Behind Trump’s Billions: How He Really Got His Real Estate

President Donald Trump: a very polarizing
figure whose wealth lies at the heart of his public persona. For decades Trump has presented himself as
a self-made billionaire who started out with nothing more than a million-dollar loan from
his father. And yet, as it turns out Donald’s father,
Fred Trump, had a much bigger part to play in his son’s rise to prominence. In this video, we’re gonna look behind Trump’s
billions, to see how he really got his real estate empire. This video is brought to you by Cheddar, who
just released an awesome video on how some of the most expensive apartments in New York
City pay less property tax than your average home. Find out how by watching their video. The story of Donald’s wealth starts almost
a century ago with the rise of his father. Fred Trump was a true hustler. Having lost his father at the age of 12, Fred
had to learn how to work and the industry he got into was construction. He had built his first residential house by
the time he was 20 and he got into this business at a very opportune moment. You see, President Roosevelt had just signed
the New Deal, which among other things wanted to encourage residential construction, providing
very cheap loans and subsidies that Fred was very eager to take. In fact, from the 1930s onwards America enacted
housing subsidy after housing subsidy, starting with the New Deal, then with military housing
during World War 2 and finally with the post-war housing boom enabled by the GI Bill. As the American home ownership rate jumped
by 20% in the span of just 3 decades, Fred Trump amassed a fortune, largely enabled by
the vast sums he received from the government. In 1949 alone the FHA gave him a $26 million
loan to build two apartment complexes in Brooklyn: Shore Haven and Beach Haven. What’s interesting though is not that he
got rich using government money, which is actually pretty typical, but that he began
a massive campaign of funneling money to his children when he was just 40 years old. The numerous methods he used were simple,
but effective. Before building those two apartment complexes
in Brooklyn, Fred purchased the land they would be built upon using his company. He then created a trust whose beneficiaries
were his children and he donated the land to the trust. Now because Fred’s construction company
was no longer the owner of the land he would have to lease it from the trust through a
contract known as a ground lease. Under this contract, the trust would receive
over $60,000 a year for the next 99 years, creating a steady stream of income for Donald
who at the time was only 3 years old. But the ground leases were just the beginning
because over the next twenty years, Fred would start to transfer the buildings themselves
to his children. He’d buy a plot of land through an empty
corporation, building apartments on it with government money and the he would gift the
company’s shares directly to his children. Now, this isn’t a very complicated scheme:
in fact it actually incurs a lot of gift tax, which Fred doesn’t seem to have paid. If you go through his tax returns it shows
that he paid gift tax on only one out of the eight buildings he transferred this way. He built it through a partnership for $2.5
million in 1968 and a year later he gifted 15% of the partnership to each one of his
children. If you do the math the gift tax should come
close to $100k, but he only paid six and a half. Of course, it’s worth noting that Fred Trump
has been pursued by the State of New York multiple times during the 50s and 60s for
underpaying his taxes. Despite these issues though, he had no problem
obtaining millions of dollars in subsidies, no doubt thanks to his political connections. In fact it is during this period that Fred
built his greatest project, the Trump Village, for which he received $50 million from the
State of New York and which he would also pass down to Donald through questionable means,
but that happens later. After graduating from college in 1968, Donald
of course went to work for his father and this is when the wealth transfer really kicked
into high gear. In 1972 Donald and his father formed a partnership
to secure an $8 million loan to build Prospect Tower. Interestingly enough, even though it was Fred
who did all the work, most of the profits went to Donald. On top of his share from the partnership,
he was receiving consultancy and management fees, as well as everything tenants paid to
rent air conditioners. By 1975 Donald was getting over $300k per
year just from that building and if you sum up everything else, by the time he was 29
he had pocketed $9 million from his father. Of course, Fred’s goal wasn’t just to
enrich Donald, but to build up an image for him to help start his career. A 1976 profile of Donald put his net worth
at $200 million, when in reality the projects he was claiming as his own were really his
father’s. At the time, Donald was the president of the
Trump Organization, which carried with it a hefty salary, but on top of that he was
constantly receiving loans from Fred. In 1979 Donald received loans for a total
of $3 million from his father’s companies and the way these loans were structured is
very interesting. They did come with a certain amount of interest,
but it was paid back as soon as the loan was taken out and because the loan had no repayment
plan Donald was free to keep the money indefinitely. These loans and many more came flooding into
Donald’s wallet when he began his first project in Manhattan, converting the Commodore
Hotel into the Grand Hyatt between 1979 and 1980. The exact same loans would appear a second
time when Donald was building Trump Tower between 1980 and 1983. During this time Fred masterminded another
