7 Dark Roses - Free Audio ebooks

A REAL APPROACH TO

REAL ESTATE

Almost every American family has its tales of fabulous

real estate opportunities that were missed or ignored by

one or another of its members at some time in the past.

“Forty years ago, my grandfather turned down a chance

to buy 1000 acres of land at $10 per acre. Today, that land

is worth $30,000 an acre . .

“I could have bought an empty lot at the south end of

Main Street for $750 in 1932. Last week, that same lot sold

for $20,000 . .

“We sold our house for $5000 just before World War Two.

Now the land on which the house stood is alone worth more

than ten times that amount . .

Such stories are to be heard whenever real estate crops

up as a subject for discussion. I have more than a few to tell

about my own family—and about myself.

In the 1880s, the city of Detroit, Michigan, had a popu-

lation of about 116,000. My mother’s brother-in-law,

Travers Leach, owned a 160-acre farm outside what were

then Detroit’s city limits. Sometime before the turn of the

century, Leach sold the farm for a few thousand dollars,

making what he considered a fair profit on the sale.

Unfortunately, Travers Leach could not foresee that by

1920 the population of Detroit would soar to nearly

1,000,000 and that a mushrooming urban area would

engulf his farmland. Had he held onto his farm, he and his

heirs would have become multimillionaires. By 1920, each

of his 160 acres was worth many, many times what the

entire property had been worth in the 1890s. Today, of

course, a 160-acre tract in what has become virtually the

heart of Detroit would fetch an astronomical sum.

In 1906, my father could have purchased all of 70-

square-mile Santa Catalina Island off the Southern

California coast for only $250,000. He turned the offer

down. Catalina Island was later purchased by the Wrigley

interests and transformed into one of the best-known and

most profitable resort areas on the West Coast. For years,

the value of Santa Catalina Island has been calculated in

the tens of millions of dollars.

During the Depression years, I could have picked up

huge parcels of undeveloped la

nd in Southern California

and elsewhere for only a few do

llars per acre. In those days,

the tracts were far outside the limits of any incorporated

town or city. Since 1945, the towns and cities have grown

with lightning speed, spreading out in all directions. The

once practically worthless tracts have become thriving

residential or industrial areas. Much land that sold for as

little as $500 an acre—and even less—in the Depression

days now brings $50,000 and even more per acre.

But, for every such story of missed opportunity, there is

one that tells of opportunities which were recognized and

exploited to the full. It is obvious that someone ultimately

reaped huge profits from Travers Leach’s Detroit farmland.

The Wrigley interests recognized the potentials of Catalina

Island, bought it and profited

accordingly. Other men pur-

chased the tracts I turn

ed down in the 1930s and

eventually reaped gigantic profits by subdividing and

developing the property.

My father may have bobbled his chance to buy Catalina

Island at a bargain price, but he made many other shrewd

and profitable real estate investments. In 1907, Father

bought some land on Wilshire Boulevard in Los Angeles for

about $10,000 and built our family home on it. The land

was then well outside the city’s built-up areas—so much so

that it was surrounded on all sides by meadowland, and the

nearest paved road was more th

an a mile distant. In the

1920s, he was offered $300,000 for the property, but he re-

fused to sell. The property, which is still owned by “Getty

interests,” is now worth somewhere in the neighborhood of

$2,000,000.

I, myself, have bought real estate at rock-bottom prices

and have seen the values of the properties increase in my

own lifetime—often even within a few years. On one occa-

sion some years ago, for example, I purchased several dozen

acres of land in Malibu, Ca

lifornia, paying about $150,000

for the property. Today, real estate brokers tell me, I could

probably realize $4,000,000 on my investment if I were to

subdivide and sell the land.

I’m seldom eager to sell simply for the sake of making a

quick profit. I always remember the lease I bought for

$8000 from a friend who was doubling his money overnight.

Later, I drilled four oil wells on that property and, in the

next 12 years, those four wells showed an excess recovery—

a net profit—of $800,000.

I have not cited these examples of my successful real

estate dealings in order to boast or gloat. I mentioned them

solely to show that real estate

can

be a highly profitable

form of investment.

At first glance, it might seem

that I consider it easy to

make money in real estate. I probably appear to be

expounding a theory that one needs only to buy cheap land

far outside a city’s expanding li

mits and then wait until the

city grows out to meet the property, and that the buyer will

make money if he can hold onto his property long enough.

Unfortunately, it’s seldom as simple as that. The real

estate investor can never be certain that cities will

mushroom in any particular direction, nor even that they

will grow at all. If he buys property within the city, called

income property, he has no assurance that it will increase

in value. It may, in fact, lose value if, for example, a

neighborhood ceases to be fashionable.

Then, no matter how low the price of an undeveloped

property may be, its purchase still entails a capital outlay—

and the capital sum may have to

be tied up for a very long

time without producing any income before property values

begin to rise. Also, there are property taxes, assessments

and other expenses which must be paid, and these can add

up to large sums over the years.

Some time ago, a friend of mine bought 200 undeveloped

acres at the northern edge of a Midwestern city, paying

$100,000 for the land. He was qu

ite correct in his basic as-

sumption that the city would expand and grow—but he

could not foresee that when it did, public taste and

preference would cause the growth to take place in the

city’s southern and eastern sections.

My friend still owns the property, which is worth no

more today than it was when he bought it. His $100,000

investment has brought him absolutely no income for more

than a decade, and it has been necessary for him to pay

annual property taxes on the acreage. In addition, he has

spent sizable amounts in efforts to attract buyers for the

property— all to no avail. He has already suffered

considerable financial loss. He will continue to lose money

on his investment unless he can sell the land, for there is

no indication that the city’s northern suburbs will ever find

favor with homeowners or industrial firms.

In short, a prospective investor must always bear in

mind that while real estate can be a highly profitable form

of investment, it can also prove quite risky. Often there are

many variable factors which affect the value of a property,

and these factors are not always obvious even to

experienced eyes. It is sometimes difficult to appraise the

value of a given property accurately, and mistakes in

appraisal can be costly. Another potential drawback to

investing heavily in real esta

te is that an individual who

ties a large amount of his capital up in real property and

then has a sudden need for cash

may well find it difficult to

sell and realize cash quickly without incurring considerable

losses.

In real estate, as in the stock market, it is the

intelligent, patient investor who is most likely to make

money in the long run. The real estate speculator, like his

stock market counterpart, may make some short-term

profits, but he takes much greater chances and his profits

will never be anywhere near those of the investor.

There are two kinds of real estate investors. The first in-

cludes those who buy at very low prices before an upward

trend begins and hold onto their properties for many years,

patiently waiting for values to rise to high levels. They may

buy undeveloped land with, po

ssibly, a view to subdividing

it, or they may purchase income property which they hope

will eventually increase in valu

e, even while it produces

regular returns on their invest

ed capital. The second type

of real estate investor buys soon after a real estate boom

has already begun. He pays more for a property than

investors in the first category because prices are already on

the way up when he gets into the market. On the other

hand, he immobilizes his capital for much shorter periods.