TRICKS OF THE TRADER : Organizations help people barter their skills for remodeling, building, even buying land.

Carol Ornelas always wanted to live in a beautiful house on a hill in Malibu. Five years ago she bought a mountain lot for $42,500 and began planning her dream home.

But there was a catch. Even with the biggest loan they could manage, Ornelas and her husband, Willie, were still more than $100,000 short of their hilltop fantasy.

That didn’t stop her.

Now, as Ornelas surveys her recently completed Spanish-style home, with its spiral staircase, soaring ceilings and sweeping ocean view, she breaks into a wide smile.

“I love to trade,” Ornelas, 39, said.

More than $100,000 in labor and materials for the three-bedroom, two-story house was bartered. The architect, plumber and carpenter received no cash. Neither did the companies who sold Ornelas the floor tile, mirrors or carpeting.

Instead, they all earned “credits” from the barter company that Ornelas owns, Malibu Business & Professional Exchange. Then they used their credits to buy what they wanted from the exchange’s 300 members, who offer works of art, hotel rooms, dental work, rugs, flowers, car washes, tree trimming, restaurant meals--even advertising space in magazines.

Owning a trade exchange certainly gives Ornelas an advantage, but bartering home renovations is an option available to anyone who’s got something to trade.

“Basically, anybody could do this if they had enough credits,” Ornelas said. “All the people I used need new business. They’ve spent all the credits that they earned.”

The ancient art of barter, which predates the invention of money, has come a long way from the days when the farmer traded his eggs for a loaf of bread. Now barter--or, as the professionals say, spending done “on trade”--is big business. U.S. exchanges traded $750 million worth of goods and services in 1990.

Carol Ornelas, too, has come a long way. Twelve years ago she was looking to quit her job selling real estate when she stumbled onto the world of barter. For the first two years she knocked on doors, signing up a florist here, a doctor there.

Now Ornelas trades so successfully that she collects her fees--$10 a month and 15% of each transaction--entirely in trade. “I don’t have any problem using my trade (credits),” she said. “And I sell my trade at 50 cents on the dollar if I need cash for the people who want half-cash, half-trade.”

Electrician Dusty Peak installed the wiring in Ornelas’ house, taking one-third of his pay in trade. In return, he used his credits to hire the exchange’s bookkeeper for a year of accounting and tax work.

After 10 years of trading, Peak has already taken advantage of many of the club’s services. “Everybody wants to use me,” he said. “At this point, before I take a job, I make sure there’s something on the exchange I need and can use within the next year.

“One year, I got a cabin (for the weekend) up in Mammoth and took a bunch of friends,” Peak added. “They paid me in cash for their share, so it worked out great.”

While it’s hard to imagine that a reliable plumber would perform top-quality work on your house for weeks without receiving any cash, Ornelas says trade workers are actually more reliable than their dollar-earning counterparts.

Where a plumber working for cash might get half his money up front, there’s no payday for the trading plumber until the work is completed. “I’m not going to put (any) credits in their account until the job is done and you’re satisfied,” Ornelas said. “So you’re covered better than if you were a cash customer.

“You do have to have patience, though--because if an electrician is coming to your house and doing a $5,000 trade job for you and he gets a $10,000 cash job, you’re going to have to wait.”

Despite such delays, Ornelas is so happy with the way her traded home building turned out, she and husband Willie, a professional drummer, are planning to do more.

“We’re adding 1,000 square feet down below the first floor, with an office and a soundproofed studio, and I’ve got people lined up to do all the work on trade,” she said. “We’re going to build a lap pool, and the designers are doing that on trade--they want some color printing for their advertising campaign.”

In her search for the goods and services she wants, Ornelas makes frequent use of other barter exchanges, setting up trade credit swaps between trading companies. She often calls Mark Tracy, owner of American Commerce Exchange in North Hollywood. For an initial $300 fee, Tracy starts off new members with $500 in trade credits.

