The Art of the Deal: Donald Trump
Jan 11th, 2009 by stewart
I have to admit, I was never a big fan of Trump. I enjoyed his show The Apprentice (always thinking I could do better than most of the contestants) and had even seen him speak live at a couple of events — but his personality just didn’t gel with mine — he seemed abrasive, overly-confident and obsessed with self-promotion. A friend lent me one of Trumps books in audio format and every other line seemed to say something like “Why Trump is the Best.” It got old, fast, and I couldn’t stand to listen for more than 4 minutes.
Over the holidays I finished reading Maverick Real Estate Investing by Steve Bergsman, which I thoroughly enjoyed (a topic for another post), and it made enough favorable mentions of Trump that made me reconsider my opinions of him. (To see other recommended books see Resources page.)
In 1987, Trump came out with his first book called “The Art of the Deal”. At the time he was 41 years of age and as many of you know, this was the start of the Savings & Loan crisis, the RTC (Resolution Trust Corporation) and perhaps one of the best time periods for astute real estate buyers. Recently, I’ve become an avid student of learning as much as I can from that time… can you guess why?
Trump’s 1st Big Deal: 1,200 Units in Cincinatti, Ohio Swifton Village
Interestingly, his first big deal was a 1200 apartment community in Ohio. It was an FHA foreclosure. He bought it with Fred Trump, his dad. They were able to get a mortgage for what they paid + $100,000 in rehab costs — in other words, he got it for no money down (albeit with very good credit thanks to Fred, a very successful residential developer in Queens/Brooklyn). ”It takes almost the same amount of energy to manage 50 units as it does 1200 — except that with 1200 you have a much bigger upside.”
About the deal. It had 36% occupancy and after all was said and done they had invested $800,000. They paid less than $6M total ($5K/door), where it had cost $12M to build it 2 years earlier. They added white shutters and white doors (to change the character of the property), elevated the tenant profile, improved the management (they went through many managers that 1st year) and kicked-up marketing efforts a few notches — the result? within a year they had raised occupancy to 100%. A number of years after they bought, one of the residents (who had become one of his friends) told him the area was changing drastically and to consider selling — he did someone homework to validate, went with the tip and his instincts and sold to a REIT for $12M, making approximately $6M profit. Not bad for your first big deal.
Elements of the Deal
If you consider yourself even a semi-serious student of real estate investing, I couldn’t recommend this book highly enough. It’s candid, honest, insightful and has some incredible stories. If you don’t have time to read the whole thing, just read Chapter 2: Elements of the Deal, at least twice. I list the sections of that chapter here, all of them are right on the money.
- Think Big
- Protect the Downside and the Upside Will Take Care of Itself
- Maximize Your Options
- Know Your Market
- Use Your Leverage
- Enhance Your Location
- Get the Word Out
- Fight Back
- Deliver the Goods
- Contain the Costs
- Have Fun
Food for Thought
I’m still reading the book, but have been enjoying it immensely and wanted to get the word out (also, who knows what deal may come up tomorrow and then I’ll “go dark” on this blog again for weeks - we did close on a fantastic 150-unit property in December I’ll tell you about some time). What prompted me to write this post was something he said in the Have Fun section:
“I don’t kid myself. Life is very fragile, and success doesn’t change that. If anything, success makes it more fragile. Anything can change, without warning, and that’s why I try not to take any of what’s happened too seriously.”
I thought this was very zen, very life-wise, very (dare I say) humble of him to say. It completely changed my outlook on what I had thought of Trump.
I will leave you with the opening lines of the book which are very powerful words. You could be skeptical of what he says, but I believe it all comes back to The Secret of Success.
“I don’t do it for the money. I’ve got enough, much more than I’ll ever need. I do it to do it. Deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That’s how I get my kicks.” - D. Trump
How do you get your kicks?
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