• GOLDIE LOCKS
• Boy, what a way to buy a lot of houses at one time! There was a tip from a friend of mine, a man by the name of Joe Fogarty. His call to me was regarding one hundred and twenty seven houses. We couldn’t buy them, because $4,000,000 was owed on them. They were worth, maybe $1,000,000. Joe had said this project was too small for his company. I looked at it and said it’s too big for my company. Then I had another thought, (just like Goldie Locks) that just maybe, it would be perfect if I just brought in my friends.
• Purchasing them from the previous owner at the time, was out of the question. These houses had decayed … I mean, really run down. They were low income houses. They were probably rented out to Section 8 for many years. Investigation showed that they were built in 1949. They had been used for rentals since that time.
• All of the houses were brick and they were on slabs. They were built in an era when 2 by 4’s were straight and actually 2 inches by 4 inches. The walls were perfect. But the interiors were a mess. They were also built before the air conditioning and permanent heating systems. The wiring was so old that it needed to be replaced. Most of the widows were broken to the point they needed a complete new unit. The doors were basically missing. If not missing, in such bad condition to deem them unusable.
• Crack dealers were running in and out. Most of the houses had more mattresses than they had bedrooms. The crack users were using these houses to sleep off the dose that they had taken.
• Lots of things were happening in these houses, that you and I don’t even want to know about. You could see where a bank would be reluctant to foreclose and put them into their inventory. Any owner of the property would be liable for all sorts of things happening in the shell of these houses. Houses like these with their potential liability, really look bad in a banks inventory.
• There were other problems, such as four banks being involved. One of them didn’t want to do something in fear of hurting another bank, and vice versa. But all four banks were willing to take a steep discount on the mortgages, should someone be willing to buy debt.
• It only made sense to me that if a person were to buy all these mortgages, they could be discounted from four down to one million dollars. (As it turns out, if you foreclose in the state of Texas, and there is a deficit, you can sue the owner for that difference)
• The wealthy man who had created these loans in the first place lived in Hawaii, to the best of my knowledge. I thought that, perhaps a letter to him stating, if he would give me the deed to all 127 houses in lieu of my foreclosing and suing him for three million dollars, the odds were very good that he would participate. By the way, I did not have one million dollars to make that purchase, but I knew of some other investors. I called a meeting of about twenty of them.
• These were all experienced investors. They were people, who had already bought and sold houses. Most of them had done quite a few. Some of them were very sophisticated investors. I met them at a local restaurant, and outlined what was about to happen. I then asked the ones who wanted to participate to give me their names. I explained that I really didn’t want more than six or seven investors.
• Disseminating information 127 times can be quite an expense and a liability; so only six or seven would be involved. Those people were chosen. Money was collected at the title company until every penny was there. Then the purchases of the mortgages happened.
• Now, we sent a letter out to the owner stating that we were going to foreclose. It stated that we would sue him for the difference unless he sent the deed. I had never met this man, nor did I know if he had IRS liens or any other kinds of liens against him. I suspected that he might very well have a judgment already. He had gotten involved in this deal, hadn’t he? He might have gotten involved in other things.
• In my letter I asked him to sent the deed to my mother and make it out to her. I knew foreclosure would wipe out all these problems that he might have. If any problem came with a deed, then we could foreclose on my mother. She was 89 at the time, had no credit since she had never worked and was the perfect person. She was also someone we could trust. Of course, she got a little nervous, wondering what would happen if we didn’t take the deed out of her name. I laughed and said: “You would just be a wealthy woman.” She didn’t think that was funny.
• Once the title company had assured us that the deed was clean, and no other IRS judgments or bad judgments had followed it, we had the deed transferred out of my mothers name and into a trust that we controlled. Boy, what a way to buy property, at the price that you want to pay.
• Most of the investors had 10 houses each, some had 20. Each of us was responsible for getting back taxes paid and taking care of a big water bill. There could have been a problem deciding who owned which house. Then I came up with an idea I thought might work. I asked three men, two of which were home inspectors our of our investment group, to go through each of the 127 houses giving them a grade of either an A (in good shape), a B (fair shape), or a C (almost a house). And let me know which houses was what grade. As it turned out the math worked for us. The following Saturday morning cards were prepared, like monopoly cards, and put into three buckets. Each investor was allowed to pull cards from all three buckets. The order of the drawing happened by choosing of straws. For every 10 houses they owned they were allowed to pick three from the A bucket … 5 from the B bucket … and two from the C bucket. There was a 24 hour time where people could trade cards among themselves. This allowed some of our investors to cluster their houses. Each one was responsible for fixing, renting or selling their property. Everyone was encouraged to move on this project with the speed of lightening.
• Cleaning up an eyesore for Houston got media attention. This project was on the Houston six o’clock news more than once. We also got newspaper coverage. All that free publicity was a huge boost for our sales. Families gained confidence that our project would be completed. They started to buy houses before we got the last ones repaired. The drug users, without us doing anything to them, quickly found somewhere else to be. The yards started looking nice with grass and shrubs. All the fresh paint, made the place really look first class.
• The last one of those properties, that I sold, went for $52,000. And if your math has been good up to this time, you’ve realized we only paid $8,000 for each house. I had to go though lots of hoops, and do some planning, All and all was able to change something that the city had looked at, as an eye sore for a long time.