How does real estate CEOs get rich from IPOs?

Question

I read that Trump had an IPO for Trump Organization, or some other company, and all of a sudden he's a billioaire. How exactly does this work? I know that they probably still have the same amount of cash in the bank, and the same salary, so all of their net worth is tied up in their stock right? So how do these CEOs start to spend to lavishly? Do they sell some of the stock that they had originally retained during the IPO?

Tiara Murray · Answer

Thanks for the encouragement guys. And I totally understand. I am not jumping into every industry at once. As of right now I am focusing on real estate and fashion. I am starting in real estate now , and plan to start in fashion after I finish my degree (in about three years), then after the success of each industry progresses, I plan to branch out by either starting the businesses mentioned above or acquiring smaller businesses in these industries and growing them

Mark N.A · Answer

You know what's best about shooting for the stars, Tiara?

Even if you only make it to the moon you've still gone a long way.

Good luck!

Tiara Murray · Answer

Well my plans are to start a holding company (The Murray Group) with all of the varying business ventures that I plan to go into including:

Media
Entertainment
Publishing
Real Estate
Fashion
Sports Marketing

I am currently working on a degree from Parsons in fashion merchandising. I am also starting out in residential real estate investing and plan to move into residential and commercial development within 10 years.

Shane M · Answer

Hey Tiara, I appreciate your enthusiasm for success, but with only so much time in a day you will probably have to (if you aren't already) pick and chose as to what your focus is going to be. I'm not saying you can't do all of those things, but you will probably save time by focusing on one, becoming experienced at it, then focus on another.

As franklin mentioned it would help you to get good credit and stable income before you get involved in RE investing. That's not the only option, but it is a reasonable one. You could finish your degree, get a job in one of the industries you mentioned (which will help you become a real pro at that industry) and using your income invest in RE on the side.

You could try to start your own company in any of the industries you mentioned, but without experience in them, I'm not sure how you would grow your client base, etc. Of course this could just be ignorance on my part.

Good luck!

Joshua Dorkin · Answer

Tiara - 
I love your enthusiasm!  That said, you've picked all of the toughest industries to break into.  Becoming a success in any one of them would be enough for most people.

I hope you're taking it one interest at a time, because otherwise you'll find yourself floundering around in too many places.  Focus your energies on one aspect and go from there.

BTW- I've got experience in several of the industries you're interested in, and know from both upstarts and the very successful that it is a battle every day.

Keep the enthusiasm, but slow it down a bit.

Good luck!

John Miller · Answer

Well in Trump's case he was born into wealth. His father was a major real estate developer and investor, but in Queens and the outer boros of NYC. Donald Trump went into Manhattan to stake his claim and by hedging investments from other people and taking tons of loans out he was able to get credit anywhere and fund his projects. So thus increasing his net worth, even if he didn't have it in the bank/liquid, his properties and companies gave him his high net worth...

That being said, CEO's and other C-level executives typically recieve more prefered stock than most investors get. With options they typically can't sell it right away, and don't either (it makes them and the company look bad or worse, makes people think they are ditching it before it loses its value, not to just get filthy rich).

But then again, just because a company goes public, doesn't mean they are going to become billionaires overnight. Most companies that do go public statistically speaking tend to tank or don't make all that much anyway.

Finally, when these guys go on spending sprees, many times, its with the company card. You'd think they'd learn their lessons by now, but then again, most of them get away with it.

Tiara Murray · Answer

Ok, I see now. Thanks John

Franklin Lee · Answer

Now I know I kind of sound pretty harsh on that last post, but I expect you to make a pretty good living in real estate investing. By no means, you will get rich like Donald Trumps. Donald Trumps had money to start with and he used real estate to quadruple his money returns which was very rare. He also was very educated and graduated with a degree in economics from the top business school in the nation.
                        
                        As for you, I would expect a 20% annual return from your initial downpayment on each of your investment properties. Sure that may be conservative, but it will pay off in the long run once you retire early with them.

Franklin Lee · Answer

Look Tiara. The more questions you ask, the more you're going to find that real estate is not that easy as you would expect.
            
            You need to have at least a steady income and a good credit score in order to make it in this game. You didn't think that Trumps bought that NYC hotel in the 1970's with nothing down, did ya? Haha.