Recently I attended a property investing seminar which was an introduction to Donald Trump’s Real Estate investing programme. Although this was a fairly basic seminar it was well worth attending to find out how one of the most successful investors in the world does it and to be reminded of some concepts which although I may already know I may not necessarily always be using. Here is my interpretation of the strategies for you:
The basic principle is that Donald Trump buys low and sells high. No surprise there, but how does he actually do it? You may wonder why he sells property rather than holding onto it. Well he does both. Donald Trump is a property investor (buy and hold) and also a property developer (whereby he makes money by purchasing, refurbish and then selling property).
None of this should be new to you. Interesting how some of the most successful people just keep it simple and take action!
1) BUY BMV: You need to buy property well below market value so that you make a profit the day you buy. Due to rising property prices in Australia in recent years, it is becoming harder and harder to find these underpriced gems. No days you will need to find the next market to rise or the next suburb that is going to grow during the next few years. One of the key to this is understanding the true market value.
2) KNOW YOUR AREA: Once you have picked the area in which you want to invest, you need to do your research and get to understand the market value and rentals in the area. The best way to do this is to use the internet and work with local knowledgeable experts such as property managers and Real Estate agents who will be able to provide actual rental and sales figures.
3) FIND THE RIGHT PROPERTY: Estate agents will be able to help you find the best properties in an area. Unfortunately often the best deals are snapped up even before they are advertised, by the “in crowd”. Those investors that have made them selves know to real estate agents and let them know what they require.
4) ADD VALUE: Donald Trump is great at seeing the hidden value in an asset. He likes to buy run down property and “Trump it up”, whereby he spends money to make it look fantastic. The cost of renovation is always a lot less that the value that is added. Donald Trump maximises the use of local and government grants and subsidies to pay for renovation work whenever possible. This is an area that you have to be careful with but for an experienced investor it can really advantageous.
5) KNOW THE OUTCOME: Having done your homework before you buy the property you will know exactly what you are going to do with it. Either refinance and hold onto it if the rental stacks up, or sell it. Selling the property quickly in the current market, may be useful if you are in a quickly rising market. (but remember the costs of a transaction)
6) REFINANCE: Having added value to the property as long as the rent is sufficient you can refinance it to get your initial cash out of the property and to even get some extra tax free cash out of the deal if you purchased at a big enough discount.
7) USE OPTIONS: To minimise the risk Donald trump will secure a property on an option and then find a buyer or tenant before he actually purchases it. While this is not commonly used by most Australian property investors, it remains an option that can make you a lot of money quickly.
There is no doubt that Donald Trump is really smart and an excellent business man. We should remember that he started his Billion Dollar property empire by using these simple strategies on single houses. Everyone has to start somewhere and there is NO reason why you cannot be as successful as Donald Trump if you decide to be and take action to achieve you goals.
I find this reassuring that what I am teaching investors from my own experience is very similar to what Donald Trump has done and continues to do right now in what is the biggest buying opportunity in the last 20 years.