Financing Your Own Pool by Murray Stephens (1997)


I think probably a lot of you were at Coach Jochum’s talk this morning, right. So there were a lot of things that were said there that I certainly echo. I’m kind of from the Dick Jochums school myself so you can kind of put a ditto mark behind everything that Dick said. Likewise, many of the things that Dick said in his earlier talk regarding raising funds, doing runs etc. etc., and particularly a lot of the points in the principles of becoming involved in the whole business I’d like to underscore too.

As a preface, understand that you need to carefully figure out all your costs, line-by-line to find out whether you’re making money. The whole idea here is to show that you have to get some detail and carefully monitor what’s going on.

“It’s a wonder I can think at all” that’s a reference to a Simon and Garfunkel tune Kodachrome “I think about all the crap I learned in High School, it’s a wonder I can think at all.” Again, I’ll try not to get to preachy, after to listening to an hour of Coach Jochums, I tend to preach too much myself, but you really aren’t prepared through school, I don’t think in America, you’re really not prepared in any way as a young person to compete in what Dick was calling today the “real world”. Unless somehow you have that experience outside, once you get outside of school, I say outside meaning your parents, relatives, friends, you don’t know anything. You get out of school you don’t know how to do any of this stuff. You know, I mean you may know how to write a paper, or how to buy a paper. But you don’t know how to do any of this stuff. Even people who are accounting majors don’t know how to do any of this stuff. I know that because my brother-in-law is one, an accounting major, and I put him to work and he almost killed me. We lost 50 thousand dollars because he didn’t know what to do. He was an accounting major, had a college degree, so if an accounting major doesn’t know what to do what do you think a regular history major, English major or PE major knows? So the bottom line is, sorry but you don’t know very much until you do it. So you say “Oh great how do I get to do it?” Well obviously that’s the trick.

Purchasing and Financing. Some of you may have seen a few years ago, I had done a couple of video presentations on our outdoor facility and I don’t want to spend too much time on that but obviously that was the beginning of this whole thing. In 1985 I became aware of a facility which I should have known about, I knew it was there but I didn’t realize that it was big enough to be a 50 meter pool, actually bigger than a 50 meter pool. I talked to the gentleman who owned it, he was in his eighties, and who was in very bad shape. He didn’t want to sell it to me, he didn’t think I had time enough to run it, he was quite the crotchety person. But we trained in the pool. The pool had no lines on the bottom by the way. The pool is a 110 feet wide by 200 feet long and at that time was one foot deep in the shallow area, so people were swimming all over the pool. It was great. So finally he allowed me to purchase the pool.

So after a year I walked up to him one day and handed him a check for $5000, which I borrowed from my mother because I didn’t have $5000, and said I want to buy the pool, here’s a contract. And I wrote the contract myself off of some things I’d had from some property sales I’d been involved in so I just wrote it on the computer and handed it to him. So he thought about it, accepted it. Again, we went back and forth for about six or seven months and finally we got the agreement and I was fortunate enough to have an attorney at that point who looked at the purchase price that the gentleman was suggesting and talked to his attorney and got $75000 off of that price by convincing his attorney that it probably wasn’t worth what he had originally stated. So that helped and we got the property for about $290,000 dollars with a $5000 deposit using the property as collateral. So that probably couldn’t be done today.

So I didn’t have any money so we started utilizing the income from the membership. Of course we went out to try to generate more membership and talk to people who were members. The short of it is we took every dollar that we got in membership that we didn’t have to pay out for lifeguards and for electric and for the mortgage and put it back into the facility and just kept doing that and every year spent more money. Virtually all of it from the income and of course I was working, teaching and I was teaching full time and coaching full time so I had two full time salaries and then also this business. So I never ever in ten years paid myself a salary from the proceeds from this business. If there was any money left over sometimes I’d take some money and invest it, stuff like that but I never took a salary which I can explain a little later.

So we put all the money back into the business and trying to get the long story short here after about five or six years, by 1989, we had already fixed up one whole side of the existing building and made it pretty nice, we put a stainless steel gutter all the way around the pool, made that work, put a whole new filtration system in, redid a lot of the concrete decking around the pool, fixed up a whole bunch of other stuff and at that point we thought we’d put at least $500000 at that point at least into the facility all from income from the facility itself. So at that point we’d developed enough equity to begin to think about building an indoor pool.

