If That Doesn't Take The Cake

One of the smarter people I know is my friend, June. She is a serial entrepreneur. I sometimes think that means she can’t help herself. Something compels her to start new enterprises every few years. She doesn’t keep the old ones. June sells them for a profit. Then she takes the profit, sinks some of it into a new venture. The rest she puts into a passive investment to grow her retirement portfolio.

This appears to be a sound strategy to me. Of course, like any investment venture, sometimes you crash and burn, even if you’re ordinarily clever. Experience shows when one ventures out of your area of expertise, you can be a victim waiting to happen. And so it goes with this story about June and her shady real estate investment.

June called me, a well seasoned real estate broker, for advice prior to taking the plunge, then promptly ignored my advice because it didn’t fit into her narrative. I learned as the next couple of years peeled away that she did about every erroneous thing one could to foil success. Several shady characters trapped and plunged her into debt. Their fleecing continued as they entrapped her into an endless debt spiral that was legal but immoral. The next crook in line made an endless game of rehabbing the house way beyond its future value, yet never completing the project. From time to time June would call me and chat about her worst nightmare.

The house in Seminole Heights was yet to be completed and was costing her every month from the hard money loan she got to finance it. For the record, a hard money loan is worse than a payday loan, much worse. It’s like a tapeworm constantly eating your bank account. A Shylock will lend a small amount of money to a person who’s known as a ‘flipper.’ The flipper uses the money to fix the house quickly and flip it to a new owner and make a profit. So far okay. The hard money lender is protected because he will only lend a small amount of money compared to the value of the house. The interest on the loan wouldn’t seem legal to any reasonable person.

An experienced flipper will turn the house over in 90 days or less, only paying the hard money guy a couple of high interest payments. An inexperienced flipper will end up in a death spiral until they crash and burn, and the Shylock takes the house by foreclosure and does it again to some other unsuspecting sap.

My friend June didn’t take an active role in this rehabbing process. She was busy with her new enterprise. She purchased a franchise operation more than an hour away in traffic from her investment property. June now owned a start up chocolate bakery and retail store. That got my attention. I consider chocolate mana from heaven. When June called me for advice, we would invariably chat about her chocolate factory. As far as I am concerned, the worse chocolate I ever had was wonderful. Alas, June only made chocolate candies. No cupcakes, no chocolate chip cookies, and sadly, no chocolate cake.

With the passing of time, June became desperate to finish the house project. It was bleeding her dry. I suggested she call my friend and virtuoso construction guy, Mike. He would become her knight in shining armor. He came through like the champ he is. Sometimes his armor became tarnished with the mountainous problems the house sprouted. There were pompous building inspectors who would keep him waiting for hours on end. There was one inspector when they were right at the finish line who failed a minor issue. It was something that had not been touched by anybody since the 1950s. He had the authority and right to grandfather it in. It did little good to complain to the petty tyrant who got off by pushing people’s buttons. You had to suck it up if you wanted your certificate of occupancy and that was it.

It turned out to be a cute little house when Mike got it done. We sold it in a week for more than I thought she would get. This is where my next warning came to June during one of our phone calls.

“Don’t expect it to close on time.” I said, “Nothing has this last year. It’s our new normal.” Again, I don’t think she took me seriously.

I explained to her that mortgage companies were hit with a double whammy that decelerated everything to a slow drip. First, they laid off their staff because of the 2019 pandemic. Then, interest rates dropped, fanning the flames of refinance. There was nobody left in the office to close the loans. I told her they always deferred to refinancing over purchase money because they were easier and more profitable.

To further muddy the transaction mess, the buyer was selling his house. It must close first. He needed the cash to complete June’s deal.

The first time the buyer asked for an extension, I reminded her of our earlier conversation about closing on time. I never say, “I told you so.” I tried to reassure her that this is now our normal.

It took about three or maybe four extensions to get it closed. After all this, June finally listened to me and hung tough. We did not live happily ever after. The day after it closed, the title company was notified the buyer’s certified check had bounced. I let them call June. I was not an active participant in the transaction, just a friend. It turned out to be a technical problem with signature verifications and was remedied and they disbursed the funds.

June’s nightmare was over. Mike’s nightmare was over, too. Finally, he got paid. I expect the buyer’s nightmare was as stressful. Later, I learned his side of the story was as eventful and spanned a couple of years of unwanted stress in his life.

Everybody is finally happy. June is taking us out to lunch next Monday to a new seafood restaurant. I hope they have chocolate cake.