A couple of years ago I read the book The Art of the Deal by Donald Trump. I wrote down a few quotes that I liked. I am going to share some of those quotes with you. Sometimes with, other times without, any comment. I hope it ads some value.
“But he made a critical misjudgment from the start: he assumed that in a project as big as the West Side yards, he could afford to absorb nearly any costs and still end up with a huge profit. The truth is that unless you design a project to be self-supporting as you build it, you risk getting eaten alive before you’ve turned the corner into profit. … You can budget building costs, but you can’t truly project revenues, because you’re always at the mercy of the market. The variables include how much you get per unit, how long it takes to sell out, and what your carrying costs are along the way. The less you commit to spend upfront, the less you’re at risk later.” Page 328
Trump knows his business, no doubt about that. But he also knows the variables and the drivers of his business.
When doing business and investing, we are not dealing with an exact science. Physics and chemistry are exact sciences. I add a specific amount of substance x to a specific amount of substance y and I will have exactly so much of substance z. That is an exact science.
Investing is something else. What is the price of a property? The price a property is the amount of money that somebody takes out to pay for it. The grand expression is: the amount that an able and willing buyer is prepared to pay on an arms-length transaction. Yes, we can compare properties of the same size and type in the same area to see what people have paid for property. But in the end, the final price, it is what somebody is prepared to pay. Nothing more, nothing less. So don’t fall for agents who state a price as if it was calculated with scientific accuracy to the nth decimal!
Clever investors have their ways and means to determine what they can afford to pay for an investment. Use those methods and don’t be taken in by clever sales tricks.
What is true for property prices, also goes for returns and income. The rental you could expect, is not an exact science. Once again there are certain things we do to get a ballpark figure, but that is not necessarily the exact amount that somebody will actually be prepared to take out of his pocket to pay.
Here a little bit of economic understanding will help. Prices are determined by supply and demand. The more of anything there is, the less people will pay. The less there is, the more will people pay. And this keeps everything in a sort of stable equilibrium.
But then interest rates change. People cannot afford to buy as much. So price might come down on the supply side. But at the same time, the supply becomes less. So we find a happy middle between supply and demand again.
Then interest rates come down. People can pay more. But now something has happened on the supply side. The developers have stopped building! And it takes a couple of years to complete a new development. In the mean time, more people have finished school, started working, got married, and had kids. So the demand increased. So what should happen to property prices when then economic crisis has had its run?
But we are not working with an exact science. Always remember and always remember Donald Trump and the way he operates.
So, let me conclude these 21 quotes with a question to you: Just HOW serious are you about becoming wealthy? Just HOW serious are you about investing? Just HOW serious are you about being successful? If you are really serious, go buy the book and read it. You will learn a lot and get a lot more street smart.
And the best part of the book I have not even mentioned – that is the part where Trump completed the ice rink and Ed Koch, Mayor of New York said: “Trump put in a cushion and then he was able to reduce it by working as hard as he could with an elite crew, who new if they screwed up the job, they would never work for Donald Trump again.” And the question remains: Why did the City not do the same? But go read it for yourself. I purposely do not give a reference page!
Try to learn to always think like a person living on profits, instead of a salary.