Chapter OneReal Estate
When people hear the name Trump, they think of two things: wealth and real estate. So while this entire book is dedicated to the creation and enjoyment of wealth, I need to start with the basics. The basics, for me, are all about property. Real estate is at the core of almost every business, and it's certainly at the core of most people's wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.
What follows is some great advice. There are some helpful tips here for first-time apartment renters as well as for multiple-home owners. So read on.
How to Pick a Location
I hate the phrase "location, location, location" because I've seen a lot of idiots ruin good locations and a lot of geniuses make incredible investments out of horrible locations. You could hand over the location for Trump Tower (by far, the best location in New York City), and a moron could run the site into the ground. I guarantee it.
But when it comes to your home, you should always pick a good spot. Spending more on a good location is far smarter than getting a bargain in a bad area. Is it close to work? Is the neighborhood safe, or will you fear for your life as you come and go? Is it close to conveniences such as restaurants, grocery stores, shops, and banks? Do you feel like you belong in the neighborhood, or do you feel out of place? I'm the first to admit that location should be considered seriously when investing in real estate. A lot of picking a location comes down to instinct. You have to believe in the location; otherwise, you'll be making a rotten investment.
Be honest with yourself about the location's proximity to the rest of your life. If you find an apartment or a house or an office you like that puts hours of additional travel into your day, or requires expensive deliveries and services, or prevents people from visiting you, you might as well find somewhere else. I realize that not everyone can live and work in Trump Tower (which certainly works for me), but given the choice, you should find the location that works best for you.
Walk around in the neighborhood. Spend time there. What's the pattern of the day? When does the neighborhood wake up and when does it go to bed? What sort of people are living there and working there? Also, make sure to check it out on the weekends. Some neighborhoods in Manhattan are insanely busy all week and then dead all weekend, and vice versa. What happens if you move into an apartment and realize that there's a nightclub across the street blasting music each and every night or that garbage trucks congregate there after making the rounds in the early morning? You'll either go crazy or move out, neither of which are good options.
The view is important. I don't know anyone who wants to spend their life looking into an air shaft or a brick wall. If you have the option, go for the view. But you have to be careful with a view, particularly if you're paying for it. The current view might look out over a parking facility or an empty lot, but that could change in a week. In cities like New York, buildings seem to be going up at the rate of one per day, so make sure you have a good idea that the view there today will be there tomorrow.
When you're speculating or investing in real estate that will not necessarily serve as your primary home or office, I often advise finding space in a marginal neighborhood, buying or renting at a lower price, and then waiting for the neighborhood to improve. You'll save in taxes, make a meaningful contribution to the redevelopment of an area, and stand to make more money in the long run. If you have the time, the patience, and the fortitude, I recommend it. After all, when I bought up the West Side yards, people thought I was insane, but I've proved them wrong, as my development there can attest. Today that area is one of the most desirable and valuable areas in all of Manhattan.
How to Rent an Apartment
A lot of people don't take renting an apartment as seriously as they should. I don't understand those people. While renting an apartment is not buying, the place will serve as your home and should be considered carefully. Not only is your home a big part of the way you feel about yourself, it's also a reflection of how others see you. Billionaires, even those who rent their homes, take time when finding places to live, and so should you.
In New York City, an apartment market I know all too well, people often feel lucky to find anything. There's enormous demand, and sometimes hundreds of people will charge through the streets to look at exorbitantly expensive shoe boxes that they all saw listed in The New York Times. Most of these people will be prepared-with letters of reference, with bank statements and credit card bills, and with a sense of competition that can be fierce. To play in this apartment market, or any other real estate market, you have to do your homework. Have a clear idea of your financial needs and your living requirements. Going blindly from apartment to apartment will be a waste of everyone's time-particularly your own.
I feel strongly that an apartment should be rented with the help of a good broker. It can be done without one, but to me, that's like taking pills without consulting a doctor or filing a lawsuit without a lawyer. It's possible, but it's stupid. Brokers know the neighborhoods and the specific markets inside and out. They know property values, the pros and cons of certain buildings, the rules and regulations of pricing and rents, and the ins and outs of the actual lease. Brokers are educated and licensed, and there's good reason for that. They will prevent you from making mistakes that will cost you thousands, and in my case, millions, more than the fees that they charge. They will also save you time by filtering out apartments that do not meet your criteria.
But you should never believe everything a broker tells you. The broker is, after all, only there for the commission, as concerned and accommodating as he or she may seem. And when it comes to the commission, whether you're selling, buying, or renting, always negotiate. Sometimes brokers do an amazing job and deserve a high commission, but when you enter the relationship, always negotiate from the start. It's much easier to negotiate the fee at the beginning of a broker relationship. Trying to lowball brokers midway through or at the end of a transaction is poor business form.
If you cannot afford a broker or simply want to go it alone, look in the papers or on bulletin boards. Ask around and walk around. Some of the best New York stories I've heard are about finding apartments that simply came out of nowhere-kind of like those stories about getting a taxi in the pouring rain on New Year's Eve. It can happen, but the odds are lousy. In When Harry Met Sally, Billy Crystal reads through the obituaries so he can move in on the apartments of the recently deceased. If you want to go without a broker, maybe try that approach, as morbid as it might sound.