Again, the story is so long it’s very hard for me to try and encapsulate it but it took us five years to get a permit to build the pool and it cost me well over $100,000 just in introductory costs, lawyer fees, engineering fees, this, that or the other just to be able to get the permit to build the pool. So it was a long, involved, painful process and we got started with the indoor pool and we finished that in the summer of 1995 and now we are a year round operation.

So how do you do this? Well the first thing you do is you don’t listen to anybody. Because most people including your relatives, probably your relatives, are going to tell you you’re crazy, other people are going to laugh at you. Most people are going to tell you you can’t do it, and generally the atmosphere around you is going to be quite negative. Quite negative. So you have to survive that, look through it and decide if any of those people have correct information and sometimes they’ll have a point that might be right. You have to sift through all that and finally find out what the truth is. Most people aren’t going to believe it can happen, are going to be skeptical of it happening, are jealous after it happens.

The next thing which goes back to my comment about schools is that most people don’t understand money. We both the educational system and the media in this country constantly harp on the fact that money is not good, and if you have money you’re a bad person, and if you make a lot of money you’re a double bad person and you should give it all away to the poor. And that will make things a lot better. Well frankly I don’t believe any of that crap. I think money is good, I think it’s good to be rich and I’m not embarrassed about it. A lot of people are embarrassed.

A perfect story: Tom Clancy, some of you may have heard about him, — he’s a novelist, quite successful. He was two years below me in high school at the school where I taught for thirty years and when he became very successful of course the school got the idea to have Tom Clancy come and talk, visit with the faculty and all that. Of course you all know what the reason was right? Donations.

I don’t even know Mr. Clancy because he was below me in school and you don’t ever talk to the underclassman. So he came and – he’s kind of a different person – and a lot of people don’t like him because he’s pretty abrupt and can be kind of sharp tongued. So apparently he said “Anyone in America” this is four years ago, he said “Anyone in America who wants to should be able to make a minimum of $125,000 if they want to. That’s like bottom line.” Boy he really irritated some academic people. Because the fact was there were people who had no clue that they could ever make that kind of money and were basically envious of anybody that would and felt locked and caught in their $30,000 a year teaching job and so they just panned him all over the faculty. They wrote articles, put them up on the faculty bulletin board, and our development director, believe it or not, who ought to be someone who understands wealth and is willing to go out and talk to wealthy people and not feel bad about the idea of wealth, he was the one that hated him the worst. And the reason was because he didn’t think he made enough money, didn’t know how to make any more money, didn’t want to put the effort out to make any more money so therefore he thought it was totally ridiculous.

The truth is, I agree with Tom Clancy. Anybody who wants to make $125,000 in this country with good hard effort and a little bit of creativity should be able to do. So then Tom and I kind of agree with each other. It doesn’t mean you have to. It doesn’t mean it’s necessary. It doesn’t mean you might have to give up things that you like to do or maybe even spend your time doing better. But if you wanted to, the opportunity is there. It’s not that much money. So that’s why I say people have a bad attitude about money.

So I had a lot of people that scorned us and laughed at us. I had one man, I was sandblasting the old pool first year and so this guy, one of my swim parents walked by – he hated me anyway and I knew that – and he said, “Ha, this will never work, this will never work.” Well basically to elaborate he’s saying this place is a piece of junk, you’re going to lose whatever money you have in it and it will fail. And of course that was great, I loved it when he said that because basically I said to myself. “Thank you, thank you very much. You have just given me another reason to work harder, another reason to bust my tail, for no other reason just to show you how wrong you are.” So that was perfect I loved it. Because he was just the person to come in and say “it’s not going to work. I’m going to love it when you fail.” So I’m going to love it when I succeed and am going to rub it in your face.

So you have to dream, you have to plan and you have to work, work, work. And you have to do a lot of dreaming and a lot of planning.

