SHE WOULD BECOME rich, a Gnome of Washington. She would cruise the back streets in her convertible, searching out a charming Victorian that required a bit of fix-up and make it her castle. She would, as it turned out, stumble into a nifty brick four-story on Swann Street NW and steal it for $75,000, the down payment coming from a partner and the malpractice settlement over her ruptured appendix.
A few days before closing on the turn-of-the-century Victorian,she would turn down a $95,000 offer to buy her contract. And now, one year later, after painting and scraping and replumbing to the modest tune of $10,000, she would find herself reeling at the news: The house was worth $150,000 if it was worth a dime.
"We just bumbled into it," admits Jean Dangerfield, a $25,000-a-year EPA operations analyst, who, along with a roommate-partner, is already plotting the next acquisition. "We just get in the car and drive until we find a street with interesting architecture, then get out and wander around. We've found some wonderful places this way, like Benton Street off North Capitol. My partner is looking at Shaw and some fringe areas; she just wants a house she can afford. But I'd rather find a house near my friends."
The joy of Real Estate has spawned a new weekend sub-culture of house-hunters in search of living quarters, wheeler-dealers, investors and renovators like Dangerfield who spend every spare moment stalking wild properties and taming them with hammer and paint. "Working on the house gives me more satisfaction than most men," she says. "I can see a return; I don't get the feeling I'm wasting my time."
The thrill is also in the chase.
On Saturdays and Sundays, the signs scream OPEN HOUSE! And a house-seeking horde comes and goes, passing one another in the bedrooms of strangers. They peek into closets, check basements for water. The cagey ones fall in love, but feign disgust at chipped paint, horror over cracked molding. This is how the game is played - bark at the blemishes and try to bluff down the price.
Sometimes it works on owners desperate to sell, more often not. Rare is the Washington homeowner who is desperate, having come to regard the house as a growth stock in a go-go market. Still, they try.
"Mommy, look, they've got a swing!" squeals a small boy. "This place is great!"
The house-hunter winces, packs the boy off to the backyard and keeps right on scowling. Sophia Henry, the agent, is not fooled. She sits placidly in a white-and-black polka-dot dress, fanning herself. She's sold houses for seven years; she's been around the block.
Henry has a low-key approach. People are either going to buy or they're not. "It's stupid to hassle someone to sign a contract," she says. "I want to be able to look the person in the eye the next day."
Henry watches the woman gaze at the rooms, transplanting an imaginary couch here, a piano there. She can sense the rapture. "Utilities average $90 a month," she says. "Taxes are $977; it was build in the late '20s . . ."
No rush, no bother. It's $122,500, take it or leave it . . . They want $148,000 for the house next door . . . Good school up the street . . . Nice, prestige neighborhood . . . The woman loves the place . . . She'll be in touch.
It's a Sunday, and all over town, people are hunting the affordable home, shocked at the prices, just wanting a place to live. On their heels are the investors, sniffing for bargains, a quick turnaround, appreciation. Across town, cruising Logan Circle, Shaw and Adams Morgan, is Marion Blakey, 30, director of youth programs for the National Endowment for the Humanities. She's window-shopping - for houses. "House-hunting is a great way to spend a Sunday afternoon," says Blakey, who began pyramiding property with a $30,000 shell on Capitol Hill in 1972. "It's a pastime for a lot of my friends. You never know who you're going to pass cruising the other way."
Let it also be said that no one likes to lose money when she can roll it home in a wheelbarrow.
THERE IS NOTHING unusual about profitable transactions hereabouts. Indeeds, if anyone has recently lost money investing in Washington real estate, he's not owning up.
"It took a real fool to lose money around here," says one Capitol Hill broker who has refurbished and resold a number of small houses and apartments, as well as forming small syndicates to buy and sell. "Inflation and the way prices shot up covered a lot of mistakes, including my own. But if I'd had $1 million to invest last year, I'd have $10 million today."
That's what they all say, of course. They spout the advice of Will Rogers - buy land, God ain't making any more of it - and point to the dummies who have followed it and gotten rich. No telling how many bumbled their way to the bank.
