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by Willard Michlin
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page 6 of 22 |
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is working on the wrong problem. The problem is not money, or the problem would have been gone. Kevin thought the problem was money. It wasn’t. He had already poured $300,000 into the San Bernardino building, on top of the $209,000 1st Trust Deed loan that came about when he bought the building. Before he was finished, he spent over $500,000 in a building that needs $100,000 to finish, but was only worth $475,000, after it was finished.
What could I do? Use what the good lord gave me. 30 years of experience, on the subject of getting out of problems that I created when I was young and inexperienced. Here was the war strategy. I got Kevin to agree to turn over total management of the two properties to me. Knowing that I was managing the property and working on what I believed was the correct problem, I felt comfortable about loaning money on this deal. If I can’t trust myself to solve this problem, whom can I trust? I started by loaning Kevin $25,000 to make needed repairs to the Pasadena building, pay the property taxes and to bring the first and second loans current on the Pasadena property only. Nothing was to be spent at this time, on the San Bernardino building.
Now that I controlled the Pasadena apartment building, I discovered what repairs the building needed. The list was so long it took one man three months, full time, to fully handle it. I then did a very detailed market study and determined what the market would pay in rents. I asked the tenants for a list of everything they wanted done in their apartments to be happy. I then did everything the tenants requested and I then raised their rents 30%. After the building was full, I raised the rents another 15%. The value of the building went up and I received an offer for $725,000. This was $200,000 more than its value 6 months earlier. I put it into escrow, and then I realized that I could raise the rents some more. I raised the rents again in escrow and forced the buyer to pay another $25,000 for the building. Bringing the price to $750,000. That $225,000 profit was needed to help cover the money being lost in San Bernardino.
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