You have to acquire skills. And what I mean by skills, 213 I mean physical skills. You know, in the past I had worked some with my father, I’d helped do some electrical work, I’d installed a fire-alarm system in an apartment building that my father owned when I was fourteen years old, I’d lived on a farm so I was used to working with water pumps and things like that, I had worked at summer pools for ten years so I knew about pool operations, repair pumps, take apart pumps, run the pool at the school for 20 years and at times I’d taken the pump motor out, 150 pounds, taken it down to the motor shop, had the motor rewound, taken it back, put the pump on, rewired it, shimmed it up, balanced it up, put switches in. You know I’d done a lot of this stuff so I said “Well, I know how to do some stuff. I just have to learn how to do others.” I hadn’t done too much in the way of concrete work so the first year I had this school guy come in and he was terrible so we got rid of him after that but I learned a little bit about concrete work and began to forge some alliances.

That’s the next thing. Forge some alliances with some people who in this case were in construction. Some of the first alliances we forged was with a woman who had been teaching lessons at MeadowBrook for 15 years and of course I’m coming in and going, “Oh no, they’re going to get rid of me, I’m not going to be able to teach my lessons,” blah, blah, blah. I said, “No, come on in teach the lessons.” In fact I gave her all the lessons and said “Take all the money, you’ve got it, you’ve been doing it for 15 years why should I come in and take your money, Go ahead, do all the lessons, no problem, continue.” I had no interest in the lesson income at this point. It was not going to be significant enough for the kind of dollars I needed. I need her support more than I need lessons. So she gave the support and her good will and talking to people helped bring more members in. So I got a lot more members than I would have ever gotten because she was well known, well respected and she helped give us clout to be the new owners.

Then her husband’s father owned a construction company. So their normal thing was that they would just normally do gas station renovations, you know every eight years you’ve got to tear the station up and put it back together again, Federal Law. Yeah, Federal Law, it’s a great business. The government gave them a business that you can never lose. Gas stations have to get torn down and rebuilt every eight years. Tanks have to be checked and all that. So they took some of their time and started bringing their crews in and we learned from them and we started to take some challenges. For instance, we had to renovate the outdoor pool. So we said OK, what are we going to do for gutter system. We talked to stainless steel gutter people and they said you have to call X construction company because they’re the only people that can install a stainless steel gutter. I said “Gees, this is a great monopoly isn’t it?” And they said “Yup, they’re the only ones that know how to do it. Nobody else knows how to do it.” So I said “Nobody else except these two or three construction companies?” “No, nobody else knows how to do it.” So I said “Well it’s just welded isn’t it? It’s just welded together, right.” “Yeah.” So I said “Well I tell you what, you just send me $77,000 dollars worth of stainless steel gutter and you drop it on my property off the truck and we’ll take care of it.” So we did. And we learned how to install a stainless steel gutter. We had to hire the welder and all that stuff. We made some mistakes and we learned by our mistakes, but it can be done. So that’s kind of the way we’ve done everything.

So when they tell you it can’t be done this way or you have to do it this way we say “Is that really true? Is that really true, it has to be done this way? Or is there another way to do it?” We look around and see what other people have done and you find a short cut that somebody else has taken.

You can’t talk about building a new building until you have the money to build it. How did we get the money to build a new building? Well obviously we got a some of the money by the operations but mainly we were already spending the operation money on other things and on other parts of the property. So we really didn’t have a lot of money that we’d saved to build a new building. So the bank said “Huh, where’s your money?” And that’s another story. But that went on for a long time, that’s another reason why it took five years. Basically it was the government permits that took five years. As it all went along I began to figure out more and more how I was going to get the money. What I was able to do at the end – well actually what happened at that point was my mother passed away and my wife and I had been living with her because she was elderly. At that point the house now became my house. So I said, “Well now I have this house and the property is probably worth $300,000 and I have some equity that I can use.” So now that I have something that’s worth something in my life I’m going to mortgage it. So I did. I went to talk to a couple friends and I said I don’t know what this property is worth or what I could sell it for but it doesn’t matter because I need an appraisal for $500,000. And you probably may know this about appraisals: usually you tell them what you want, that’s particularly true in residential appraisals, you tell them what you want the number to be and then they figure out how to make it that. And so we did and we got a $500,000 appraisal and we got a $350,000 loan off the appraisal.

