This Issue: Quick Turn Real Estate Profits

A first look between the covers of the soon-to-be-released book Trump University Wealth 101

Don’t make the all-too-common mistake, popularized in recent years, of thinking that your home is your best investment and that it will pay for your retirement. Your home may well be your biggest asset, and it contributes a lot to your peace of mind. But just because the price you can get for it today or in the future may be much higher than you paid, it doesn’t mean you’ve made a big profit. Reason: A home costs much more to buy and operate - out of pocket, year after year, aside from tax benefits - than most people realize because of mortgage interest, taxes, insurance, repairs, renovation, and so on. Plus, home prices don’t always go up over time.

Seven Smart Ways to Invest for Retirement

So if your home cannot reliably pay for your retirement, what is your fallback plan? I want to put you on the right path toward achieving a wealthy lifestyle in retirement - whenever that may be. For over 26 years, I’ve been helping people build a strong financial foundation for retirement. All too often, I’ve seen them make mental mistakes that lead to all sorts of financial fiascos.

Here are my retirement rules for steering clear of disasters:

1.      Don’t “play the market.” Investing for your financial security is serious business. In my view, the first and most important step to take is to adopt the right attitude. By that I mean how you view the world of investments and the financial markets.

2.      Learn to manage risk. Recognize what can go wrong. Actively lower your risk exposure when necessary, but also get more aggressive when market conditions turn very favorable, which means risk is low. Controlling risk - not trying to beat the market - should be your guiding objective.

3.      Control your emotions. Investors who get into trouble typically become too enthusiastic when prices are rising and/or they panic when prices are sinking. Things are rarely as good as the blind optimists say, and almost never as bad as the professional pessimists would have you believe.

4.      Recognize that the investment markets themselves are not always rational. They incorporate the knowledge and feelings of the world’s investors on a daily basis, so they reflect the ongoing battle of those two all-too-human emotions, greed and fear.

5.      Pay close attention to the message of the markets themselves, and much less to the news headlines, market pundits, or TV talking heads. How the markets react to external developments is much more important that the instant analysis of the “experts.”

6.      Accept the fact that investing is more art than science, and that you’ll often be wrong. But try to learn from your inevitable mistakes so that you don’t make the same ones over and over.

7.      Focus on the long term, not on daily fluctuations. The longer your time horizon, the more likely it is that you’ll stay calm and be right about an investment. The shorter your investment time period, the less likely you are to make and keep investment profits.

Just 25 years ago, most homeowners optimistically counted off the years and months that would pass before they could pay off their home loans. Take out a second mortgage (as home equity loans were then called) - unthinkable! Only dire emergencies could force such imprudent borrowing. That’s why nearly all members of Tom Brokaw’s Greatest Generation crossed into retirement as homeowners, free and clear.

Then sometime in the mid to late 1970s, banks changed. Loans became products that they wanted to sell. Rather than counsel people against the evils of needless borrowing, bankers blitzed the public. They mass-mailed unsolicited credit cards to people they had never seen or heard of.

"Spend, borrow; borrow, spend," the bankers urged. "No credit, slow credit, bad credit, no problem. If you own your own home, we've got a loan for you. No equity needed."

No wonder that bankruptcies have climbed to levels 10 times higher than they were several decades ago. In a crisis that is on the scale of the better-known foreclosure disasters, the loose-pocketed purveyors of credit are now reaping what they have sowed.

Weakness of Will and Financial Discipline

In adopting the sales approach, the bankers knew that millions of people would jump at the chance to spend and borrow now, and then think about the destructive consequences later.

Because let’s face facts. Home equity borrowing vanquishes your capacity to build wealth. If you do use it, use it only for productive investment that offers low risk for good returns. (As the old advice goes, “Never dine on seed corn.”) The data on home equity loans overwhelmingly show that borrowers most frequently put the money they borrow into consumption, including ill-considered home improvements.

What about consolidating your bills or paying off high-interest-rate credit card balances? Again, prudence says no. Rather than paying less interest, this approach often leads to even more debt. Why? Because borrowers who wrap their credit card balances and other bills into home equity loans (or refinances) temporarily minimize the pain of debt. Yet, with a longer term and lower payments, the debt generates higher long-term costs. Even worse, many borrowers run their credit card balances climb right back up to where they were previously.

