Acquisition of Real Estate

Real Estate for the chapter is usually acquired through one of these methods: renting, purchase of improved property, or buying vacant property and building.

Renting
Regardless of the age of the chapter, if there are no financial reserves, renting is the only way in which the chapter can initially acquire and maintain a house. In renting, these things should be carefully considered: location, size, suitability of accommodations, repair, amount of rent, terms of lease, and proper zoning.

  • Location is important. In many instances, chapters have nearly failed to continue to operate because of houses located too far from campus.

  • Size is important. It is necessary to house enough men to pay the rent. Yet, a house that is too large will be unduly expensive to maintain.

  • Suitability of accommodations is important. A house with inadequate sanitary facilities, small common room areas, or inadequate study and sleeping areas will crowd the men, making living conditions bad and fraternal harmony impossible. An old mansion is generally (though not always) a poor choice for a fraternity house as it was designed for lavish living by a few people.

  • Good repair is essential. Carefully investigate the electrical, plumbing, and heating systems in rented or prospective property. Safety should be of first consideration. Maintenance costs and convenience are important, but secondary. The exterior condition of a house and the common areas are always important. If shabby and poorly kept, it can impact membership recruitment. The condition of the property has a direct effect on the chapter's public image and self-image, either good or bad.

  • The BOA should not incur a rent amount or terms of a lease that the chapter cannot meet. The budget should be carefully and honestly worked out, and contracts made within the limits of the budget.

  • The exact terms of the lease should be checked. The landlord is not compelled to make repairs unless the lease requires him to; so be certain that there is a "covenant to repair" in the lease, and specific statement as to what these repairs shall be. If there are specific repairs to be made, have them incorporated in the lease or you may have waived them. Beware of maintaining occupancy after a lease expires, even for a day, as it may enable the landlord to hold you liable. Have an attorney draw up the lease or examine it to see that it is fair.

  • The BOA should also make sure that the state and local housing authorities, along with the zoning laws, will not prohibit this type of living arrangement. There are many communities that do not allow more than three or four non-related individuals to live under one roof. Many communities also have zoning laws or ordinances specifically against fraternity houses.

During the years of renting, the wise BOA should start the accumulation of funds for purchasing purposes. Charge the chapter an amount in excess of the actual rent of the property; that is, you rent the property from the owner and sublet it to the chapter at an increased rental. As you will have no taxes, depreciation, minimal repairs or insurance to keep up, this may easily be possible.

Whenever the BOA feels the chapter membership is large enough, and that this size of membership will continue over a period of years, and that the Building Fund is large enough, they may consider the purchase of property.

Purchase of Improved Property
In considering the purchase of improved property, be certain first that the chapter is bettering itself and, secondly, that the BOA is in a position to adequately finance the new project for the duration of the mortgage.

Agitation for a new house is apt to start with dissatisfied undergraduates and overenthusiastic young alumni who launch a campaign and stampede the BOA and older alumni without carefully considering either needs or ways and means. The BOA must not be swept away by such bursts of enthusiasm. The undergraduates cannot finance the purchase or construction of a house, except as they pay rent for it in future years, and houses are not bought or built without substantial down-payments. Future taxes and insurance must be considered as they apply to the actual tax base. Enthusiasm should not be wasted, but tempered for this "long haul." Work with enthused members and the realization of housing, while not immediate, will be that much closer.

The BOA should carefully consider the following points before getting involved in an agreement for purchase of improved housing:

  1. What has been the past experience of your chapter, as well as other fraternities on your campus, with chapter housing?

  2. Is the house near the campus and near public transportation?

  3. Has the house been inspected by the fire and health inspectors? What is their report?

  4. What are the taxes on the property?

  5. How much money is necessary immediately for rebuilding, redecorating, and furnishing, in addition to purchase?

  6. Will the house be costly in repair and maintenance?

  7. Is the property large enough to support this budget?

  8. Have you included all possible financial obligations in the budget and will the chapter membership be large enough to support this budget?

  9. Does the school anticipate increasing or dropping enrollment, and what will its effect be on chapter manpower?

  10. Is there increasing residence hall competition?

  11. Is there a chapter building fund established?

  12. Are the payments to this fund on a current basis?

  13. Is this fund large enough to justify the contemplated housing?

  14. Has the BOA exhausted all possibilities of enlarging this fund?

  15. Is the property zoned properly?

  16. Are the chapter and BOA willing to assume the responsibility for meeting all necessary financial obligations and payments?

Whenever the BOA is confronted with a proposal to buy, first consider whether the chapter is already adequately housed, with prospects of permanence. If it is, think several times before deciding to disturb that situation. Remember that, in addition to interest on borrowed money, you will also be assuming the burden of taxes, depreciation, repairs and insurance, which the landlord has been bearing. All these items must be carefully ascertained or estimated and included in your carrying charges. In the case of a house already built, you can easily determine the amount of taxes, special assessments and insurance.