scheme for his children. Using multiple trusts, he’d buy off the
mortgages of at least 14 of his properties and he’d transfer them to the trusts, whose
beneficiaries were, of course, Donald and his siblings. Effectively, during the 80s Donald became
his father’s banker, even though he never actually provided mortgage loans, he just
pocketed the interest payments. By the end of the 1980s all the distribution
methods had transferred nearly $50 million to Donald from his father’s empire, but
that only emboldened him to take even bigger risks. In 1988 he bought the Plaza Hotel for over
$400 million and a year later he spent over $350 million on Eastern Airlines, which he
quaintly named Trump Shuttle. Most famous of all, of course, is Donald’s
entry into the casino business in Atlantic City. While that story is vast enough for a whole
video on its own, what matters is that when Donald’s casinos started failing in the
early 1990s it was Fred who propped things up. He personally gave Donald millions to prevent
his casinos from defaulting on their debts before bankruptcy proceedings could restructure
them to give the casinos more time to repay the loans. For example, Fred’s personal income skyrocketed
by an order of magnitude to $50 million, which incurred a tax bill of $12 million. During this time he made no significant debt
payments or charitable donations, and a frugal man like him would never just pay taxes because
he could, so the money must have gone somewhere. Around the same time, one of Fred’s employees
went to the Trump Castle casino, bought $3.35 million worth of casino chips and left without
placing any bets. Another technique Fred used was to actually
buy stakes in Donald’s properties and then to resell them back to him at loss a few years
later. In 1987 he purchased 7.5% of Trump Palace,
a 55-story building in Manhattan, for over $15 million. Just four years later Fred sold back his entire
stake for just $10,000 on the pretext that the business was failing even though it wasn’t. In fact, that very same year Trump Palace
sold 57 condos for over $50 million total. In the early 1990s, however, Fred’s health
began declining and he even started exhibiting symptoms of dementia. Because he still hadn’t transferred the
majority of his wealth to his children he began an impressive program to syphon everything
he had left to them without paying estate taxes before he died. In 1992 his children incorporated a maintenance
company which immediately became the subcontractor for all of Fred’s buildings. All the millions of dollars Fred’s properties
spent on repairs and improvements started going through this one company and they all
incurred a large markup. During the next few years the costs for Fred’s
empire went way up. In the case of Beach Haven, trash-compacting
services increased in price by 64%; janitorial supplies went up by 100%, and plumbing increased
by 120%. In 1994 Donald and his siblings also became
the managers of Fred’s buildings to further drain cash from his empire. By 1999 the methods Fred masterminded were
providing each one of his children with $2.2 million of income per year. Eventually, when the day came to transfer
the properties themselves, the only thing that mattered was at what price the buildings
would be valued and to that extent Donald and his siblings hired a notorious real estate
appraiser to help them out with their problem. Using a variety of methods, he brought down
the price of 25 apartment complexes with 7000 units to just $40 million. The most hilarious method of all was the way
he calculated two of the buildings in Trump Village to actually have a negative value. You see, in 1992 Fred removed those two particular
buildings from an affordable housing program so he could raise rents, but in doing so he
lost a tax exemption they had under that program. This created a one-time accounting charge
that, if you base your valuation on it, makes the building appear unprofitable even though
it definitely wasn’t. In the end, transferring Fred’s entire real
estate empire cost him $20 million. When Fred died in 1999 he had just $2 million
in the bank and all the properties he had spent seven decades to assemble were now in
the hands of his children. Here’s the funny thing though: just five
year later, when Donald’s Atlantic City casinos were once again nearing bankruptcy,
he convinced his siblings to sell the entire portfolio. In early 2004, Donald and his brothers and
sisters sold off the empire their father had spent his entire life assembling to a New
York City real estate investor for $700 million, officially bringing an end to the legacy of
Fred Trump. Of course, since then Donald has continued
doing business and today his net worth is estimated to be around $3 billion, so clearly
even though he got an immense kickstart from his father, he did achieve a lot on his own. And with regards to the legality of Fred Trump’s
tax-avoiding methods, even if they turned out to be criminal, the statute of limitations
for them has long since expired, so Donald can only be fined with penalties. Speaking of tax avoidance, New York City is
ripe with it, so much so that the owners of apartments worth hundreds of millions pay
less in property taxes than the average home, sometimes as low as 0.017%. If you’re curious how they’re getting
away with it, you should head on over to Cheddar, who did an awesome video on exactly this topic. If you don’t know, Cheddar’s channel is
the home to numerous fun videos that cover business and technology and if you haven’t
seen them you should definitely go and check them out and even consider subscribing. In any case, thank you for watching. You’re gonna see me again in two weeks,
and until then: stay smart.

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