John Jacob Astor of New York City.

No one even comes close. And there is a whole lot of information investors of today just like you can learn from studying this man's incredibly successful life as a real estate investor and developer.

Astor was RICH!
Most people have heard the name "Astor" and associate it with great wealth. And, of course, they should. John Jacob Astor built such a large fortune that for two hundred years his heirs have been spending, often squandering, and generously giving lavishly to charity and still the millions keep rolling in.

At his death in the year 1848, Astor was the richest man in the world with an estate worth $20 million. That is $78 BILLION in 1999 dollars. According to a survey done by American Heritage that same year, Astor is the FOURTH richest American in all of U.S. history. By contrast, Bill Gates of Microsoft fame, the richest man in the world today, is number five on the list. Only John D. Rockefeller, Andrew Carnegie, and Cornelius Vanderbilt had larger estates than Astor. What is simply amazing is that Astor built that fortune in the early days of the Industrial Revolution without any connection to the modernization occurring around him. All those other fortunes larger than his were built on the products of an industrial age. Oil, steel, railroads. Astor sold nothing but furs and land.

Who was John Jacob Astor?

John Jacob Astor was born in Waldorf, Germany in 1763 and emigrated to America to escape his small and poor hometown where his father wanted him to become a butcher in the family business. He arrived in Baltimore, Maryland when he was 21 years old, nearly penniless except curiously for seven flutes under his arm which he intended to sell and raise money to open a business as a merchant. He soon moved to New York and with the money raised from the sale of his flutes he entered the rough-and-tumble world of the fur trade, opening his own shop in 1786.

With the opening of the Western Frontier, America fell in love with fur as a fashion statement. Beaver and otter hats, coats, and other items were all the rage and it was clear that the ambitious man could make a quick fortune selling fur to rich men and women so they could claim the latest in glamour but it was a tough and dangerous way to make a living, very much akin to commodity trading today.

Astor's fur business succeeded in two ways. First, he met and married Sarah Todd and entered the upper reaches of New York society when Sarah and her mother came to Astor's shop for furs to make a new coat. And his ambition in the business, some would say his ruthlessness, soon made him the premier fur trader in the country. In 1808 his American Fur Company created the first American monopoly on the fur trade in the U.S. Western territories. After Lewis and Clark on behalf of President Thomas Jefferson explored the Pacific Northwest, Astor himself commissioned two expeditions, one of which established a fur trading post at Fort Astor which today is known as the city of Astoria, Oregon.

Astor soon began to realize the profits were not just in furs but in controlling the shipping fleets that brought them to distant ports. By 1809 Astor had built a fleet of five sailing ships and had a monopoly on the fur trade to China, with each vessel carrying 30,000 pelts of beaver and otter to China and returning with tea, silk, satin, chinaware, and other merchandise that Astor's rich customers soon could not live without. Each round trip from Canton to New York took thirteen months.

By 1810, Astor was worth more than $2 million. But he realized he had a problem. The fur trade was dying. The old territories were being depleted by overtrapping and the fashion trends had changed. Beaver hats were no longer the rage they once were. His monopolies were also under attack by the Canadians and the British. He needed a new way to make money.

He discovered real estate.

Astor as a Real Estate Investor

Astor soon began investing all the surplus profits from his fur business into New York real estate. (By 1834 he was out of the fur business for good.)

Astor began his career as a real estate magnate developing unimproved real estate, purchasing the former "country" estates beyond the current built-up areas of New York and subdividing the land holdings into lots for resale. But Astor was always looking for a bargain. He bought the estate of Aaron Burr right after his famous duel with Alexander Hamilton when the fugitive Burr needed cash to leave town in a hurry. A typical deal in Astor's early years was when he purchased the country estate of George Clinton, who had just been elected Vice-President of the United States, for $75,000. Astor divided this land on what is today Greenwich Village into 243 lots, selling only thirty of the lots for an average profit of 250 percent. The rest of the lots he kept as land lease rentals.

