? "Yes," I snapped, "buy it."

Then there are the banks. Of course, the various bankers in the area meet and exchange news of their business. They have come to rate Ed as tops. He puts and keeps the property in shape. That is good security and a civic blessing too. He pays his bills promptly. That builds fine financial rating, and sug­gests honest, non-greedy and intelligent management.

The banks also are thoroughly conscious of another point. If they lend money to a buyer of a one-family single house, the payment to the bank is comparatively hanging by a thread. The entire payment must come from one wage-earner's pay en­velope. And that wage-earner can encounter many things that will interrupt the payments. He may become ill, lose his job, take up gambling, split with his wife, or have a need for heavy medical expense for a sick child. That puts the bank in an unenviable position if it insists on payment in spite of the "temporary setback" the borrower is suffering.

But in the case of loaning money on a three-decker, there are at least three pay envelopes involved, and that much more security. What's more, of these three, none is carrying the huge burden of maintaining a single house. Even should one pay­check cease for a time, the others easily carry the bank obligation, and the bank achieves precisely what it wants, payment with regularity and dependability.

We could not leave the Ed R. case even for the moment without mentioning another favorable condition that has be­come established in his community. The tenants have come to know, in this short time, that Ed is fair. He keeps his buildings in reasonable shape. It is getting to be the desirable thing among the workingmen tenants who have been considering a change, to "try to get one of Ed's flats."

Yes, success breeds success. Supply-houses unload outdated stocks of wallpaper and paint on Ed. He gives it to the tenants to apply, by their own efforts, or at their own expense. The same with electric light fixtures. Where for 50 years there hung an ugly cord or chain in the middle of a bedroom or dining room, now glows a beautiful modern light fixture. The life of each fixture is about 50 years or more. Cost? In the vicinity of $1.75 each. Ed is constantly solicited to buy floor coverings, sinks and other things that cost little, once installed are per­manent, and no wonder his tenants are happy!

Ed's method in getting started was the one I teach regularly, simplicity itself, and we will set it forth here soon, but first another case which I must preface with the remark that this is NOT typical. It is probably the most outstanding single real estate transaction with which I have had experience or con­tact. It is not in itself large by comparison. It contains, however, some of the most outstanding evidence of the truth of my statement that there is still plenty of room so that it deserves re­counting here.

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