[Author – Tim ODwyer]
John Sandford is a former journalist and successful crime novelist who lives in my favourite American State – Minnesota. One of his recent novels, Easy Prey, includes the following (slightly edited) account of very plausible police investigations into the Minnesotan real estate holdings of a drug-dealing, double-murder suspect:
“Now he owns a bunch of small apartment buildings here through a real estate investment company in Miami. He lists himself as an apartment manager on his state tax returns. I wonder why he’s still selling dope if he’s got the apartments?
He pyramided them, I think. Maybe he’s got a pal at the bank who knows he has other income. It looks like he bought the first apartment with a cash down-payment – and nobody asked any questions – then used the equity in that to finance the next one, paid on that a while, then used the equity in the two to buy the third, then the equity in the three to buy another one, and kept doing that until he got where he is now. The total assessed value in twelve buildings is $9.9 million, and they’re really worth $12m or $13m. But his own money, he’s put maybe a million into them.
The rents don’t cover the payments?
They cover them, barely, as long as he never has a vacancy. But you’re never 100% in apartments – not for long, anyway. What he’s doing is, if somebody moves out, he keeps paying the rent out of dope money until he gets another tenant. I bet he’s also getting a lot of his maintenance done paying in cash. So the dope money is invisible. It just goes away. He files all of his taxes, he’s clean. A few more years of this, and he can sell the whole thing. Pay some capital gains, and he’s a multi-millionaire.
What happens if the dope stops?
Can’t stop. He needs 100% occupancy to pay his financing costs, and the only way is to pay the rents on the vacant apartments himself.
Would the bank guy who’s making his loan know about this? About the dope?
He’d have to know something.
But maybe not the dope?
Maybe not, because there’s another good possibility that bankers don’t like to talk about: he found a guy at the bank and either bribed him to okay the loan, or kicked back part of the loan itself.
But whatever happened, the bank guy would have to know?
I don’t see how he could avoid it, if his IQ’s over 80.”
Sandford’s fictional detectives soon interview the “bank guy” who pleads ignorance:
“As far as I know, he is entirely legitimate. He has a perfect payment record. The first building he was interested in was for sale at such a good price, we could have loaned him almost all of the money even if he hadn’t had a down payment. But he did have a down payment. Not much, but it was all of his savings, and he guaranteed that he’d stay right on top. After that, with a lot of hard work, he kept his record perfect, and we were always ready to help when he wanted to expand his horizons.
What are the chances that he delivered part of the original purchase price to the seller, under the table, to drive down the apparent price?
I wouldn’t know about that. I’ll tell you everything, but there’s just not much that I know. I mean, his loans, they were a little risky. A dope-dealer? I don’t believe it. He’s a nice guy. I can’t think of anything specific, but he’s been to our house, and he’s nice to my wife, and he’s nice to other people … I mean, he’s just a nice guy to sit around and have a drink with.”
When the detectives discover that their drug-dealing, property-investing, murder suspect has had a recent meeting with a real estate agent, they visit this realtor who co-operates fully:
“He called me today and asked me how hard it would be to sell off his real estate holdings. He wanted to know how long, and how much. I told him how much depends a little on how long, but if he was in a hurry, we could lay them off on a real estate investment trust in a couple of weeks. But unless we were lucky, he’d take a hit. Could be $200,000. Right now, after his mortgages are paid off, he could take out a couple of million. If you take two hundred grand off that, he’s down to $1.8m. Then you’ve got capital gains and state taxes, plus our commission. He’d wind up with something like $1.5m.
If you’d heard about this investigation unofficially, what would you do?
Do? I’d drop the deal like a hot rock. We sure as hell don’t need to peddle a couple of million bucks’ worth of real estate to an investment trust, then have them come back and tell us we sold a bunch of cooked books. That’s not the kind of reputation you want to build.”
What happens in the end? Sorry, you’ll have to read the whole novel yourself. Suffice it to say that, while the estate agent lives to make other sales, both the drug-dealer and the “bank guy” become murder victims themselves. In the meantime, you might wonder how the so-called Mr Bigs of the Australian drug trade launder their loot…