In buying an existing house, carefully determine whether any significant alterations will be necessary to fit it for use as a fraternity house for the chapter. If additional bathroom or dining room space must be provided, study rooms built or enlarged, or any other important changes made, secure estimates from one or more contractors on the basis of actual work to be done, and add these items to the original cost of the property before deciding whether or not it is feasible.

Do not guess at the cost of either repairs or alterations. Unless you have had wise experience with building, these will always cost a great deal more than you anticipate, and sometimes more than the original cost of the property.

When the BOA has decided that the chapter needs a different house, and that it can afford to buy one, select the one meeting the needs of the chapter and, then, develop a plan of financing.

Buying Vacant Property and Building
The same information applies here as in buying a house already built. Do not rush into the purchase of a vacant lot for future building purposes far in advance of probable needs, unless either lot prices in the desired locality are rapidly advancing, or desirable sites are becoming scarce. If you buy a vacant lot and hold it for 10 years, you will find that taxes and loss of interest will nearly double the cost, while the same money, properly invested, will more than double in the same time period.

If you consider a financing plan presented by a contractor, be sure to investigate his references, inquire where else he has built houses, and check his reputation. Also, get figures on the same plans and specifications from some local builder and find out how much your financing is costing you. It is generally wise to seek three bids. Be certain that there are no zoning or tax complications associated with non-resident ownership.

Alterations and Improvements

The BOA should approve all plans and specifications for proposed repairs, alterations, and improvements of chapter real estate to cost in excess of $500. No contract shall be signed without approval, and no money paid out in excess of $500 except upon written agreements having the approval of the BOA or some person designated by the BOA.

The BOA must oversee all repairs, alterations, and improvements, except trivial ones, and the chapter must consult the BOA about everything of this kind. This is particularly true of alterations and improvements. Not the slightest structural change or alteration of rooms should be made or even considered without BOA approval.

Protection and Preservation

Property Taxes
Property value is assessed annually, and taxes are usually payable in two installments. Taxes are a first and a prior lien on the property, ahead of mortgages, mechanic's liens, judgments and everything else. If not paid when due, they incur heavy penalties, and continued delinquency will result in the sale of property with additional recurring penalties, making redemption expensive. If not redeemed, delinquent taxes may result in the loss of the property.

In addition, failure to pay taxes when due is a breach of the condition of your mortgage, and will result in foreclosure. Therefore, the prompt payment of taxes is a paramount consideration, and they should not be permitted to become delinquent for any reason whatsoever.

Special Assessments
Special assessments or special taxes are levied for some local improvements such as pavement, sewer, water main, or sidewalk, and are assessed against the property on the theory that its value is increased to the amount of the assessment.

Special assessments are usually payable in five or 10-year installments, all after the first being of equal amount, and all bearing interest. They are generally payable to a city official, but if delinquent, are handled in much the same way and generally incur the same penalties as other taxes. Next after general taxes, they are a paramount lien on the property, and failure to pay will have the same results as failure to pay general taxes.

Mortgage
Payment of interest and principal of mortgage indebtedness must, of course, be met promptly if you are to avoid foreclosure and loss of the property. If possible, secure a loan on which both interest and principal will be met by moderate equal monthly payments. It is not a bad idea to deposit one-twelfth of your taxes each month, or an amount adjusted to the academic calendar with the mortgage, and let the mortgage company pay taxes when they are due. In this way, you avoid heavy seasonal strains on your budget and the accumulation of money over a long period, with the possibility that it may be diverted in whole or in part to some other use.

Repairs
Repairs should be made well before conditions become so bad that the building is permanently damaged. The exterior should be painted every few years as well as any metal, windows kept well puttied, and the interior decorated as often as needed. Plumbing should be watched and no leaks or defects permitted. There are many minor repairs that mechanically-minded undergraduates can and should make. Incorrectly repaired minor items should not be allowed to snowball to become major repairs. For those which require professional skill, you should find and use regularly, firms you trust to do each line of work honestly and economically.

There are basically three avenues: general contractors, retired craftsmen, or do-it-yourself. If your choice is the general contractor, you should compile a list of contractors and get competitive bids to assure that you are getting a fair price for the job. Require a job bond and place a mechanic's lien on the job. As the job progresses, be certain to retain some monies as a hold-out feature in order to assure job quality. When the final inspection has been passed, then final payment should be made and the contractor should be released from the performance bond and the lien. Make sure warranties on material or workmanship are in writing, so if a product fails or the repair does not last a specified period of time, it will be replaced free of charge or for a percentage of the original cost.

The next option, and perhaps where the best work can be achieved, is from the retired craftsman; however, there are a few drawbacks. Chances are you will not be able to set a time frame to finish the job, and also you will probably have to carry the insurance. These two factors really are minimal and by hiring the retired craftsman, it is a way of getting a job finished and saving money.

The last method is to "do-it-yourself." If there are qualified Fraters available who have a working knowledge of the project to be done, then by all means D-I-Y. This can be the least expensive way of accomplishing a project, or it could be the most expensive way if the qualified Fraters really are not that knowledgeable.