The sad story of the little house at 107 Cortland Street.
Four years ago our town council decided that the town needed more
"economic development." The powers that be got into bed with a very
successful real-estate developer of national fame and they came up with
a novel, cooperative plan whereby the town would divest itself of a
number of aging structures it owned on prime real estate, and the
developer would then build a huge complex; a mall on the first two
floors, offices on the next, and cap it all off with condominiums of
various shapes and sizes.
The result would then look like a mall with
an office building on top, and a bunch of faux-Colonial residences atop
that. For this the town would not only have to re-locate the offices
contained in the buildings to be demolished; but worse, would have to
issue a $30 million bond to help pay for all of this construction. But
the cost was worth it, claimed the proponents of the plan. The economic
development of the town and the addition to the tax base would be
The whole issue was brought to a referendum, before which the pros and cons were hotly debated in town meetings, restaurants, bars, and other places of public assembly all over town. I must say that as a student of marketing, I admire, in a sinister sort of way, the way the leaders of government, at that point in time, managed to sell this thing to a majority of the town's voters. You see, anywhere there's $30 million being spent by a bureaucracy, you must be aware that some of it's going to land in the pockets of the bureaucrats responsible for spending it.
That's the way it's been throughout history, and that's the way it's gonna be as long as substantial sums of money are entrusted to bureaucrats who have no oversight nor accountability to anyone but each other. "What about accountability to the townspeople?" you may ask. Hah! That's just about as oxymoronic as the phrase "trustworthy politician."
Nobody really paid attention to the smoke and mirrors that the
developer and the town fathers utilized to foist the "financial plan"
upon the public. The $30 million municipal bond issue would be paid back by
revenue generated by the project, they claimed. "And we won't raise
taxes to do it."
Nope they didn't. They made good on their promise. Technically. The mill rate
(the tax rate, by the way, the third highest in the State of Connecticut)
didn't go up a smidge. However, when the time came to re-assess the
taxable value of all of the taxable real property in town, instead of merely using
the formula they'd used in the past, they outsourced the job. These
appraisers and their number crunching raised the taxable value of most
of the town's real estate by about twice what was expected. I can tell
when they came through, we were enjoying a real-estate boom, but this
was ridiculous. The town's tax collector became mired in disputes
overnight. Those of us who didn't fall prey to the siren song of the
town planners and voted "no" in the referendum got a chance to say "I
told you so." But that, and a token, will get you on the subway, as
we used to say in New York City.
To give you an idea of what happened, the building we rent which contains our restaurant and the property it's on was valued at about $2 million until the latest re-assessment. The landlord and I gasped together when he announced to me that our corner, due in part to recent skyrocketing costs of rentable retail space in an altogether different part of town, was re-valued at over $6 million. We agreed that we'd had enough of this crap, and very kindly the landlord utilized his own lawyer to appeal the re-assessment and succeeded to bring it down to $3 million. It now costs me nearly $8,000 a month just to pay the property taxes (ours is what we call a "net-net-net" lease; we're responsible for every cost). I thought it was nice of the landlord to help us out, because he really didn't have to at all.
Confessions of a Slumlord
Today I was visited by a nice
young lady who my wife and I have known since before we were married.
Recently, this young lady earned her license to sell real
estate. She handed me an envelope and said "here's the contract for
the house on Cortland Street."
What house, where?
My wife took me for a ride about two weeks ago, and we went to see a
really cute Cape Cod-style home that was a half-and-half; a two-family,
triplexes side by side. I told her the place'd need a
little work, and that I'd have to run the numbers to see if it was a
viable opportunity to make some income while acquiring equity in real
estate. She countered my distinctly negative tone with my own words,
"You said real estate's a great
investment 'cause God doesn't make any more land."
I told her that that particular saying has to do with lots and lots of acreage, not the
modest 1.2 acres that this house, in questionable condition, sat upon. I opined,
"Well, we could always tear it down and make a four-plex out of it;
it's zoned for it down there." I should have resisted the urge to use
the words "tear it down" in a sentence.