Also during the same time period during 1989 on I decided while my mother was still living I suggested to my mother to sell off some of her 50 acres of property for residential subdivision. So that took me another two years to jump through those hoops and changing the thing two or three times at their behest but we finally sold off four twoacre lots. That’s another story. I also kept control of the idea of selling to my friends also sold them with right of first refusal and repurchase of the property. So they can’t sell the 214 property unless I get a chance to buy it first. So at least it gives me a little bit of control on the property that I would not have otherwise wanted to separate. So in these four lots I was able to actually trade properties for two of them which gave me no cash. I traded one property for property in North Carolina and another lot for property in Virginia and that gave me no cash but what it did do with one of the lots because the one property was beach property and the other banks and it did give me some ability to borrow even on raw land – on beach property – which you can’t usually do on residential land because nobody wants to do it. But beach property is a different animal, that’s why I did it. So I borrowed $60,000 on the value of that lot. So now I had $50,000 plus $60,000 and the sale of the other two lots I sold below market value to my friends and the amount of money it cost me to develop the lots was about $40-50,000 dollars because the wells cost $20,000 dollars I ended up with about $30,000 in cash from the other two lots which was ridiculous because they were $100,000 dollar lots. But after taxes I ended up with $30 grand. So I took that $30 grand and put it in to so we had something like around $400,000 dollars in cash so the bank was more able to lend us money and then we took every penny of that year’s net income which probably came to $65 or 70,000 dollars. So we put somewhere in the neighborhood of $500,000 in cash into the new building and borrowed one point six million from the bank. So that’s how we got the money. So that’s the financing of the pool.

The next year we still didn’t have enough money to do what we wanted to do. We weren’t able to asphalt the parking lot, we still had a crushed rock parking lot, we still hadn’t put new hot water and new heater into the building and we were seriously hurting for hot water since we were using an electric water heater that doesn’t work so to make a long story short again we put in new gas pack – we brought natural gas into the property when we built the new building so that enabled me to change from electric to gas but it cost me some $40-50,000 dollars to do the heat and the hot water change overs for that building, plus $40,000 for the asphalt, plus what ever and some other things so that next year we spent another $125,000 dollars. That was 1995-6 which we spent another $125,000 for new things. Things we had not already done.

This year we spent another hundred and some thousand dollars because we built the outdoor recreation pool which was the last part of the original plan was to put in a 3000 square foot recreation pool in also cause we needed more shallow water for kids to play. So we did that this year and some our coaching staff practiced pouring concrete and finishing concrete. We literally did 7,000 square feet of all the decking all ourselves, in house staff, ourselves and of course we did all the digging and a lot of that stuff ourselves which is another part of the story. But we’re pretty capable of doing just about anything there is to do in the building trade even though we may not choose to do it, we might hire a subcontractor, but we can physically pretty much do everything from top to bottom, if we had to, there is no choice.

So that’s my little talk. There’s a lot of numbers here a lot of information about what we spent. I must say again, that you understand that I was the general contractor for the building of the building myself so I hired every subcontractor, signed every contract, did all the insurance, fought with everyone, fired four sets of electricians, did everything from top to bottom in terms of handling that.

Again, the general contractor people I originally went to for bids said it couldn’t be done, it was going to drive you crazy, you’d lose your shirt, it will cost you another 30 or 40% more than it would have cost you because it’s going to be out of control, it’s not going to be done well, subcontractors are going to kill each other, it’s just going to be a debacle. I said “Well then all the more reason for me to do it. Then it will be my fault.” They came in with a price just to do the building part, everything but the pool, the physical pool itself at one point four million dollars which they considered to be their absolute rock-bottom number and we did the entire structure, added more to it and built the pool for one point four million dollars. That’s kind of a round number in reality we probably ended up spending one point seven but the numbers are fair it’s just a lot to explain why the money was there.

Q: Did you think you were making money?

