Donald Trump: A Poor Real Estate Examplar

May 29, 2016

Donald Trump got his start (with his dad’s help) in real estate. Everyone knows that.

And Trump lent his name and endorsement to Trump University. Most everyone knows that.

But unless you’re involved in real estate investing, you may not be aware of Trumps other ventures into real estate and his organization’s symbiotic relationship with real estate investor clubs and associations.

There are hundreds of real estate clubs (often called REIAs–real estate investor associations) around the country. Some are affiliated with national organizations; others are independent. Some have only a few dozen members; others have hundreds. But these aren’t just “clubs” in the traditional sense. Their members spend a lot of money. One REIA in the mid-Atlantic has members who spend about $45 million annually . . . just at The Home Depot. Imagine what they spend elsewhere. Then multiply that by . . . well, who knows? Point is: Real estate investor associations are a real force in real estate investing.

Trump and Ragland

Sherman Ragland, head of DCREIA, and Donald Trump.

It was these groups that Trump and his companions worked their ways into over the past 10-15 years. It was one reason why Trump University initially was so successful; Trump was already revered. He had created an image and became a role model for investors. But . . .

Most REIA leaders preach that investors are there to help, to find solutions, for people who are in financial trouble. Yes, those solutions can produce big profits for the investors. But the investors are offering solutions that the traditional real estate establishment (brokers, real estate agents, etc.) can’t. They help people buy homes with lease options. They help restore neighborhoods by buying run-down homes and rehabbing them. They help people sell homes quickly, even when the homes are in terrible condition or when the sale has to be completed in weeks, not months. The message investors hear, and most accept, is: You can get rich by helping people solve their problems.

The problem with Trump is that he’s not concerned about helping solve other people’s problems. In fact, Trump despises people with problems.

In 2006, nearly two years before the housing collapse, Trump said:

I sort of hope that happens because then people like me would go in and buy. If there is a bubble burst, as they call it, you know you can make a lot of money. If you’re in a good cash position—which I’m in a good cash position today—then people like me would go in and buy like crazy.

That was real estate. The problem is: Trump doesn’t have any sympathy or empathy for anyone in a tough situation.

Remember the John McCain statement:

He’s not a war hero. He was a war hero because he was captured. I like people who weren’t captured.

I’m writing blog this on Memorial Day weekend, and I wonder if Trump (who never served in the military) feels the same way about members of the armed services who died serving their country. Are they heroes only because they died? But does Trump only like people who didn’t die? Does he consider those who died, to use his term, “losers”? (Oh, heck. I don’t have to wonder. Of course he does.)

Then there’s this:

Ariana Huffington is unattractive, both inside and out. I fully understand why her former husband left her for a man. He made a good decision.

That’s consistent with “Kick ’em When They’re Down Donald.”

From the National Review on Trump and eminent domain:

“Most of the time, they just want money,” he said. “It’s very rarely they say, ‘I love my house, I love my house, it’s the greatest thing ever.’ Because these people could buy a house now, that’s five times bigger, in a better location.” Trump has firsthand experience with eminent domain fights. In 1993, he tried to purchase the home of Atlantic City resident Vera Coking to expand his hotel and casino. When she refused to sell, New Jersey attempted to condemn the property and have her evicted. . . .

Trump later said he offered Coking $4 million; her grandson said Trump’s top offer was $1.9 million. Whatever the sum, Coking refused. In July 2014, with Coking now in a San Francisco retirement home, her family sold the property for $530,000. Trump called that amount “peanuts.” “She saved me a fortune!” Trump said with amusement. “I didn’t build a hotel in Atlantic City, which is dying, okay? I should send her a letter [of thanks.] I mean, honestly!”

There are dozens of other examples. But the point is: Trump is not, nor has he ever been, a shining example for real estate investors to follow. In fact, The Donald typifies everything a real estate investor should not be.

And with that lack of empathy, you don’t have to wonder what Trump would be like as President.


How Will Donald Trump Finance His Campaign?

May 12, 2016
Trump Tower for Sale

Will The Donald put Trump Tower up for sale?

I recently read–and responded to–a blog posting that questioned how Donald Trump would finance his campaign. (That blog, by Carole
Ellis in Real Estate Investing Today, is here.) That blog asked whether “a HUGE real estate sell-off could be coming in New York City? Let’s just say the money’s gotta come from somewhere, and the GOP isn’t coughing up yet…” Alternatively, might he borrow against some of his assets? The problem, Ellis suggests, is that Trump has made a big deal about not accepting outside contributions, about not “being bought.” Can he reverse that stand now?

