How Can A Presidential Candidate Declare Bankruptcy Four Times… and Still Be a Billionaire?
As Mr. Trump is crushing his Republican opponents at the polls and in the media, there seems to be a great divide on whether or not he is truly a great businessman. After all, a recent Vanity Fair article noted that he declared bankruptcy 4 times!
This will all be discussed here, but first, it’s important to realize that there are big lessons that affect us all, and they can be learned so as to protect ourselves in the future.
Lesson No. 1: Stuff Happens
We all go through ups and downs in our personal and professional lives. As a public person, Mr. Trump has had both. Professionally, he suffered in the 1980’s when the banking industry completely changed it’s lending policies. In 2008, he was greatly affected by the real estate crash, particularly in Las Vegas, but this time, he had hedged his bets by allowing smaller investors to get in on the ground floor.
While his main goal was to help everyone get rich, it was not in the cards as the market topped out and fell.
Lesson No. 2: There Is a Big Difference Between Corporate and Personal Debt
Mr. Trump has been very smart about keeping his personal and business wealth separate. As a company, Trump is loaded to the hilt with borrowed and investor cash. On a personal basis, it is unlikely he has much more than a credit card. After all, he lives in his own buildings and drives company cars.
By doing this, he not only prevents the bankruptcies he’s suffered from hurting his family, but he also maintains a great deal of personal wealth from the cash flow he earns from his profitable businesses and properties. Essentially, he can keep the profits while working to pay off the debts.
Lesson No. 3: A Lesson on Liability
Lastly, it should be noted that while we do not strive to maintain a large balance of money owed, if it is tied up in a business, there is a huge difference than when it’s under our personal care. If you read anything by Donald Trump, or his friend and fellow real estate mogul, Robert Kiyosaki, you’ll learn that debt can be used as leverage.
For example, if you have $10,000 and want to buy stocks, you can purchase about $10,000 in stocks. However, if you take the same money and put it into real estate, you can buy $100,000 in property. This is how Donald Trump and Robert Kiyosaki are able to build wealth (and buildings) more quickly than the average person.
In addition to this, because of Mr. Trump’s track record – more successes than failures – people are willing to provide the initial capital that allows him to borrow the funds.