Chapter 9. TRUMPING THE LAND BARONS
|Dream of building skyscrapers?|
|You could be a land baron.|
America is a land of real estate moguls—homeownership is near 70 percent! Don't let the recent residential hoopla dissuade you—there's huge money in being a land baron.
Like other roads, it's not easy. Successful land barons don't just have a knack for finding tasty, unappreciated land and willing investors. They have the strategic vision of successful firm founders. Essentially, they are founders. Fail to create a realistic and actionable business plan and you likely won't do well on this road.
The truth? Long-term real estate returns aren't great—just 5.8 percent since 1964. Barely beats inflation! How do Sheldon Adelson ($28 billion), Kirk Kerkorian ($18 billion), Donald Bren ($13 billion), Sam Zell ($6 billion), and "the Donald" ($3 Trumpbillions) do it? Leverage!
Learn to love leverage. It super juices return.
They borrow! Done right, leverage super juices profit. Done wrong, losses and humiliation are massive—beyond total. Isn't borrowing risky? Sure, if you do it wrong. But this road requires leverage. If you're debt-averse, stop now and flip to another road. Otherwise, overcome your debt fears. Learn to love leverage to achieve land baron success.
Here's how the magic works: Suppose you put down 5 percent on a $100,000 property—$5,000. In five years, you sell for $125,000. Ho hum—a 25 percent gain, just 4.6 percent annualized. But no! You only tied ...