Whether or not you use a broker, find somewhere you'll be happy for a long time. Moving around every couple of years is disruptive and expensive. And most important, figure out what you can afford. It's not a concern for me, but I would never spend more than twenty-five percent of my salary on rent-no matter how fantastic an apartment you have found. Every dollar you pour into rent is a dollar you could be using elsewhere-whether it's for savings, or for utilities, or for enjoying the finer things in life. It's okay to stretch yourself slightly and anticipate that in a few years you may be making more money, but that's not a sure thing-and it's a safe assumption that your rent will increase at the same rate as your salary. Tenants who cannot pay their rent will go nowhere fast-and certainly never make it into the billionaire's club.
How to Read a Classified Ad or Listing
Often people resort to the classified ads or other listings to find apartments and houses for rent. Don't be a fool! In New York, in particular, advertisers will make rat-infested closets sound like the penthouse of Trump Tower. Learn to see through the garbage in the advertisements so you don't waste time looking at apartments that should be bulldozed rather than inhabited. The advertisers should all write novels, since they're clearly so talented at writing fiction.
Pay attention to words like "funky" and "charming," which you can translate as "unlivable" and "run-down." Ads that brag "newly renovated" usually mean that the landlord has simply slapped new knobs on the bathroom cabinets. Other phrases that should make you nervous include "old-world appeal" (read: "dilapidated"), "cozy" (read: "tiny"), and "freshly painted" (read: "There's nothing good to say about the apartment except that it has a fresh coat of paint"). Anything that sounds too good to be true is-especially when it comes to apartments.
Also, pay attention to the information that's not provided. If there's no apartment number given, you can bet it's on the first floor (where it's never good to live because of crime and noise), and if there's no square footage provided, it's too embarrassing for the advertiser to mention. Also, if there's no photograph, beware. Even the worst apartments can be made to look palatial on film, so you should be doubly suspicious if a photograph is missing when other apartments in the ad include one.
Houses, apartments, and offices need to be touched and seen before you rent or buy them. Classified ads and listings can point you in the right direction, but it's your responsibility to thoroughly investigate any property you may be considering.
How to Buy a House
The real estate market can be terrifying, which is part of the reason I love it so much. But it can be downright petrifying when it involves what may be your most valuable possession: your home. The market changes every day, sometimes every minute. For home buyers, some of whom will buy one house in a lifetime, trying to time the market perfectly can be a ridiculous waste of time. In ten, twenty, or forty years, any small variations in the price of your house will have amortized into a blip on your financial radar screen.
You have to go with your gut, and if you love a house and you can afford it and your broker assures you that you are paying a fair market price, you're paying the best price. It's as simple as that. When it comes to your home, don't be concerned about spending more than it's worth if you know that you will be there forever and you'll be happy there. Sometimes the emotional price you put on a house may exceed the market price. Buying a home is different from the pure economics of investing in real estate. If you simply cannot afford a house that you love, don't be shy about underbidding; sometimes the seller will surprise you.
Before you start looking for a house, or even figuring out what you can afford to buy, make sure you have money socked away. Brokers and sellers will take you seriously, and you will increase your bargaining power as you're able to increase the size of your down payment. Buying a house is a serious investment, and banks and lenders will be there to help you make that investment.
A typical home buyer will not have access to one hundred percent financing, and you have to be as invested as your lender. The down payment should be your own personal gauge for your commitment to the house. Don't lose sight of the checks and balances because ultimately it will all come down to your checks and balances.
While it's good to be mindful of costs when buying a house, don't go overboard. Don't try to save money on necessary items, such as not getting a survey where it might be of value, or relying on people who are not well recommended or not known. Do not attempt to save small amounts of money on items that are important parts of the process. People often stupidly try to save money at a real estate closing, since some adjustments will probably still be made and the negotiations will not have ended. But don't be hardheaded and cheap when it comes to buying a house. It's counterproductive.
Simply put aside some money before you begin the house-buying process (call it your reserve budget), and then legal and financial situations that arise will not be skipped to cut costs. Undermining the purchase of your home from the beginning will only end up haunting you down the line.
How to Get an Appraisal and a Building Inspection
Let's say you find your dream home. A perfect location, perfect architecture, perfect price. Be careful. Always know what you are mortgaging. Don't let your guts trick your brain, and don't rush yourself (or allow your broker-who will always be telling you about the other buyers-to rush you, either). It is better to have researched the opportunity and lose it than to make a mistake by jumping into something you'll come to regret.
The best reality check is the appraisal. The lender will have an appraiser, and in most situations, you will be responsible for paying for the appraisal. The appraisal should not be seen as an annoying expense that will only benefit the lender. The appraisal benefits you as well. Appraisers are professionals, and they will be able to see things that may elude the eye of most home buyers. Ask questions and do your own homework, but at the end of the day, defer to the appraiser. Some of his or her findings might be insulting or surprising, and the truth can hurt, but the appraiser's job is to be objective. A fair appraisal will only help you in the end.
Any number of things-some of which are regulated by the government (such as flood control)-can affect the location. Other factors, such as proximity to high-tension wires, may or may not be so apparent. You're probably not going to wind up buying the Amityville Horror, but you shouldn't expect that every seller will tell you everything unfavorable about the property. You're better off assuming that some things will not be divulged, out of ignorance, forgetfulness, or evasion. If you're confused by what I'm telling you, rent the movie The Money Pit to familiarize yourself with the pains of ignoring or forgoing the appraisal.