Chapter 26

As soon as Sonia and Jake announced that they were moving back in with us, Mrs. Ross started wanting to know what impact Sonia moving would have on the money we'd been contributing for Sonia and Jake living with them. Sonia put an end to that question by asking her mother how much she'd be paid if she continued working at the cleaners.

Dorothy and Sonia had both been working without asking for any payment. Mrs. Ross never asked about help with her rent again. Her business was doing very well, and the family was putting a nice amount every month towards repaying the loan I'd made them.

My home life wasn't very exciting after we got the situation with Sonia straightened out. I went back to spending most of my energy on my business. Things quickly got back to how they had been before Sonia had first made her demands. Dorothy, Sonia and I now got along very well together again. Each of us was content with the arrangement that we'd finally arrived at.

All of our children, having gone through the time when Jake and Sonia lived separate from us, welcomed this resolution of our squabble. They understood that all the adults were acting happier, with much less stress and tension in our daily home lives.

This reduced stress trickled down to our children as well. We all started getting along better. It made all of us appreciate once again living in a relaxed atmosphere. Unhappiness was indeed contagious, as we had all learned.

As each group of new houses were completed, they would be leased out to pre-qualified tenants. Older houses, once the initial lease terms expired, were either leased again to the same tenants, for a higher rent, or else to new tenants, also for a higher monthly rent. Over the ten year period when I was doing things this way, I seldom had a vacancy for more than a single month, and never once for three months or longer.

Property values kept rising for the kinds of single family housing I was building. Because the rental incomes were much higher than I'd initially projected, and because of my ability to depreciate the value of these income producing properties, I was left with a series of large annual income surpluses.

The contract I'd signed for the first three initial borrowing's had specified that all excess funds would accrue in a suspense account, as insurance against any possible draw downs due to vacancies, or to a downturn in the market that could necessitate lowering the rents we could charge. By the end of 1983, we had already built that account up to far more than anyone had ever anticipated.

In July of 1983, Daniel Kaplan called me to let me know that our lead lender wanted to begin negotiations on the terms for the next three year tranche of our loan arrangement.

"They want 12 per cent again, for the first three years, then the 11th district COFI each month until the houses sell. This time, they want a 15% sweetener when the houses are sold."

"That isn't going to happen, Daniel. Right now, the 11th district rate is sitting at less than 10 percent. Why should I give them more than that? I also have banks contacting me all the time, wanting to loan me money at even more favorable rates than that. They want to pay off the loans for the last three years, and use all the freed up home equity I have in those fifty houses to collateralize the new loan. They aren't asking for any sweeteners either. I'm willing to negotiate with them, but I'm not going to pay them more than the current market rate for the money. It would be different, if they'd originally committed to funding every year of my building proposal, but they were the ones who wanted to only have that three year funding commitment."

"I agree with you, Jim. I'm just letting you know what they're offering right now. Tell me what you want me to give them as a counter offer?"

"I'm open to suggestions. You know a lot more about what the market will bear than I do. The banks I've been listening to are all talking about me getting new loans immediately indexed to the 11th District rate. I'd prefer having the first three to five years at a fixed rate, and only going with the variable rate after that. I would sign for three years fixed, at nine per cent, or else five years fixed, at ten per cent. I'd just as soon eliminate having to give away any of the profits on the selling price I end up receiving."

"They really were pushing me to get that sweetener increased, Jim. I can't see them agreeing to forego it entirely. They know how well the housing market is doing here in Southern California. The prospect of all that bonus money at the end of the deal has them salivating."

"Tell them that I'm shopping around for offers, and it looks like I can get all the money I'll need, at 11th District COFI, just as soon as I let them pay off my earlier loans, and use those houses to back my new funding. They will still get the sweetener, according to the terms of our original funding deal, for the first three years they gave me money for. All they'll miss out on are the years of interest they would have gotten from now until I start selling."

"I'll let them know, but I don't think they are going to buy it."

Three weeks later, I heard from Daniel again. The new offer was ten per cent for the first three years, same 11th District rate for the remaining years, and the same ten per cent sweetener when the housing got sold. They were willing to commit for an additional five years of funding under this contract.

"I've got a firm commitment, at better rates, from a California bank. Nine and a half per cent, for five years, same variable rates for the other years, and no equity participation. This is all contingent on them paying off the first three loans. I'll sign with your people, but only if they're willing to match the terms I've been offered."

What I didn't tell Daniel was that Bank of America was also willing to release all of the suspense account money to me, once the earlier loans had been paid off. With everything going so well with my building project, I wasn't that happy to have so much money sitting in an interest bearing account. Not while my own personal finances were languishing, and my remaining savings were being used up to house, feed and clothe my family.

Without any immediate improvement to my personal financial position, I'd soon have to sell that forty acres of land I'd purchased over in Anaheim Hills, or else sell off some of my coin collection. Neither of those prospects appealed to me.

It was the first of September before Daniel got back to me again. The New York group was agreeing to meet the nine and a half per cent for five years, but wouldn't accept anything less than seven and a half per cent equity participation upon the sale of my houses.

Daniel assured me that he didn't mind losing out on his one point from the interest paid each year on the loans funded during the first three years, which would end when Bank of America paid them off. I told him that I'd happily pay him the one per cent each year, until those fifty four houses were sold. He countered my offer by asking me if I wanted to get back those two coins his father had gotten from me, and left to Daniel after he died.

"How much do you want for them?"

"Buy me another lunch at the deli, and we'll talk about it then."

I wasn't really in much of a position to buy those coins back, not until after the BofA funding deal was in place. When I met Daniel for the lunch we'd arranged, he handed me the two coins, still in their original pouches.

"You'll need to wait until I get the BofA money so I can pay you for these, Daniel."

"No, they're yours. My father left them in his safe at the coin shop until right before he died. I took an empty briefcase down there and cleaned out all of his personal collection, right before he passed away. I knew he would have liked for you to have them back. He told me that your collection meant a lot to you. I should have done this sooner, but, with one thing or another, I kept forgetting to do it."

I was touched by his generosity. It was true that those two coins meant a lot to me. Not for their collector's value, but for sentimental reasons. It felt good to have all the original collection back in my possession.

"Daniel, I will feel bad if you don't let me do something as a way to express my appreciation for all your help. I can either give you $30,000.00 a year until those houses are sold, or let you have a one per cent interest in the profits when I sell those first fifty four houses. I won't be happy for you to take anything less."

"If I'm still alive, when you sell those houses, I'll take the one per cent of the net from them. If not, either donate it to your favorite charity, or else give it to my ex-wife, if she outlives me."

In 1990, after I'd started selling the houses, I began sending him a check for one percent of the pre tax net every time I sold one of those first three years of houses. Daniel was about eighty years old in 1990, and certainly didn't need any money.

I knew he donated all the money I sent him. I'd see notices in the paper that a sum of money, usually closely matching what I'd just sent him, had been donated in his father or mother's memory, to one health care agency or another.