In 1991, legendary investor Warren Buffett was lecturing at the University of Notre Dame when he recounted how Donald Trump made his assets appear to be worth much more than they really were (1).
Trump's secret was simple: He locked in property loans at prices far higher than their true value, but this meant he also incurred significant debt to acquire them in the first place.
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In recounting where and how Trump went astray in his business ventures, Buffett observed simply that "the big problem with Donald Trump was he never went right."
And he is not the only one to think that. In fact, Trump's debts are legendary.
The Washington Post reported that Trump has filed for bankruptcy six times during his career (2), and CNBC lists Trump: The Game, Trump Super Premium Vodka, Trump magazine and luxury-travel booking site gotrump.com as just some of his ill-advised ventures (3).
However, perhaps his most significant — and public — misstep was purchasing the Taj Mahal casino in Atlantic City in 1987 (4). Having raised $675 million in high-interest junk bonds to complete the unfinished casino, the Taj Mahal declared bankruptcy by 1991.
Paying off those high-interest rates swamped the whole project.
The lesson here is that while most Americans likely wouldn't knowingly, or at least willingly, overpay for assets, it can happen to anyone — regardless of the capital involved. Fortunately, there are strategies to avoid falling into those traps or to bounce back if you've stumbled.
Building your real estate portfolio the right way
In his lecture, Buffett also expressed his belief that "you really don't need leverage in this world."
That is great advice. But if you're still drawn to the real estate market, some amount of leverage is often essential for most Americans, particularly those looking to buy a home.
These days, home ownership is far from your only option when it comes to investing in real estate. Besides, the median down payment on a home as of December was $64,000 according to Redfin (5) — a significant chunk of change. And that's before you start thinking about the next 30 years of mortgage payments.
But there are now several ways to tap into real estate without leveraging assets or taking on tons of debt.
You can tap into this market by investing in shares of vacation homes or rental properties through Arrived.
Backed by world-class investors, including Jeff Bezos, Arrived allows you to invest in shares of vacation and rental properties, earning a passive income stream without the extra work that comes with being a landlord of your own rental property.
To get started, simply browse through their selection of vetted properties, each picked for its potential appreciation and income generation. Once you choose a property, you can start investing with as little as $100, potentially earning quarterly dividends.
Multiply your investment with multifamily and industrial real estate
For instance, you could leverage multifamily real estate investing. In a report prepared by JPMorgan, Al Brooks — the firm's vice chair of Commercial Banking — said, "I think multifamily housing is absolutely where you want to be as an investor (6)."
Accredited investors can now tap into this opportunity through platforms such as Lightstone DIRECT, which gives accredited investors access to not only single-asset multifamily, but industrial deals, too.
Lightstone DIRECT's direct-to-investor model ensures a high degree of alignment between individual investors and a vertically-integrated, institutional owner-operator — a sophisticated and streamlined option for individual investors looking to diversify into private-market real estate.
Given Buffett isn't a fan of taking on debt, perhaps it's no surprise he's made most of his money by investing in companies at low prices.
As he once explained in a letter to his partners, "This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results (7)."
While it's hard to find anything inherently flawed with that logic, price isn't everything. A low price tag might very well be indicative of a low-quality investment.
If you want the inside scoop on which investments to make, Moby offers expert research and recommendations to help you identify strong, long-term investments backed by advice from former hedge fund analysts.
In four years, and across almost 400 stock picks, their recommendations have beaten the S&P 500 by almost 12% on average. They also offer a 30-day money-back guarantee.
Moby's team spends hundreds of hours sifting through financial news and data to provide you with stock and crypto reports delivered straight to you. Their research keeps you up-to-the-minute on market shifts, and it can help you reduce the guesswork behind choosing stocks and ETFs.
But if this kind of investing sounds appealing, you'll need a way to buy your stocks. One of the easiest ways to invest is to open a self-directed trade account with SoFi.
The platform is designed to help you learn investing as you go, with real-time investing news, curated content and the data you need to make smart decisions about the stocks that matter most to you. SoFi can even help create a personal watch list based on your interests.
This DIY approach allows you to invest with no commission fees in the stocks, index funds or ETFs you believe in. Plus, for a limited time, you can get up to $3,000 in stock when you fund a new account.
Before Trump's political career began, Buffett also found fault with Trump's strategy when it came to debt and loans — not just his purchasing patterns.
At his 1991 lecture, Buffett estimated that Trump owed "perhaps $3.5 billion now, and, if you had to pick a figure as to the value of the assets, it might be more like $2.5 billion."
To avoid similar pitfalls, securing a loan that accurately reflects the asset's true value is critical for anyone looking to manage debt responsibly.
For those already paying off debt, Credible is a loans marketplace for personal loans from the top lenders. It's designed to make it easier to find the best debt solution for your needs, all in one place.
Credible works with trusted lending partners to find you the best options for easy debt consolidation. Based on the details you provide, you can get matched with a loan of up to $250,000 with interest rates starting at 6.94%.
Buffett's overarching message about Trump from his lectures was that Trump's business foundations were shaky right from the start.
According to a report from the Associated Press, Judge Arthur Engoron ruled in Trump's civil fraud trial that he engaged in a yearslong conspiracy to deceive banks and insurers about the size of his wealth, and the true value of his properties (8). To avoid this pitfall, it can help to have a team of financial experts in your corner.
For retail investors, this means finding an advisor who has your back, and your best interests in mind.
To avoid winding up in a similar situation, a financial advisor can help you craft a solid investing strategy that even Buffett might approve of.
Advisor.com is a free matching service that helps you find a financial advisor who can collaborate with you to carve out your financial goals, matching you with only the best options for you. How it works is simple: Just put in a bit of basic information about yourself, like your ZIP code and financial goals.
Then, from their database of thousands, you be matched with a pre-screened financial advisor. Even better, you can set up a free no-obligation consultation to see if they really fit your financial goals and go from there.