As one real estate guru puts it, "Life is brief; land is eternal."
So naturally, everyone wants to buy property.
Couples scrimp to lasso that first home, and go on spaghetti diets to pay the mortgage. As history is their witness, prices can only go higher, they insist.
Fueled by tales of Eldorado, others refinance the residence and plunk down the cash to buy yet a second house - another inflation hedge. Sniffing after riches, neophyte investors beg anyone who whispers "Real Estate" to take their money and bet it on a number, any number.
Apartments, limited partnerships, office buildings, raw land, real estate investment trusts, houses, condos, vacation homes, second trust notes. So much to choose from, what is one to do?
Beginners scan the newspaper ads for "good deals," forgetting that the best hands are usually dealt before the cards are cut. Others race to sign up for seminars, hunkering down between the experts to learn about balloon payments and wrap-around mortgages, FHA loans and tax-deferred trades.
Weekends, and after work, new believers schlep the alleys for that shell of a house that promises a hefty return.
"The annual rate of appreciation on a house today is about 13 per cent," says Michael Sumichrast, chief economist for the National Association of Homebuilders. "The ordinary consumer can't get anything like that at his bank or in the market."
In Washington, where the average return has been even higher, real estate is the conventional wisdom. It's also the rave.
"I go to a cocktail party and say, 'I'm in real estate,' I have to beat people off like flies," says investor David Schuchat. "Everyone is either playing the game actually or vicariously."
Many players are government employees, he says. "Look through the records. You'll find Joe Schmoe is usually a bureaucrat who buys a house on Thomas Circle, throws a little paint on it and sells it for twice as much. He's the speculator, not people in the real-estate business. They think it's all crazy."
You can tell who has the fever by the eyes, glazed over with dollar signs, or the breathing, which quickens as they calculate the take. They regularly wander into the offices of attorneys like Brian Frosh, to huddle over contracts and cash-flow charts.
"No one believes he can lose," sighs Frosh over the new blind faith. "In 1929, everybody believed in the stock market."
He shakes his head, amazed at the growing army of real property devotees who often disregard the risks and steam full speed into any deal they can put their hands on. "People," he says, "have gone a little nuts."
THE VOICE IS energized, full of life, and it rises and falls, catches its breath, talks of big deals past, of the money to be made. It spouts the standard logic; how fat-cat bureaucrats make the local economy virtually recession-proof, how the energy crunch and the New Nostalgia are leading suburbanites back into the city, how the height limit on District buildings keeps the supply of commercial spate low and the demand and prices high.
"When someone says, 'I want to live in D.C.,' they don't mean Bethesda or Roslyn," says broker Vicki Bagley. "Roslyn may be only five minutes away, but to someone who wants D.C., it might as well be a thousand miles away."
The mania has infected her clients, she says, and in spite of escalating and, in many cases, overprices properties, some insist on buying almost anything that comes along.
Washington has become a town of land-lusting men and women with $10,000, $20,000, $50,000 wads burning holes in their pockets. Bagley keeps tabs on 200 such people in a large book.
"I list them in order of how fast they make a decision and how liquid they are. If they've put out a lot of money in the past few months, I don't take a deal to them first because they probably won't be able to move fast. Of course, you have your favorite clients who act fast and who have been trustworthy in the past . . ."
Businessmen, diplomats, school teachers, journalists . . .
"We have investors standing in line," she says. "I urge everyone to buy a piece of the rock."
SUCH FERVOR HAS all the markings of madness - or some new cult devotion.
"If I were lonely on a Saturday afternoon, all I'd have to do for company is run an ad for a 20-unit apartment building in Arlington," says Al Dolby, general manager of commercial brokerage for Long and Foster.
Experts like Dolby warn that the uninitiated Washington investor can get burned searching out houses and small apartment buildings. There are still good buys, but they're getting harder to find.
For nary a residential rental property in D.C. proper do the rents cover the operating expenses, and a reserve is frequently necessary to carry it. Some smart money, say market observers, has begun to eye cities where rental properties play by the old rules - Richmond, Baltimore, Philadephia, Harrisburg, Cleveland.
