I can’t stop thinking about a heart-breaking article I read in The New York Times last week: “How an Instagram-Perfect Life in the Hamptons Ended in Tragedy.”

 

It’s an age-old story and mostly right there in the headline: an apparently extremely wealthy couple living large was, in fact, tens of millions of dollars in debt and struggling.

 

In this case, it ended terribly, with the husband (and father of two young girls) taking his own life while the family was on vacation in Italy. Awful.

 

The story has lots to unpack, which is probably why it was the most read/commented/emailed article in the NYTimes for a week.

 

Most obviously, it was the story of a couple living above their means. But doing so in a rather public way - the mom had an Instagram account that offered “fashion and decorating advice for wealthy women while also showcasing her own lavish lifestyle of exotic vacations, grand dinner parties, and beauty treatments.”

 

Queue schadenfreude: as expected, there was some rock-throwing at her spending in the comments.

 

But this totally misses the mark: it wasn't the $20,000 Coachella-themed kid's birthday party or her $800 facials that put them underwater.

 

It was the husband’s business dealings. He was a New York developer who played big - lots of risks and huge loans, with potential massive upside that never materialized. His dad had also died six years before, and the company he inherited was a complete mess, with lots of debt that never got handled.

 

There are lots of takeaways from this story, you know, like wealth being built slowly, financial transparency in marriage, and the ever-important distinction from one of my favorite financial books The Millionaire Next Door about having a “big hat, no cattle."

 

But what stuck with me the most was the couple's efforts to downsize their real estate. 

Already under financial pressure in 2021, they sold their Tribeca loft for $9 million and moved into a rental apartment.

 

Sounds good, but…the “downsized” apartment was “a 4,382-square-foot, five-bedroom apartment… keeping up appearances for $47,000 per month. They decorated with rented furniture for which they paid $180,000 for one year, according to a lawsuit filed this spring, and $12,000 per month after the first year. If this was downsizing, it wasn’t enough.”

 

It sounds ridiculous, but it's hard to go back in lifestyle.

 

This is why I'm always cautioning against “luxury creep,” because once you upgrade to first class, it's hard to fly coach.

 

As Robert Kiyosaki wisely informed us in Rich Dad, Poor Dad: Your house is not an asset. You lose money on it every month.

 

Now you have to live somewhere, and in terms of long-term wealth, your house has got your back. But make sure to identify a home that you can afford, considering PITI (Principal & Interest - your mortgage payment, Taxes & Insurance), utilities & maintenance. And in terms of home equity, watch out for the refinancing/HELOC trap - make sure to leave some meat on the bone for a rainy day.

 

It’s a little-known fact that most of the 2008-2011 foreclosures were on refinance loans, not purchase loans. Sometimes trying to stay afloat pulls us under faster.

 

Thankfully, I haven’t sat down at a kitchen table with a truly distressed homeowner in years—not since 2008, in fact. And as I've said, I don’t see anything similar happening again in my lifetime.

 

But there are some signs of trouble on the horizon for current LA homeowners. The entertainment industry just got nuked, making affordability a potential (or current) issue for out-of-work industry members. And as we see adjustable rate mortgages begin to adjust (from 3% say, to 6-7%), affordability may become problematic for those homeowners.

 

What do we say to this? C'est la vie. There is no shame in selling your mansion and buying a duplex - in fact, being financially secure is “chic” says my wife. 

 

Finances are seasonal, like real estate markets. Winter hurts but summer is always around the corner. A bankruptcy filing may feel embarrassing but soon forgotten. Birthday parties at parks are just as fun with the people you love. And whether you're flying first or coach, we're all going the same place. 

 

My heart goes out to the friends and family of the Millers.

 

There is no hole you can't dig yourself out of with a plan.

 

If you're feeling stuck financially, please feel free to reach out.

 

🔑 2055 N Gramercy Pl, Los Feliz Oaks - 1950s Mid-Century in the Los Feliz Oaks - Listed at $2,895,000 - Open Sunday 2-4pm

 

🔑 1600 El Rito Ave, Verdugo Woodlands - Restored 1930s Spanish Colonial estate in our favorite pocket of Glendale - Listed at $3,147,000 - Open Sunday 2-5pm

 

🔑 2303 Bancroft Ave, Silver Lake - Stunning Mid-century with reservoir views - Listed at $2,649,000 - Open Saturday & Sunday 1-4pm

 

🔑 5613 Aldama St, Highland Park - 1912 Highland Park Craftsman bungalow - Listed at $1,575,000 - Open Saturday 12-4pm

 

       -Brock

 

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