Astor loved land leases because of the high income they gave him. By 1826 he was earning $27,000 annually from 174 properties. His strategy was to subdivide land, sell off some lots to raise money for new land purchases, and then lease the other lots for income. His motto was simple. "Buy and hold, let others improve." His lease terms were also simple. You could lease Astor's land for annual payments of 5% of the total current value of the lot for a period of twenty-one years. But as the value of Astor's land skyrocketed, so did the tenant's lease payments and many defaulted, leaving Astor not with just his vacant land lots but with buildings and even thriving businesses that he took control of and managed for additional profits. He soon found himself owning businesses that sold everything from pianos to meat to textiles. And that's not all. If you leased one of Astor's vacant lots and needed money to build a warehouse, factory, or retail shop on the land, no problem. He'd loan you the money to build on his land, retaining a security interest in everything you owned like inventory and fixtures as well as the building and giving him additional mortgage paper income aside from the land lease.

Between 1835 and 1848, Astor invested more than $830,000 in Manhattan real estate, making him the largest landowner in the city of New York. During the financial panic of 1837 when real estate owners were dumping properties due to falling prices and rising mortgage defaults, Astor was buying everything he could find. In 1838 alone he purchased $224,000 in real estate.

The wealth Astor created through real estate investing and development is staggering when you realize that each dollar of investment, profit, and income mentioned above in 1830 dollars is approximately $3,900 of today's dollars. You can do the math. The numbers boggle the mind.

Lessons from the History's Greatest Real Estate Investor
The average investor can learn a great deal by studying the techniques Astor used to build such great real estate wealth. Many of them can be found in my Investing in Land Home Study Course not because Astor read it but because like the laws of physics, the laws of finance also are constant throughout time. Just like Astor's world had to contend with gravity and the Newton's Laws of Thermodynamics, they had the benefits of interest compounding, equity pyramiding, and wholesale-to-retail markups.

Lesson #1: Buy what you know
Despite being a shrewd and intelligent businessman, Astor's first real estate investments turned out to be disasters. Instead of buying property in New York City where he lived and worked, he bought undeveloped land in Canada just across the U.S. border and in the Mohawk Valley area of upstate New York where he lost money due to high management fees, poor supervision, and title disputes with neighboring owners. Astor learned that absentee ownership of real estate does not work.

He soon came to realize one simple fact about New York. The small, thriving, and very rapidly growing city at the foot of Manhattan Island had only one way to grow and that was north. He soon began buying all the land on the island he could. Astor was asked near the end of his life if there was anything he would have done differently and he answered:

"Could I begin life again, knowing what I now know, and had money to invest, I would buy every foot of land on the Island of Manhattan."

Astor came to understand that profiting in real estate means intimately knowing your market, its properties, and the various players in the market. There were many other large real estate investors in Astor's time, people like Peter Goelet, the Rhinelander and the Lorillard families, and others who made great fortunes in New York real estate but Astor had the capital, political connections, and the expertise within his local market to conquer it very quickly and become the largest in his day.

Lesson #2: Never pay retail
Astor NEVER paid retail prices for his furs, ships, or his land. He was a notorious bargain hunter that never thought twice about profiting from the misfortune or financial troubles of others.

One famous story about Astor and his bargain hunting ways comes from the days during the War of 1812 when the young American government under siege from British forces burning Washington, D.C. asked the wealthiest citizens of the nation to help fund the war. Astor certainly stepped forward and did his part, buying TWO MILLION DOLLARS worth of war bonds but only agreeing to pay eighty-eight cents on the dollar for them. He was a patriot but only when he could get a decent haircut on the bonds.

Astor let everyone in the city know he could pay cash very quickly for properties and people knew he was good to his word. Astor was not a cheap man or a miser, he was indeed a very generous person. His gift of the Astor Library to the people of the City of New York is just one piece of evidence of that fact. The library cost him over $400,000 and was not completed until six years after he died. He worked for nearly a decade before his death on the project, making sure the library was stocked with the greatest books in the world for the benefit of mankind, knowing he would never see the finished structure or the people who would enjoy it.