I think he can. I know he can. Here’s my response:

I’d be willing to bet that Trump WILL take outside funds. He’s certainly, ummm, “adjusted” his positions on other issues even within this campaign on everything from abortion and the minimum wage to banning Muslims from entering the United States. And none of that seems to have hurt his popularity at all.

Admittedly, one of his core appeals (others include: “He’s not a typical politician” and “He tells it straight.”) is that he isn’t “bought” by anyone. True . . . but look at Bernie Sanders and his successful fundraising at an average of $27 per contribution. It appears that in this election cycle, it’s possible to raise huge amounts of money in small chunks from actual supporters. No one would accuse Sanders of being “bought” because he accepts campaign contributions. Trump might well do something similar and he’d get away with it.

Besides, Trump established early in the campaign that he’s the one who buys off politicians with campaign contributions. That early branding should inoculate him from possible charges that he’s being bought with contributions.

I’m confident he wouldn’t sell any of his properties. They’re too much part of his image and his ego. He’s emotionally attached to them. (Imagine a Trump golf course or building being sold to, gulp, Chinese investors.) Nope, that won’t happen. And while I don’t consider him to be the great businessman he’s cracked up to be, I doubt he’d over-leverage any of his prize jewel properties, either. Maybe he learned something–not financially but brand-wise–from his Atlantic City experiences.

No. He’ll figure out a way to take money from outsiders and make it appear to be a virtue, not a vice.


Lending Money to a Rehabber? Protect Yourself!

March 18, 2015

Thief With MoneyI recently received the following question from an investor who is considering lending money to a rehabber. I’ve been there and done that and learned a number of very expensive lessons. Hopefully, he–and you–can avoid some of my mistakes. (It’s a long post, but well worth reading!)

I recently came across an ad on Craigslist for a house flipper looking for investors to help finance some of his projects. He specifically needs funds for the renovations and will fund the purchase price himself or through another investor. He says he has a proven track record and is willing to show his documentation. He mostly operates in the $100K to $200K range. 

He typically will need about $15K to $30K for the renovations, which he will mostly do himself. The projects typically take about 10 weeks from start to finish. He spends about a month with renovations and then 6 weeks to sell. 

In exchange for lending him the renovation costs – within 48 hours after closing I would receive the original investment plus 25% of the profits. He said he usually nets about $20 – 30K on a deal. So 25% of 20K would be a net profit for me of 5K. 

I’m very interested in doing this but am wondering what type of precautions should I take? I obviously will have an attorney look over the paper work. I’m not sure if I can put a lien against the property, if that is even an option. 

How do I protect myself? How would you proceed going forward?

Thank you for the question.

I was involved in a very similar situation a couple of years ago . . . and ended up losing $15,000 because I made some mistakes. (Dumb mistakes, really.) And I lost another $14,000 in another deal a few years before that—but it still involved “lending” someone else money for a rehab. (Different mistakes.) I discuss them both below. I’ll call the more recent rehabber “Dave T.” And I’ll call the other investor “Marty W.” So you’re getting the benefit of a $29,000 “education” here.

You can avoid making most of the mistakes I made.

First, a disclaimer: I’m not a lawyer, so this isn’t legal advice. And that leads me to my first recommendation.

Involve a Lawyer

The first step, of course, is to have a lawyer familiar with real estate and real estate investors review the paperwork. And use a good one. Not a pre-paid legal services type. I do have Prepaid Legal Services. They’re OK for some things. But not for this. (Both of my situations described below absolutely baffled them.)

Do Your Due Diligence

Second, do your due diligence on the investor. I did that, and “Dave T” came up clean. I checked with the leaders of two local real estate investment associations. Both knew him and said he was a good guy. He invited me to look at his ongoing rehabs one Saturday, and I did. The rehabs looked good. The crews were competent. I checked on some of his previous rehabs, and they’d sold and been profitable.

Still, pay to do a background check on your rehabber. I use a company called BeenVerified, but there are a bunch of others out there. Those background checks won’t pull up everything, but they’re a place to start.

As I found out, none of my research into the rehabber’s past guaranteed that he’d continue to operate profitably. I suspect that he ran into a series of bad rehabs. I lost $15,000, but there were people who lost $50,000, $75,000, and more on some of his other rehabs around the same time. There are limits to checking out how a person has done in the past. What you’re concerned about is how he’s going to do with your money going forward. Still, don’t skip this step; red flags in the past shouldn’t be overlooked.

Put a Lien on the Property

Third, you absolutely must put a lien against the property. Yes, it is an option. In fact, it’s more than an option. From your perspective, it is an absolute requirement.

