What Trump's Real Estate Deals Teach Business Owners About Building Wealth
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Since Trump has become synonymous with politics for a decade, it's easy to forget that he became a successful real estate investor and has plenty of insights to share. Ironically, his real estate career has been just as volatile as his presidency. Trump amassed great fortunes with strategic real estate investments in the 1980s and became a household name. Then, he almost lost everything in the 1990s and ascended to new heights in the 2000s.
Trump's real estate deals offer plenty of valuable lessons for aspiring investors and people who want to make their mark in the world.
It's not practical for everyone to get started with large real estate properties, but it should be an aspiration. Trump doesn't invest in single-family homes and that isn't how he made his mark in the beginning. In fact, his first deal was a 1,200-unit apartment complex in Cincinnati that he and his father bought.
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Not everyone can start with that type of deal. Some investors accumulate multiple single-family homes before they move on to apartments. However, Trump explained the logic of investing in large-scale properties in 'The Art of the Deal.'
'It takes almost the same amount of energy to manage 50 units as it does 1,200-except that with 1,200, you have a much bigger upside,' he said.
President Trump used a lot of debt to finance his deals. If he needed all of the cash ready to go, he wouldn't have the real estate empire that he has today. He used advanced strategies to minimize his investments in some properties.
For instance, Trump secured an option agreement to purchase the Commodore Hotel from the bankrupt Penn Central. This gave him the option but not the obligation to buy the property. While waiting, he leveraged political connections and New York City's steady decline in the 1970s to get a sweetheart deal on the property. He received an unprecedented 40-year tax break on the property that only ended in 2020.
Few investors can capitalize on those types of strategies. Trump had established himself as an ambitious real estate developer at a time when New York City was reeling economically. However, his organization has also taken out many loans. Over-leverage almost wiped him out in the 1990s, demonstrating the risk of this strategy. However, leverage is one of the quickest ways to scale a real estate portfolio.
Trump didn't buy a property just for the sake of buying it. His book 'The Art of the Deal' explores intricate details of multiple deals. While you can buy stocks in a matter of seconds, Trump's description of multi-year build-ups leading up to deals resembles chess masters duking it out on the board.
Waiting multiple years to swoop in allowed Trump to capitalize on bad market conditions. He also got to take advantage of competitors who were in weakened states and desperate to make deals. When a competitor is desperate to make a deal, it's easier for investors like Trump to find undervalued deals.
He explained in 'The Art of the Deal' that he had to acquire Bonwit Teller to build Trump Tower. He mentioned that Genesco would likely try to get out of the deal as multiple wealthy investors approached them.
However, Trump had been eying this property for years and had a one-page letter of intent from the seller. He detailed the smart and ruthless approach that allowed him to use this letter as leverage to secure a great deal at a great price.
'I could have litigated it and held up any sale of the Bonwit property for several years. Naturally, I let Genesco know I fully intended to do just that if they reneged on my deal. With creditors breathing down their necks, Genesco, I knew, didn't have a lot of time,' he said.
Knowing yourself can help you find great deals. Knowing when the competition is weak may help you capitalize on extraordinary opportunities, especially if you have leverage.
Editor's note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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