Last fall, as the economy slowed, business at both barter companies picked up. Tracy said, “Since Oct. 1, we’re up 20%, and by all indications it will continue through 1991.”

Both Malibu Business & Professional Exchange and ACX belong to the National Assn. of Trade Exchanges (see box). Said NATE President Tom McDowell, “When things get bad, our business tends to increase, because people have excess time or inventory and they’re looking for customers. And trade exchanges have customers.”

But as business booms, experienced traders watch out for problems. “There are unethical people out there that get into this business,” said Ornelas. “So I try to trade with people who are members of NATE.”

ACX, which Tracy founded 10 years ago, has 500 members, including architects, interior designers and stone masons. “Those are easy,” Tracy said.

“But putting together contractors for home improvement--that’s probably the toughest trade you’ll find. What we end up doing is getting licensed contractors who have crews. Because if he has to pay these people salary anyway, and there’s slow time, then he can take a $5,000 ‘trade’ renovation.

“Then in turn, he can go to the dentist, or do some advertising, which leads to additional business he wouldn’t have had before. The other advantage to this for contractors is they get cash business from referrals, if they’re good.”

What if they aren’t good? “We did have one job where we had to intervene--we have an arbitration board with attorneys. But we learned our lesson there only to deal with licensed contractors,” said Tracy. In addition to checking for a license, ACX staffers verify that contractors are experienced and have a track record of satisfied customers.

Dentist Carl Farless of North Hollywood is an ACX member who relies on Tracy’s screening process in choosing contractors for renovation work at his home and office.

Recently, Farless had a new wood floor installed at home, and is using ACX members for electrical work, dry wall, heating, plumbing and the alarm system for his office. Carol Ornelas was one of his first trade dental patients.

“I feel more comfortable with the barter people I deal with than with people I paid in cash,” Farless said. “The barterers have paid money to join this club, and the people who sign them up actually verify that they have satisfied customers.”

Farless was a young dentist with time on his hands seven years ago when he read an article about trading and decided to try it. Now that his practice is established, Farless said, “Barter is about 10% of my practice. I could see all cash patients, but I enjoy trading. We’ll go to restaurants on trade I would never spend cash to go to, just because it doesn’t handle the same. It feels different.”

Experienced traders recommend that trade not exceed 10% of a company’s total business. Carol Ornelas warns, “It can force somebody to go into bankruptcy if they trade too much.”

With a busy dental practice to manage, Farless enjoys the convenience of belonging to ACX. Rather than having to concoct his own trade deals, he simply gives credits to tradespeople, who can spend them on anything in the exchange.

“That’s the beauty of belonging to the club,” said Farless. “I don’t have to worry about what the other guy wants.”

While traders like Farless keep it simple, others try to stretch the art to its limits--even using trade to buy property. Real estate broker Patrick Mitchell, an ACX member with 16 years of industry experience, says he’s put together “quite a lot” of real estate deals that involved trade.

“I did a trade through (ACX) where the seller took some art (in exchange) for a beautiful one-acre piece of land in the Poconos,” Mitchell said. He cautions that trading for real estate works best when there is no lending institution--either a cash sale or a situation where the seller is acting as his own lender.

“If you’re trying to assume a loan and part of (the down payment) is trade,” Mitchell said, “the lender may have some resistance, because they’re not sure of the value of what’s being traded.”

Lender reticence can sometimes be overcome by converting the trade credits into land or trust deeds.

“Trade is a negotiating tool in buying real estate,” Carol Ornelas said matter-of-factly. “You can transfer your trade credits over anywhere you want. I’m looking for some more property now, and I want to do some trade on the down payment.”

Another creative trader is Celia Blum of the custom rug manufacturing firm Celia Inc. in Beverly Hills. Blum belongs to four different trade exchanges, including ACX.

“I think barter first. I’ve traded for everything from painting, plants and tile work to sinks, hardware, carpentry and plumbing,” said Blum, a 30-year veteran of the rug business.