"The low end of the Washington real-estate market is totally distorted," says Dolby. "In many cases, the sophisticated are selling to the unsophisticated, who are selling to each other. So far the market has been strong enough, but it's got to stop somewhere.
"It's a chain letter. People are making emotional, not properly thought-out, economic decisions to buy. It's chaos, and when it happens enough, you get the appearance of stability - stability out of chaos! It frightens me; it scares the hell out of me.
"An investment shouldn't keep you awake at night, it should make you sleep more soundly."
Meanwhile, perched at the upper reaches of the market, is foreign money, flowing into the Nation's Capital at a mind-boggling rate, just waiting to gobble up multimillion-dollar properties, says a banker. Alas, so many whales, so few Jonahs.
TO PLAY IN THE fast lane, it helps to have a hawk eye for property values, ice-water in the veins, a nose for cheap mortgage money, some old-fashioned Irish luck and skepticism for any so-called "deal." "Most babes in-the-woods believe what sellers tell them about a property," says one broker. "They forget that this is a business where people don't always tell you the truth."
An accountant, a hard-nosed lawyer and a friendly banker can also help fend off the wolves.
Nonetheless, the market remains a candy store of temptation.
Everywhere, evangelists preach the Gospel According to Leverage. Which is: When you buy anything, use as little cash as possible, but if you have to ante up, make sure the money belongs to somebody else. Own the world for as little as a penny down! Yes, paupers, you can become Millionaires in your spare time, they promise.
That happens to be one of the lessons taught by a number of private courses on real estate. Which is one way to learn how to avoid costly mistakes. Among them is the Lowry-Nickerson Seminar, a weekend crash course on techniques that reportedly led to a pot of gold for Albert J. Lowry, 51, a former butcher, and "How I Turned $1,000 into $3 Million - in My Spare Time" author William Nickerson.
One recent weekend, about 175 people paid as much as $395 each to hear a Lowry-Nickerson disciple Spread The Word at a Bethesda motel. Students who ranged from savvy to virginal held their breath as a feisty, pint-sized Texan in Guccis and a Cardin suit, one John Philpott, 36, a brainy biochemist-turned-slick-real-estate-eutreuner, espoused The Path to Financial Independence.
"Either you grab the goodies, orthe other guy gets 'em," he said.
Students were advised to find a run-down, undervalued rental property, bring it up to neighborhood standards and jack up the rents. Higher rents justify a higher sales price, so don't just watch the money roll in - sell, trade or refinance the property at its new, higher market value. A tidy profit - and generous tax deductions from interest and depreciation - are just around the corner. Do it over and over, until you tire of making money.
Over lunch, Philpott admitted that the strategy may well work everywhere except Washington, where rent control spents a negative cash flow for almost any income property over four units.
"I see a strong possibility here for a crunch," he said. "Someone who owns 10 buildings with negative cash flows is operating on the assumption that a bigger fool will buy them. Finally, there are no more bigger fools to be found. . .
"But the formula works. I just got a letter from a Cleveland man who followed it like a cookbook. Last December, he only had $2,000 in the bank. So he tells his banker he needs money to take a vacation to go to India. Of course, he gets the loan and changes his mind. He buys a house . . .Now, he's got a $500,000 net worth and a $300,000 line of credit. And - get this - the guy can hardly speak English!"
Some of Philpott's agressive advice seems to play fast and loose, it is pointed out.
"You ever watch Jimmy Connors play tennis?" he asks. "He gets the ball as close to the corner as possible. That's the difference between someone who plays to win, and someone who likes to play. We don't advise breaking any laws, or pushing them to the brink. We just adopt the most favorable posture - for us."
The natty Texan, reputedly, a self-made zillionaire, picks up his $6.52 lunch tab and moves toward the cash register. He has a face like a weasel.
Whomp, the credit card goes through the roller. He writes a $1 tip, and heads for the door.
"Hey," says the cashier. "You forget to sign it."
"Almost got away with it," says Philpott. He winks and signs his name.
"The ones who can afford it," laughs the cashier, "they try it every time."