"No! I don't want to deal with building
anything!" Well, there went that
idea. I mean, she'd had enough trouble with a whole bunch of
cement, lots of drywall and mounds of sawdust when we built the
restaurant, which was already slabbed and framed.
Well, I took a look at the numbers, as it sat, and came up with a
very marginal profitability given the area, the rents in the area for
similar units, the taxes and expenses. I did not like what I saw.
Not only had she taken out an incredibly expensive mortgage, she
signed a contract to buy the house. Thank God that our state requires a
tremendous amount of disclosure regarding the condition of the
property, and includes on every document language which encourages
prospective buyers to have the property re-inspected by a disinterested
party. I began praying that the house was so full of radon it glows
in the dark at night. I prayed that beneath the cinder-block basement a
tremendous sink hole lurked, ready to devour the house, out-building
and a couple of mid-sized cars at the same time. I prayed that I could
find a way to get us out of this situation. Forgive me for sounding sexist sexist and
racist, but by extensive personal experience I can tell you that a determined Chinese woman with money is a formidable
foe. A determined Chinese woman with money who has a determined Chinese
real estate agent is invincible.
It took me most of this afternoon on the phone to stockbroker, tax
lawyer and banker to get the rate from the obscene amount quoted by a
mortgage broker down to something a wee bit more reasonable. In fact, a
lot more reasonable.
My wife couldn't believe that the nice man, a customer of ours, who
brokered her the mortgage, had ripped her off to the tune of 2.25% and
a point. The 15-year note that I
arranged came in with no
points, no closing costs nor origination fees and at 5.7 per cent.
All it took was a very quickly drafted business plan and my
spreadsheets and the stockbroker and our banker got together and said
"we'll have a check for you in three days; and the first payment's not
due until the renovation phase, under the terms of the mortgage
contract, is over."
A long time ago I told my wife that real-estate investors make money
by using other people's money; which really isn't other people's money
because it's backed by stuff and money you already have. She naively
put two and two together and came up with a pearl of wisdom, "You mean
the banks only loan money to people who don't really need to borrow money." I agreed,
and complimented her on understanding of yet another one of the
peculiarities of doing business in the United States.
So what's so sad?
The little house on Cortland Street had once belonged to a nice family and perhaps a tenant or relatives. It had been bought using all the financial advantages offered to first-time homebuyers by the HUD. Apparently they managed to make the mortgage payments alright, but were done in when the property was re-assessed for nearly more than they bought it for. The HUD foreclosed and started taking bids; ours was the one that won. (I wonder how low the others were.)
The first time I went to see the house, I noticed the incredibly poor condition (I mean vandalism bad) the previous owner and/or their tenant(s) left the house in. So I felt nary a pang of guilt about making a little money on someone else's misfortune until I came to the small bedroom in the South unit. There was a crib in there. The only stick of furniture that was left behind. The people hired to remove the dozen bags of rubbish which were there when my wife first toured the house hadn't bothered to take it. I thought about the once-occupant of that crib and got choked up thinking about what was to become of him or her.
We have good ideas about whom we'll rent to. There're plenty of Town employees who're mandated to live within the town's borders, so that's one option. I've also been approached by quite a few young couples who've applied for apartments in town but can't get one. The equal housing laws, you see, seem in our town not to exist. We're not going to become millionaires on the rent but will acquire equity rapidly enough in the building. Hopefully the tenants will have kids and at least be able to take advantage of the superb school system in the town.
Oh, one last thing. The condominiums on top of the town's gleaming new multi-use complex; they're going for from $500,000 to $4 million. The sales agent, when we stopped in to look at a model, said matter-of-factly that it was the $1 million-and-over units that went first — and rapidly at that. At this time there is a conspicuous absence of data available about whether or not any of the condos are owned by a member of a minority group.