Astor trolled for bargains at foreclosure auctions, sheriff sales, bankruptcy auctions, essentially looking for every non-retail way to buy land on the cheap. He was a master of the distressed and discount sale.

Lesson #3: Always Pyramid Your Equity
Astor understood the simple concept explained in great depth in my Investing in Land Home Study Course that the key to great wealth can be summed up in just one sentence:

Always try to earn the highest return on equity possible on the largest pool of equity possible.

Astor understood that often selling land now meant forgoing individual profits on a particular site but understood his goal was to enlarge his pool of equity quickly and not obsess about lost profits on one land lot or another.

A famous story sums up Astor's philosophy perfectly.

In 1810, Astor sold a lot near today's Wall Street for $8,000 in cash to a business associate who seemed happy to get such a great bargain from the notoriously shrewd Astor. The buyer was chuckling at the settlement table after the closing papers were signed and wanted to rub Astor's nose in the mistake he believed the old man had made.

"Why, Mr. Astor," said the buyer, "in a few years this lot will be worth twelve thousand dollars or more."

"Very true," said Astor, "but now you shall see what I will do with this money. With eight thousand dollars I buy eighty lots above Canal Street. By the time your lot is worth twelve thousand dollars, my eighty lots will be worth eighty thousand dollars." Astor was proven right by time. He traded $4,000 in appreciation on the one lot he owned for $80,000 in capital gains and thousands more dollars in land lease income on the EIGHTY others he bought with the sale proceeds.

That's pyramiding equity!

Lesson #4: Improve Your Land and Make It More Valuable

Astor never bought land just to own it and let rising prices make him rich. He always had a plan for his land before he took title to it.

A classic Astor money-making formula was to buy waterfront land and improve it by using the land and water rights that came with the land to fill in the river and expand the size of Astor's land. There is a great deal of waterfront land on an island as tall and narrow as Manhattan and with Astor's extensive political connections (often not so clean connections) with New York's Tammany Hall, he was able to take a small land lot and create a much larger site for commercial development.

Astor made a fortune using this technique. He quadrupled his investment on one waterfront lot that was submerged at high tide but was filled in and sold in twelve years. He doubled his money on another such lot in less than three years.

Astor never treated his land as a passive investment but as part of his inventory, something to buy, lease, or sell NOW. He left the fur trading business to enter the real estate trading business, they were essentially the same except for a different product. He knew he would not earn incredibly high returns on his capital if he just sat idly by and let the market lift the value of his holdings. He actively had to make his land more valuable by subdivision, using better marketing techniques to outposition the land offerings of his competitors, or offering better financing to buyers than the banks would.

In The End, Astor Died Rich

Unlike so many successful men, John Jacob Astor died at the height of his wealth and fame. His rocket was still heading skyward when poor health struck him down at the age of 84, an extremely old age in 1848. He built three fortunes in his lifetime when most men are lucky to have briefly experienced one. His legacy still lives in New York. Many of those old Astor land leases still exist. The Astor Library is now home to the New York Shakespeare Festival's Joseph Papp Public Theater.

John Jacob Astor was no more ruthless or corrupt than any other businessman of his time. We cannot apply contemporary standards of ethics or legality to a generation nearly two hundred years in the graveyard. Astor was well-respected in his time and he still is today, remembered for his innovative real estate investing and management techniques and the incredible fortune he built having faith in a growing America and its insatiable appetite for land.

For More Information on Astor and His Career, Read This

As a real estate investor and businessman, you can learn a great deal by studying the life of John Jacob Astor. I highly recommend the biography JOHN JACOB ASTOR: AMERICA'S FIRST MULTIMILLIONAIRE by Axel Madson (ISBN 0471385034). It's a great book but spends too little time discussing Astor's real estate career. At least too little time for a real estate investor like me who would want the whole book to be on the subject! Still, it's a wonderful glimpse into the great mind that built three empires of wealth in one lifetime, an amazing achievement especially since he was a German immigrant who barely spoke English and arrived in this country with next to nothing but ambition and ideas.