Donald Trump: The Mystery

[Venetian]

When Donald Trump bought the commodore hotel, he asked for an $80 Million Dollar loan.

1) My question is, if the commodore was a negative cashflow situation, since it wasn't "built" yet so no cashflow was comming in, how was he able to "cover" the mortgage payments on that $80 Million Dollar loan?


2) Also, is it ever possibe to get a loan, to buy either RE or a business, completely independent from what you earn or what your cashflow can support?

Meaning: completely none of your money involved. Getting a loan even if your personal income is zero and you have no cashflow whatsoever.

 

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[theag]

I guess he pulling this off had something to do with his father already being a multimillionaire real estate developer and supporting him..

Also, is it ever possibe to get a loan, to buy either RE or a business, completely independent from what you earn or what your cashflow can support?

Meaning: completely none of your money involved. Getting a loan even if your personal income is zero and you have no cashflow whatsoever.

That sounds quite impossible today and in my opinion is exactly what caused the whole crash in 2008.

 

[danoodle]

Meaning: completely none of your money involved. Getting a loan even if your personal income is zero and you have no cashflow whatsoever.

I'd say it'd be nearly impossible with no income, no cashflow, no credit, etc. That being said, it can be about "who you know" when it comes to loans, venture capital, or other creative financing. If you were able to befriend someone at a bank that had some pull, they could throw a bone your way if you could show them the numbers and that you will be successful. Same with a millionaire, or even obtain seller financing on a property, it's how you sell yourself. I would say if you had little to no cash, if you had an amazing credit score, it could help some. That's a bit of an oxymoron there though.

You could also get lucky and be a partner in some deal. I believe one of the success stories on here involved a guy who partnered with two others on an apartment complex in a bad neighborhood. The other two wanted out later and he took over and grew his net worth substantially. Can't find the story, but it was a good read.

If you still really want to get into real estate with little to no money, I'd recommend going the wholesaling/options route. They require no money and are a good way to make money in real estate. Also, Lonnie deals are a great way to start earning some cash flow with little money.

Unfortunately, traditional real estate investing typically takes a decent amount of capital or great credit, backed with capital or consistent earnings.

 

[socaldude]

I would suggest you look into "the sources of capital" in Finance. You can raise money through either debt or equity. MY guess is Mr. trump here used Junk Bonds. Just Guessing. Because its cheaper and there are tax benefits.

Remember this dude is the king of real estate syndicates. He can get a hold of investors money with a snap of a finger.

 

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[Venetian]

Socaldude,

Yes, but we are talking about his "first" investment here, the commodore hotel.

He didn't have a track record before this deal, apart from being his father son.

Was it possible for him to get capital without personal guarantees to make this deal?

Also, how can you borrow capital through equity when the asset was non-performing ? (the hotel had to be re-built and re-newed, and was pratically vacant = no cashflow at that moment)

 

[healthstatus]

He could have borrowed 80 mil, then paid less for the hotel then used the leftovers to deal with interest payments. No money down can scale to this size. If he went private equity, he could have offset mortgage payments for a few years, probably with a higher interest rate.

He is a Trump, so very well connected and that many years ago, lending was not as highly regulated.

 

[hatterasguy]

Easy.

For starters that's a commercial loan, in that case the bank only vaguely cares about your financials.

They look at the deal, and if its a good deal that meets their lending criteria, and if the developer has a proven track record they usually fund it. Their usually has to be a lot of equity though, I'm not sure of the specifics of the deal so I can't comment on them.

Oh and he made the payments. Your not going to get that kind of loan unless your well established. Commercial loans like that are usually interest only, if I apply what I'm paying now for commercial money, (1 point at closing, 5%) lets see $80M would cost $800k to close, and will cost you about $400k a month.

Buying real estate, more so on that level takes a lot of money. The whole no money down thing is mostly for infomercials.

In this case Trump used his dads connections, name, and money. A little family help.

If you want a bank to take you seriously its hard at first. Get your own financial house in order, you need perfect credit because they will want to see a responsible history. Than go find a really good deal and buy it with all cash or mostly cash, than use the bank to build it out. It takes a long time working with a bank to build up a reputation of being a solid performer.

I'm just going to WAG but I think this is what Trump did.

He found a very undervalued property, got it under contract, went to the bank, they funded it for appraised value, and he used the rest to start the fix up. Only way a newbie can do this is if they have an in, in this case it was daddy Trump.

 

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[zaiteku]

couldnt he have just done a commercial loan and had it setup like a construction loan? then he makes no payments on it until the construction/reno is complete. The bank is looking at the potential income of the hotel as the deciding factor in the loan and dont really care about his finances.

The bank knows that the property will not cash flow until the construction is completed, and thus it is basically a construction loan, with no payments until completion although it is accruing interest which will be paid once the building is complete and ready to flow. The bank is investing in the value of the completed property (and its cash flow), and in your track record to complete the property. Also, during this time, he had a very impressive track record for completing projects under schedule and under budget. I think its easy to think he was fed with a silver spoon by his parents, but I think the guy actually knew what he was doing.

 

[BrucetonGuy]

I think its easy to think he was fed with a silver spoon by his parents, but I think the guy actually knew what he was doing.

I think you are right!

 

[jilla82]

lets not kid ourselves...having a well connected rich father doesnt hurt anything.

 

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[CommonCents]

DT is cheesey but heck, America is built upon previous generations and the next generation building on! I wish all our families were established and we could extend the fortune. Previous family is probably the single biggest factor of your success on average.

Yeah he can be full of himself, had family help, but that is what we should hope for in America. Don't you want the best for your kids and give them a head start???

Secondly, DT took lots of action. He wasn't sittin around spending Daddy's money like others would. DT has pursued many deals in many areas, almost always using OPM, using leverage. He's failed many times famously, but he still lives grand and is worth hundreds of millions. Seems to have raised some good kids. Sounds like he was pretty strict with them.

I rarely would ever defend Trump but the guy took action and made something with what was given or available to him.

 

[hatterasguy]

couldnt he have just done a commercial loan and had it setup like a construction loan? then he makes no payments on it until the construction/reno is complete. The bank is looking at the potential income of the hotel as the deciding factor in the loan and dont really care about his finances.

The bank knows that the property will not cash flow until the construction is completed, and thus it is basically a construction loan, with no payments until completion although it is accruing interest which will be paid once the building is complete and ready to flow. The bank is investing in the value of the completed property (and its cash flow), and in your track record to complete the property. Also, during this time, he had a very impressive track record for completing projects under schedule and under budget. I think its easy to think he was fed with a silver spoon by his parents, but I think the guy actually knew what he was doing.

I have never heard of a bank allowing deferred payments on construction loans. I have two right now and I have to pay interest every month on the draw.

Hard money guys do allow deferred payments, actually this is how I structure all of my hard money deals.

As said above, to take on a project of that size this whole no money down thing doesn't really apply. You need assets, and capital. In this case Trump had his dads. Just to get a project like that under contract and to do your due diligence is probably half a million bucks. In that league you need a lot of cash to make a ton of cash.

Trump knew exactly what he was doing, he exploited his situation to its fullest potential and scored a good deal out of it.

Look at it this way, when your broke or a teenager working your first BS job the idea of carrying a $100k note on a house seems daunting. After you get established a bit, than all of a sudden its nothing. An $80m note is no different, just a few more zeros. You write the $4XX check each month to service the $100k note the same way you write a $400XXX check to service the $80m.