“Thank goodness the home went up $10,000 in value last year," they think. But meanwhile, wealth destruction continues.

But In Case You Must Borrow . . .

If after careful review of the numbers you still decide to load up your home with debt, at least closely examine the terms of your home equity loan (lump sum borrowing) or home equity line of credit (spend your equity directly through the checks or credit card the bank gives you).

Borrow with the same savvy you would apply to any other home finance agreement that you would enter into. After all, no matter what cute marketing terms the lender coins, a home equity loan carries the same types of terms, conditions, obligations, and rights of foreclosure as does any other mortgage.

No, let me revise that statement. Don't merely borrow with savvy; borrow with magnifying-glass scrutiny. Lender hype and fine-print “gotchas” multiply with home equity loans.

Specifically, here are several of the more important terms and conditions to watch out for:

• ARMS. Adjustable-rate mortgages account for most home equity loans. Scrutinize caps, adjustment periods, and margins.

• Teaser rates. Nearly two-thirds of home equity loans start with teaser rates. How long will it last? How high can it jump?

• Prepayment penalties. Great teaser rates often come with prepayment penalties. Lenders don't want you to grab a below-market rate for three or six months and then bail out before they've extracted their pound of flesh.

• Balloon payments. When does the loan fall due? Is it callable prior to that date? If you want to renew, must you requalify? Must the lender order a new appraisal?

• Garbage fees. Usually not as bad as with purchase/refi mortgages, but some lenders will sting you if you're not swatting as necessary.

• Maintenance and inactivity fees. Some borrowers set up home equity lines of credit only to be used in emergencies. The lender may require you to either borrow some stated minimum amount, or pay a fee for the privilege of refraining.

 Note also that an open line of home equity credit - whether used or not - could reduce your credit score. If you plan to refinance or buy another property anytime soon, weigh this borrowing within the context of your total credit profile. Might the credit scoring program judge you to be extending yourself too far?

For Trump National Golf Club in Briarcliff Manor, New York, I wanted to do something spectacular. I decided to erect a 110-foot waterfall that pumped 5,000 gallons of water per minute and cost $7 million to complete.

The engineering and landscaping challenges were astounding. We had to move countless tons of earth and granite and encountered numerous setbacks before the water flowed.

If you think that building this waterfall was easy, or that it happened overnight, think again. During construction, I often felt like I was moving the granite myself. It was brutally hard work, but I remained positive. I refused to settle for anything less than I envisioned, and my positive perseverance worked.

Surrounding Yourself with Beauty

Everyone knows how important beauty is to me. I always try to have it in my life. I hire the best people, find the most fabulous locations and use the finest materials to make sure that every project I undertake is truly exceptional. Being surrounded by beauty makes me feel great; it enhances every part of my life, and I deserve it.

Beauty and elegance are not superficial. They are products of personal style that come from deep within. No matter how hard you try, you cannot buy style. It has an intrinsic value, and for me, style and success are completely interwoven. I wouldn't want to have one without the other.

My style is based on trying to make whatever I do breathtakingly beautiful. People react emotionally to my style; they appreciate, get pleasure from, and want more of it. My style excites me and inspires me to do bigger, better and more magnificent projects. It's no accident that I'm so involved with beauty. It's my signature, my brand, and I think it's best to have it in spades.

Think about what you find to be beautiful.What really knocks you out? Bring it into your life; get involved.

When you're exposed to beauty, you will want to bring elements of it into other parts of your life. That can help you rise to higher levels. It can elevate your understanding of excellence and the quality of the goods or services you provide. Instead of just delivering good, serviceable items, this new understanding can drive you to furnish only the very best.

When you're planning your projects, it's not that much more difficult or expensive to make them beautiful. If what you provide is exceptional, you can increase your price. Beauty will also enhance your reputation because it tells the world that you have excellent standards and consistently produce the most beautiful work. People will want to be associated with you and your projects because it implies that they also have great taste.

When you have beauty in your life, it can make everything better and more worthwhile. Isn't that the reason you work so hard?