Depending on how many people he’s borrowing from (the “other investor” or a hard money lender), you might be in second, third, or even fourth position. Second is OK if the numbers are solid. Third is somewhat risky. And fourth position (meaning the other three get paid off before you do) is extremely risky. Try for first or second position.

Note: That’s one of the mistakes I made. The guy I was dealing with said he’d record the lien, but never did. It’s not much consolation, but that’s how he handled his other investors, too. So, stupid as I was, I wasn’t the only one.

So you must make 100% sure the lien is recorded. You do that by never, ever handing the rehabber the money. You always go through your attorney or an independent third party. And the money doesn’t get handed over until the investor proves he owns the property and until the lien is recorded. Your attorney or you title company can help you with that.

Now you’ve gotten to the point where you’ve lent the money with the loan secured by a mortgage on the property. That doesn’t guarantee you’ll ever get your money back. It’s possible, for example, that the investor just got his numbers wrong. Or (as happened in 2007 and 2008), the market collapses and what would have been profitable in January is a loss in September. Or, more likely, there are undiscovered repairs that have to be made.

For example, “Dave T” told me about a rehab he was doing on townhouse in Washington, D.C. It turned out that there was a problem with the sewer line between the street and the house. He’d built in a 10% “cushion” on his $100,000 rehab (his properties would sell for $530,000-$650,000 or so once done), and it all vanished with that one unexpected repair. Or perhaps something isn’t up to code and when the rehabber or his contractor goes to pull the permits, the city requires an expensive update, upgrade, or modification.

When I rehabbed a property once, I got one bid of $50,000 and another for $130,000. The higher bidder was proposing a certain way to address asbestos flooring in the kitchen. The lower bidder was proposing another strategy. That alone added close to $30,000 to the higher bid.

Where the lien should protect you is: If the investor sells the property, you’ve “clouded the title” with your lien. It’s got to be satisfied—that is, paid off—before the transfer of title. If there’s enough money (remembering that the first mortgage gets paid off first, then the second, then the third, and so on), you’ll get your money. If there isn’t enough, the investor will have to negotiate with you and perhaps the other lien holders to accept less than you’ve agreed to.

Stay on Top of the Rehab

If you’re in the same town or city as the rehabber, drive past the property every week. Make sure that construction is proceeding. (If it isn’t, maybe the investor has run out of funds. It may be too late for you to get your money back, but don’t let it come as a surprise when, 6 months later, the job still isn’t done. And your lawyer may be able to suggest some steps to make your position more secure—such as placing a lien on the investor’s other assets.

Brawley Profit ProjectionsIf you’re not in the same town or have someone else drive past every week. Another true story of how I lost another $14,000: I provided “Marty W” (who had a glowing recommendation from a real estate guru) $14,000 to rehab a property in Spartanburg, South Carolina. I’m in Northern Virginia—460 miles away. At the time, at least, “Marty W” was hanging out in Boca Raton, Florida. In this case, the paperwork was done properly. However, the rehabber apparently ran out of money and never got around to rehabbing the property. Tip: Check on your guy’s current projects. Apparently, “Marty W” had bought a bunch of lousy properties.

Another problem: “Marty W” gave me some wildly inflated comps. I was given comps on properties that sold for $65,000. Marty’s worksheet claimed a “Fair Market Value” (the after-repair value) of $70,000. In truth, this property, rehabbed, might have sold for $20,000. I got that figure from a Realtor who knew the area . . . but after my money was gone.

This was back in 2006, before “virtual” or long-distance investing became popular. Anyhow, I never received any word from Marty that there was trouble. It’s just that the repayment date came and went and there was no money. If I’d been in Spartanburg, I could have seen this property, compared it to the comps, and soon would have seen that no rehab was being done.

So: You either need to be there or you need someone good and trustworthy—“boots on the ground”—to watch out for your interests.

Make Sure the Title Company is Aware of Your Lien

Here’s another thing to worry about, and another possible solution: A few years ago, I had an option on a property. I filed a “Notice of Agreement” at my local courthouse. That was intended to cloud the title—to alert anyone checking the title before a sale or transfer that I had an interest in the property. Although I decided not to proceed (this was during the market collapse in 2007), I had not removed my Notice of Agreement. It was still there.

However, the property was sold/transferred twice without anyone noticing my Notice of Agreement. Only when the third owner attempted to sell it to a fourth—in 2014—did the title search uncover my Notice of Agreement. The point is: Even with a lien or other instrument that should appear along with the title, those can be missed.

How do you address that issue? Stay on top of the property. If you know the title company that your investor is planning on using, send them a certified letter with a copy of your documentation alerting them that you’re a lien holder on the property. Your lawyer should be able to suggest other methods, too.

