Somehow, it was leaked that Mr. Trump has over $400 million of debt, which he has not denied. Pundits immediately went to the bankruptcy angle, whereby he could theoretically be begging in the Oval Office. Those pundits are unfamiliar with Real Estate Finance 101.
Typically, a real estate entrepreneur uses OPM – other people’s money – as much as possible. That way, his own money can be used to acquire more properties or to finance his lifestyle. It is not imprudent for a building worth $100 million to have a $50 million mortgage on it. That example has a 50% loan-to-value, which is quite prudent.
Also, just because a person borrows the money, it doesn’t mean that he is responsible for repayment of that money, unless he has personally guaranteed the repayment. Home mortgages are personally guaranteed by the borrower. Commercial mortgages are not often guaranteed by the borrower. When commercial mortgages become due, they are almost always refinanced for a larger amount, so the entrepreneur can “take some cash out.”
My worry about this most-secretive-of-presidents is whether the money is indirectly owed to Vladimir Putin . . . it would be so easy for Mr. Trump to answer that question, and I wonder why he doesn’t? He has promised to disclose that information, but then again, he also promised to disclose his tax returns.