“I’ve used barter to improve my showroom spaces. I even rented $600 a month in space to someone in the art business, who paid me in trade. And it was dead space--I wasn’t even using it.

“I once traded an area rug for a car,” Blum added. “I mean, you can’t drive a rug.”

Since all trades are credited at the product’s retail price, Blum gets more credits than her actual cost for manufacturing the rug. “My percentage of cost on the dollar is small, and it sells at retail,” Blum said.

The barter business has changed dramatically in the years since Celia Blum began trading. Trade was once considered the province of tax evaders--a way to get around reporting your income.

“There was a lot of confusion in earlier years, because the IRS was not real clear,” said CPA Mark Clare, who does ACX’s taxes. “But in 1982 and in the 1986 Tax Reform Act, the government better defined what types of transactions had to be reported and increased the penalties to $50 per occurrence, or, if they can prove you intentionally disregarded the rules, 10% of each transaction.”

The IRS also broadened the 1099B tax form to include barter; now companies like ACX and Malibu Business & Professional Exchange must submit a 1099B form for each of their members every year. An industry shakeout followed the regulation changes, as tax-dodging traders closed up shop.

Trade income is taxed just like cash, but credits used to purchase items that are business expenses can be taken as tax deductions. Credits used for home improvements reduce the amount payable in capital gains when the house is sold, just as if the work had been paid for in cash.

“I would stress that trading is not a way of avoiding taxes--that’s not the main thrust of barter,” Clare advised. “It’s the benefits you can derive from not using cash to buy things.”

Perhaps more than anyone else in California, Richard Rosenblatt is enjoying the benefits of barter. His company, LPC Media, consults with businesses on how best to barter their wares. He began his career trading advertising for Playtex in the early days of television; by 1959 he was doing promotion for large housing tracts and receiving a couple of new houses as pay.

So when Rosenblatt sold his last house, he decided he didn’t want to buy another one of similar value; he wanted his next home to be one-third again as luxurious.

Drawing on a lifetime of barter experience, he recently completed a 7,500-square-foot mansion overlooking a 3 1/2-acre lake in Rancho Santa Fe, in north San Diego County. The 17 1/2 acre property also has a 58-stall horse stable, a mile-plus trail and more than a half-dozen other structures, including a gazebo that seats 80.

In this masterpiece of the trader’s art, Rosenblatt bartered one-third of his building cost and got better materials than he could afford in cash. He said the house was recently appraised at between $8 million and $10 million.

Anything he didn’t need, he traded away. “The wood shavings and manure in the horse stalls, I trade with a nursery and I’ve gotten thousands of trees, bushes and flowers in return,” Rosenblatt said. “We have an underground source of water here, so we got gravel for the lake by trading water.”

Rosenblatt wanted only the finest materials and craftspeople, so he sought them out and made his own trade deals. “It takes extra time,” Rosenblatt said. “Most of them had never heard of trade before I approached them.”

The result: 28 custom-designed Doric stone columns, marble and granite in the bathrooms and kitchens, hand-carved wood doors 10 feet high, custom-made cabinets. Without trade, Rosenblatt said, “the columns would have been precast, the marble would have been tile, the cabinets prefab instead of custom made.”

With his background in advertising, Rosenblatt created and executed ad campaigns for the cabinet makers, stone masons and landscape architect. Rosenblatt is also a member of Malibu Business & Professional Exchange, and used his credits there when workers wanted other items.

“We have one guy who’s never been able to take his wife on a nice vacation,” said Rosenblatt. “Now he isn’t working, but he’s going to be able to turn that time into a lovely trip. It certainly beats sitting there looking at your tools.

“I’m anxious to take care of the workmen I trade with. I want them to do a good job for me, so I’m going to send them on the best trip they ever went on. In essence, this is a world where we serve each other.”

Trying to make do on cash business is simply too limiting for inveterate trader Rosenblatt. “Don’t just rely on trying to sell yourself for money,” he cautioned. “Because people are very reluctant to give up money.”