Have Access to the Rehabber’s Books

If the rehabber is just promising a set return–say 10% or 20%–on your money, you don’t need this. But if a rehabber is promising you 25% of the profits, then you must have a way to verify what the profits were. You want to make sure that all the costs are what they’re claimed to be. And you also want to make sure that those expenses went for your rehab–not some other rehab.

Conclusion

There’ nothing you can do to ensure a 100% return of your money and the promised profits. Sometimes, despite everyone’s best intentions, it doesn’t work out. There’s always risk. What you need to do is minimize all the risk you can. And, as discussed above:

  • Have a good lawyer—one who knows real estate—involved from the beginning.
  • Do your due diligence, though understand that at best that gives you an accurate history, not a view into the future.
  • Put a lien on the property.
  • Stay on top of the rehab.
  • Make sure the title company is aware of your involvement and your standing in the transaction.
  • When you’re being paid a percentage of the profits, condition your loan on your being able to access the rehabber’s books.

New Posts Coming!

March 18, 2015

Calendar PagesWow! I hadn’t realized it had been so long (years, in fact) since I’d posted anything here. I’ve been busy posting elsewhere–on Trulia and Yahoo! Answers, among other places. (Plus a bit on Zillow, some on LinkedIn, and some elsewhere.)

I also have some “gigs” on Fiverr where I get paid a miniscule amount ($4) for fairly in-depth, detailed answers. I do it for the mental challenge, as well as to help people get out of (or avoid) sometimes sticky situations.

Anyhow, I thought I’d share some of those with you, as well as generate some new original content for this blog. So stay tuned.


We Read This Crap So You Don’t Have To: Mike Warren

November 9, 2011

Would you buy a car if the car dealer itself had a banner: We only sell overpriced clunkers.

Would you go into a restaurant if the menu had a warning: Our hamburgers are made from spoiled meat from diseased cows.

Then why would anyone respond to a real estate guru’s promotion boasting about one of his own students going bankrupt (presumably after following his real estate advice)?

Mike Warren email on his student's bankruptcy Here. See for yourself:

“A student”–presumably Mike’s student–had to declare [except Mike misspells it “delcare”] bankruptcy because “they” [should be “she,” not “they”] were over-leveraged on properties she’d bought.

Never fear, though. Mary Jane wants to keep doing what she’d been doing. Never mind a little bump in the road like a bankruptcy. So Mike’s got a way for Mary Jane to keep buying real estate. And he says it’s honest, ethical, and legal. It could be.

My question is: Will it help Mary Jane make some money? Or are the only folks making the money Mike and his “buddy”?

That sure is a great testimonial: My buddy can help you buy more real estate, even though the real estate you bought as a student following my advice landed you in bankruptcy.

I think I’ll pass.


We Read This Crap So You Don’t Have To: “Bad News” E-mails

October 13, 2011

There’s an interesting blog on the AWeber site by Danny Iny titled “Can ‘Bad News’ Lift Response Rates?” You know: The subject lines in e-mails that announce “Bad News.” Iny suggests that it meets three criteria for effective headlines:

  • It’s question-based, rather than answer-based.
  • It’s problem-based, not solution-based.
  • It evokes curiosity.

But Iny notes that the technique doesn’t always work, and that there are two major problems with “bad news” subject lines:

  • No context: You might receive bad news from family, friends, business partners, or clients. There’s already care, concern, and a relationship. You don’t care about e-mail marketers, you con’t care enough about them for any news to be particularly bad.
  • Destroys credibility and trust: You run the risk that your audience will stop trusting you. Often the audience will feel (correctly) that either you’re manipulating them or you’re lying to them.

Iny says he’s used “bad news” twice in his career. It failed once and worked once. He’s planning on using it a third time. He advices: “Use with care.” Iny argues that “Bad News” subject lines can work if you’ve built up a solid relationship with your audience, provided lots of value, and that you actually have news to share that could be legitimately seen as bad.

Yeah. Right. And marketers who share legitimately bad news occurs about as often as pigs flying.

We read this “Bad News” crap so you don’t have to. Here are some excerpts from just a few recent offenders:

Lots of Bad News today: 1st Warning: Closing down in 8 hours

#1 I just spoke to Nate again. There’s good news and bad news. Good news is Nate has about 10 – 15 spots open for his MONEY MATRIX PLATFORM which funds and sells your properties for you to his buyers.

#2 I also just spoke with George and Gary. Today is also the very last day to watch the webinar training I did with George about “The Bankers Code” Way To Building Passive Wealth Thru Private Lending.