A: Actually I like your verb because there have been many times when I didn’t even know whether I could fake whether I was making money. The answer to that is people probably don’t understand that there is money and there’s money. For instance when you look on the sheet on retained earnings on the bottom of that statement, my wife looks at the $77,000 and starts laughing. Because at the end of the year we didn’t have a dollar. And you’d say why, you made $77,000 why didn’t you have a dollar? Well the reason we didn’t have a dollar is because we had spent it on paying lawyers, paying engineers, fixing this that or the other and you understand that whatever you spend as a for-profit company, what ever you spend – you buy a new pump, a new piece of machinery, you can only expense so many things. You can expense obviously repairs, you can expense some small tools and things but when you buy anything like a new roller for the tennis courts, because we have archery tennis courts – $5-6000 dollars you can’t just take that $6000 dollars and put it into your income expense sheet and take it off. You have to do that with after tax dollars. Which means to get that $6000 dollars you’ve got to make 9 or 10. So basically we’ve already spent all that money in recapitalization, buying things that we had to pay taxes on. 215 So the next spring for instance we would have a $30,000 tax bill and we didn’t have the money, we’d already spent it. And this had been going on for 10 years. That’s why I say I hadn’t paid myself a salary because most years we didn’t have any money. In fact we were negative because we had to use next year’s income, that spring’s income to pay the tax bill which some years is $60,000. It’s like “Oh no.” So it’s really hard. Now of course part of the good news now is if you can understand some of the accounting games that have to be played that I have a hundred and thirty thousand dollars now in yearly depreciation. So that is a hundred and thirty thousand dollars in money that I don’t have to pay taxes on. It goes right into your expense even though it’s not real dollars. So you get that money in your hand without having to pay taxes on it. I mean you really did because you put it into the business and so on and forth but it is actually money that you don’t have to pay taxes on. So it ends up being profit from our real thinking cash flow standpoint. To answer your question, yes we are going to make money and hopefully make a good amount of money as we go along.

Q: Do you have any formal business training or did you have to go by your heels the whole way?

A: That’s a good question. Again if I had a little more time I’d tell you about my father who only went to the sixth grade and my mother who graduated from college in farming when she was 51 because she only went to one year in college. So neither one of my parents were college graduates and I was a college graduate with the better part of two masters degrees in xyz myself. I don’t necessarily think that college education is necessary for everybody and I don’t think that formal education is necessary although obviously you have to be able to add, subtract, multiply and divide, probably be able to read and write pretty well, over and above that I don’t think that you need formal training. My parents owned their own business, my father had his own music business, had his own cab business, had his own property management business and he went through the sixth grade. They both went through the depression, my father was born in 1904 so he was thirty years old in 1934 in the middle of the depression when they were married and there were many good news and bad news about their attitude about money. The fear of too much risk and stuff like that but also had a good attitude about being tight with a dollar about being careful and I guess I probably learned a lot more than I thought I was learning as it was going along from that. So the answer is no I don’t have any formal training. But like for instance on my night table at home I have INC. magazine, I just read a couple articles. Up on my bed is Investment Business Daily which is the number one financial newspaper in the country in my opinion, and the Wall Street Journal and that’s the only thing I read. Well, a lot of other stuff but I don’t read swimming stuff. I read all the business information. I try to find out what’s going on. I’ve been doing that for a lot of years. I basically am self taught in that way.

Q: What is the annual mortgage payment on 1.2 million dollars?

A: Our mortgage payments which include the house mortgage is about $250,000 a year. The one loan is right now $14,400 a month, the other one is $2700 a month and the other one is $4,700 so what’s that 22. Twenty-two times 12 it’s probably more than that. It’s whatever 22 x 12 is. $264,000 That’s just to the banks. I also wrote $165,000 in checks for operating expenses last month in July.

Q: Murray, play a game with me just for a moment. You’ve got $50,000 in your pocket. You own nothing, this January 1, 1998, would you do this again?

A: Well, I’m probably going to do it again. We’re kind of looking at property now and because you get a little money and all of a sudden you’ve got to spend it. Yeah we are looking at some other things. I don’t know when or if or where exactly but I’ve looked at six different situations in the last four months. Just looking for the right place that would be available and then after we find the right place we’ll kind of figure out how to do it. Because I don’t know how we’re going to do it because I don’t have a way to do it. But you know, we are thinking about doing it. Don’t ask me why cause we are actually are almost starting to make money so why should you just shut up and do it. And frankly we were I guess by 1990 as you can probably look and figure out I could have probably easily cleared after taxes $75,000 a year just by running the outfit, easily. Maybe more than that, maybe six figures just by running the outdoor pool three months a year, I could have taught school, or not taught school, coached and whatever or just retired and done nothing. So instead we just took on two million dollars in debt and here we are. I’ll be 70 some years old if I ever pay it off.

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