Whether you like him or hate him, one item about Donald Trump is a fact: he’s the wealthiest of all of the 2016 Presidential candidates. By a lot. Like as much as all of the Democratic and Republican candidates combined. So how did Trump accomplish that? Here’s the secret:
Trump is, in fact, the only Presidential candidate who has made a career of real estate investing. So why is real estate so much more lucrative than, for example, Ben Carson’s career as a neurosurgeon?
The cornerstone of the power of real estate to create wealth is simple: leverage. According to Webster’s Dictionary, leverage is “the use of borrowed capital for an investment, expecting the profits made to be greater than the interest payable”. Most real estate in the U.S. is purchased using bank debt with the buyer putting up 20% of the purchase as a down payment. So real estate is, effectively, all about building a portfolio of assets that is five times bigger than you could build without leverage. If you have $200,000 in cash, for example, you could buy a $200,000 business, or a $1,000,000 piece of real estate. That’s because only real estate has the option of such leverage, and that is become of the historical banking success at collateralizing property based on 80% loan to value. Mobile home parks, in fact, can often be purchased with less than 20% down – sometimes as low as 0%.
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The power of scale
Real estate does not require you to take an active part in day-to-day operations – you are being paid for the simple act of owning the property, nothing more. So Trump is able to own 100 properties, when Ben Carson can only own one medical practice. When you add in the ease of financing, growing a gigantic portfolio of properties is not that difficult. Mobile home parks have an extra-powerful ingredient, and that’s the fact that the tenants own their own homes, so you have to toilets to fix or roofs to shingle.
Favorable tax treatment
Real estate has a long history of favorable tax treatment from the IRS. Among other items is the “capital gains tax”, the ability to utilize “depreciation”, and the system of delaying tax altogether under the “1031 structure”. Regular businesses, such as a medical practice, have no favorable tax treatment at all. This tax structure enables real estate investors to pay less tax and, as a result, take more to the bottom line. Mobile home parks, for example, have very favorable depreciation treatment.
Supply and demand
Real estate is finite. There is only one earth and they’re not making any more. At the same time, the number of humans is growing exponentially. So real estate, through the simple laws of supply and demand, is going up in value every day. But there’s another important component. Real estate, unlike smart phones and cars, are not at risk of the “next big thing”. Real estate is a basic commodity that is not prone to new inventions rendering it useless. So it’s a great creator of wealth through the simple fact that it does not have to compete for your dollars – it already has you trapped. If you want to stand on this earth, you’re going to have to occupy some form of real estate. Mobile home parks have the extra bonus that no new parks are being allowed to be built in most cities and towns, so they have an additional supply and demand boost.
Although Trump is a smart businessman, the reason he is the richest candidate in the 2016 Presidential Election is more about the fact that he’s in the right industry to make money: real estate. And you have the same ability to choose that industry. Unlike Ben Carson – who spent years in medical school – you can get into real estate without any barriers to entry. There are over 1,000 mobile home parks alone to be found on such websites as Mobilehomeparkstore.com. So what are you waiting for?