Josh Cantwell

*****************************************

BAD NEWS

This is an urgent update for my long time subscribers only.
Please read the entire email carefully as it is time sensitive.

We ALMOST had to deliver you some bad news, but it looks like we had a small (but high impact) miracle occur that you need to know about now. [Comment: I wonder if Larry did an A/B test with the headline “It’s A Miracle!”]
You want to do more deals and create more freedom right? Keep reading…
You ALMOST lost your chance at free VIP passes to an exclusive event where deal makers are born. It happens only once a year and is invite only.
Bad news is there’s only 10-15 spots open and he’s closing down as soon as they are filled so YOU HAVE TO GO NOW to get a spot in the Money Matrix. If a complete wealth building platform is what you have been looking for then here you go

Larry Goins

***************************************

Bad News.

If you have a 401K that is now a 201K, believe it or not, you can still safely earn above-average double-digit
returns
in this market. How you ask?

By being, “the bank.”

Too good to be true? Think again.

Now, while this might sound a little strange right now, let me assure you that many folks just like you
across the US, are self-directing their investment dollars into things like, real estate, or small businesses etc., and they are earning very high returns.

Craig Fuhr

[Comment: I couldn’t find even a whiff of bad news in this one.]

************************************

Good News, Bad News . . .

Over the past three days I’ve shared a short video presentation about the most valuable skill any entrepreneur, business owner, or marketer can possess.  Today I’ll share some good news and some bad news.

First some bad news.  It took me 10 years to develop and hone the skill of creating copy that sells.  10 years of studying and testing to figure out what works (and what doesn’t work). [Comment: That’s the bad news? That it only took you 10 years to become a copywriting expert, and a very, very highly-paid one at that? I’d have thought the bad news was the decades you spent selling suits before you moved into marketing.]

The good news is that you don’t need to spend a decade of hassle and frustration wasting your time and money figuring out what works.  I’ve already done that for you and I’ve created a “step-by-step” system that removes all the guesswork, waste, and frustration out of “Creating Copy That Sells” Once and For All so you can be creating profitable marketing campaigns FASTER than you imagined possible.

All you have to do is click on the link below to watch this short video presentation:

=>WATCH THIS NOW

More Bad News…this video will be removed at MIDNIGHT EST on Monday night so I recommend you watch it NOW.

Dedicated to Creating Copy That Sells,

Bill Glazer

***********************************

All “bad news” e-mails are crap. I don’t think I’ve ever received a legitimate one. Even ones with “Only 4 slots remaining” isn’t bad news . . . except for the promoter who hasn’t yet filled up the program.

As I said, those are only a few samples of the muck that gums up my in-box. As for Iny’s blog, the only criterion a marketer should use when deciding whether to put “Bad News” in the subject line is: Is it really bad news? Truly bad news? Honestly bad news? If it isn’t, don’t use it.


Are All Deeds Since 2005 (Not Just Foreclosed Ones) At Risk?

October 13, 2010

Worms crawling out from under the rocks of foreclosures.I was listening to a radio program this week (The Kojo Nnamdi show on WAMU in Washington, D.C.) and the topic was–what else–the foreclosure crisis and robo-signing. OK, I thought, this might be interesting. And it was. Not from Kojo’s guests–who were OK but pretty predictable–but from one of the callers. It was a guy named Matthew (who I think is Matthew Weidner, a Florida attorney) who raised a scary point about the foreclosure mess.

Incidentally, Matthew Weidner’s blog has all sorts of fascinating information on it. Some of it’s a bit technical, and some of it’s Florida-specific (that’s where he is), but it’s worth looking at.

While robo-signing is the most recent problem to arise, a deeper problem is all the paperwork that accompanied all the purchase and sale transactions since about 2004 or 2005. Basically, the paperwork is a mess–severely flawed–since all those loans were sliced and diced over and over again to sell to investors. Heck, I even blogged about that–a book review called The Big Short by Michael Lewis. [Tip: Buy it. Read it.]

But caller Matthew’s point was that none of these properties–foreclosure or not–really can be said to have clear title. The paperwork’s bad on all of them. He called this “the elephant in the room” that no one wants to talk about. And, obviously, for good reason.

A lot of the problems with the foreclosure paperwork are coming to light because one of the parties (the owner) is highlighting the problem and using it to block further action. You don’t have the same situation in cases where you’ve got a willing seller, a willing buyer, and no bank in the middle of that transaction.

However, just because no one’s raising a fuss doesn’t mean the problem doesn’t exist. And as those rocks start getting turned over and the worms start wiggling out, someone’s going to notice that a lot of those worms are crawling out from supposedly “clean” sales.