Many moons ago I was closely involved in the world of finance—stocks and bonds, mostly. In the investment world, liquidity refers to how fast an investment can be turned into cash. Exchange listed stocks are good examples of highly liquid investments. You may not get the price you want, but if you hold 1,000 shares of Intel and want out, you’ll get a price as fast as you can put in the order to sell. Real estate is generally not considered very liquid. If you’ve ever tried to sell a home or any other property you know why: It can take months to find a buyer and weeks to close the deal after you do.
For those who make their living owning properties, this can cause a liquidity squeeze. They may need a sizable sum of cash for one reason or another—expensive repairs for example, far beyond what a typical month’s rent on various holdings will bring in. Most real estate investors maintain a rainy day account just for this reason.
But of course, many try to cut corners. It’s not easy to leave a big chunk of money just sitting there. Which brings up a certain real estate investor who has been dominating the news lately. Follow below and we’ll review a few common signs of an investor with a liquidity problem
A liquidity crunch happens when a business person needs significantly more cash than they have in reserve. While stocks and bonds can be readily converted into cash, real estate cannot. So typically, when a real estate investor runs into this problem, the liquidity crisis shows up in several ways. Those signs include things like:
- Paying creditors or employees late or short or not at all—and only when pressed.
- Refusing to provide statements of assets and debts and/or refusing to provide past tax returns.
- Clamming up or becoming angry or defensive when asked for details or documents.
When someone who is used to having money to burn runs short, they start juggling bills and payroll. This can descend into kiting of sorts, where a check is written against an account that can’t cover it to buy some time, while the investor moves money from another account. Think of a time when you were hard up: You pay the bill that’s the most pressing. If the power is about to get cut off, you pay that. Same for cable and internet. The easiest people to blow off are vendors and contractors you may owe money to:
At least 60 lawsuits, along with hundreds of liens, judgments, and other government filings reviewed by the USA TODAY NETWORK, document people who have accused Trump and his businesses of failing to pay them for their work. Among them: a dishwasher in Florida. A glass company in New Jersey. A carpet company. A plumber. Painters. Forty-eight waiters. Dozens of bartenders and other hourly workers at his resorts and clubs, coast to coast. Real estate brokers who sold his properties. And, ironically, several law firms that once represented him in these suits and others.
Small business owners and wealthy people alike often operate on credit for day-to-day expenses. Credit often requires documentation to set up and maintain. Suddenly being short of money is a real blow to someone whose entire self-worth is tied up in their net worth. So they tend to slow walk required documents like balance sheets or tax returns, or refuse to cough up payment and lie about it. And they refuse to answer questions about it and tend to hang on to cash and equivalents as long as possible:
As recently as last week, Trump’s campaign manager had insisted that the mogul had already given that money away. But that was false: Trump had not. In recent days, The Washington Post and other media outlets had pressed Trump and his campaign for details about how much the fundraiser had actually raised and whether Trump had given his portion. The candidate refused to provide details.
When asked gently about this behavior, or pushed to provide a necessary document, the once-wealthy business person can clam up, get defensive, or concoct implausible excuses for why they cant lay their hands on the item. The most ominous sign of all, the mark of desperation, is when they come up with documents that look suspicious, i.e., fake:
A tax lawyer and accountant who prepared Trump’s tax returns for over 20 years testified, when shown Trump’s 1984 return, that he and his firm did not prepare it. Yet he acknowledged that the signature on the photocopy was his. How might that have happened? The judge stated that the original return was never found.
Any one of those signs is a big red flag that something is amiss the investor doesn’t want to admit to. But sooner or later it starts showing up in all kinds of ways, whether they like it or not:
The latest Federal Election Commission filing reports that Trump only raised $3.1 million during May, ending the month with $1.3 million in cash on hand. To put that in perspective, Carly Fiorina, who dropped out of the race in February, reported having $930,000 in cash on May 31st, and Ben Carson, who called it quits in March, had $1.7 million. Rival Hillary Clinton, who finished out the month with a $42.5 million war chest, raised $20 million in May.
All these signs point to someone who at the very least has a liquidity crisis. That’s the charitable explanation anyway. This kind of money is rich by mortal standards, but it should be peanuts for someone worth $10 billion dollars. Which brings up another possibility:
The following is a list of things I've learned about Trump over recent months that make it clear he is worth dramatically less than he claims and think it is a real possibility that he has a net worth of less than $1 billion. None of the ten is definitive or proves he is worth a certain amount now or even that he could not be worth the $10 billion he claims. But taken together they show a chronic exaggeration of his wealth, repeated instances of financial reports that include almost comical efforts to inflate the numbers ...
Seeing as how a yuuuuge part of Donald Trump’s improbable rise rests on his alleged zillionaire status, voters have a right to know if he’s being truthful. All this speculation about his actual net worth could easily be laid to rest—if the candidate would simply release his tax returns like every other nominee has for decades.