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.


Amazing Prediction By Ron Paul in 2003

March 18, 2009

I like quirky politicians. (Anyone remember John Anderson when he ran for President? Or Pete McCloskey? If you’re from Virginia, how about Henry Howell? Or even the original John McCain?) And for that reason, I like Ron Paul. I can’t say that I agree with too many of his policies, but I enjoy free thinkers and nonconformists.

Someone mentioned to me recently that Ron Paul had made a speech back in 2003 that predicted the housing and financial meltdown. (I’m sure that true Ron Paul followers have known about that for a long time, so this won’t be news to them.)

Still, he did make a statement before the House Financial Services Committee back on September 10, 2003, and you have to give the guy credit. Here are his entire remarks:

HON. RON PAUL OF TEXAS
IN THE HOUSE FINANCIAL SERVICES COMMITTEE

September 10, 2003

Fannie Mae and Freddie Mac Subsidies Distort the Housing Market

Mr. Chairman, thank you for holding this hearing on the Treasury Department’s views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.

I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received 13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.

One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion dollars. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.

The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt.  GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing.  Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.

No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.

Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today’s hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.

Pretty much on target.

And for some reason the Ron Paul remarks reminded me of a song from a low-budget 1968 movie (Wild in the Streets) called “Nothing Can Change the Shape of Things to Come.” [Maybe it was low budget, but the cast included Shelly Winters, Richard PryorHal Holbrook, Ed Begley, Gary Busey, Dick Clark, Billy Mumy, Bobby Sherman, Peter Tork, and Barry Williams!]

Anyhow, just as restaurants will pair a wine with a course, I thought I’d pair “Nothing Can Change the Shape of Things to Come” with Ron Paul’s remarks. They just seem to go together.

 


How Will The Real Estate Market Be Affected By The Presidential Elections?

June 1, 2008

The residential real estate market has slumped across the country. Some areas have been hit worse than others.

In the search for solutions, some are looking to the presidential elections. There’s a hope that, somehow, the election of a new president will re-energize the markets. But will it?

First, any effect will be psychological. Now, that’s not to discount psychology. A lot of what’s affecting the current market is buyer (and seller) psychology. And that was certainly the case a couple of years ago, before the real estate bubble burst. People were buying on emotion, not facts and reality. The market was soaring; their friends were making fortunes in a matter of months, and they wanted in on the action. The facts suggested that the growth rate was unsustainable. And reality suggested that soon, with continued escalation of prices, no one would be able to afford a home.

So, what might the psychological effect of the presidential election be? Considering that many people blame the current Bush Administration and its policies for the position we’re in now, the election of someone who supports the current policies probably would have very little effect. The election of someone who represents a break with the past could have a significant psychological effect.

Note: I know it sounds as if I’m saying Obama would help the real estate market and McCain wouldn’t. Again, we’re talking psychology, not actual policy. From that perspective, then, an Obama victory might help, and probably more than a McCain victory.

But it could be possible for McCain to stake out a far different economic position than Bush has. Or he might select someone as his vice presidential running mate who would do that. Or announce people he’d like to appoint to his Cabinet.

On the other side, while Obama in general reflects change, he’d still have to articulate a position of change as it applies to the economy in general and to real estate in particular. And, yes, if Clinton somehow got the nomination, the same conditions would apply.

Obama’s website, at the moment, doesn’t have much detail on the subject. He does say:

“Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.”

But that’s not the root of the problem.

Obama’s site also says:

“Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.”

That might help a small portion of those in trouble. But it won’t help anyone who’s already lost their home, either via a foreclosure or short sale. And it doesn’t appear to help people whose homes have lost substantial value. If someone bought a home in 2006 for $500,000 and it’s now worth $350,000, refinancing that $500,000 mortgage, while lowering payments slightly, still leaves the homeowner “upside down” by $150,000. And all the other homes in that neighborhood are still only worth $350,000…versus $500,000 a couple of years ago.

Meanwhile, McCain does have a proposal, but when you consider the paperwork, the hoops homeowners would have to jump through, and the bureaucracy it’s sure to spawn, there’s a real question of whether it would benefit many homeowners.

McCain’s website says:

John McCain Is Proposing A New “HOME Plan” To Provide Robust, Timely And Targeted Help To Those Hurt By The Housing Crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home’s market value.

Eligibility: Holders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.

How It Works: An individual picks up a form at any Post Office and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified and contacts the individual’s mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender.

So, under McCain’s plan the homeowner had to be creditworthy after 2005…but nevertheless have accepted an “unconventional loan”…and must be in trouble now…but still must be able to qualify for a 30 year conventional loan. That eliminates a huge chunk of the population in trouble.

And then there’s the fact–as with Obama’s plan–that you’d still be refinancing a $500,000 mortgage on a $350,000 property. When Harry Homeowner wants to sell in a year or two, and his property is still worth under $500,000, what then? Are we just postponing tens of thousands of short sales?

If any of the candidates came in with a “Marshall Plan for Housing,” a major program, well laid-out, with some freshness and creativity, that could have a positive effect. Otherwise, I wouldn’t expect much.

One exception: The housing market around Washington, D.C. Every time there’s a presidential election, housing activity increases simply because a lot of people (administration officials, staffers on the Hill, congressmen and representatives, and so on) leave, and others come to replace them. I think it’s safe to say that there might be a greater turnover in all those categories than in past years. So, it’ll help the DC area. As for the rest of the country? Highly unlikely.

Don Tepper,
www.Solutions3DHome.com
www.WeBuyFairfaxHouses.com

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Realtor with Long & Foster licensed in Virginia