A friend of mine who is generally inclined toward intellectual pursuits recently took a trip out of town on her own. As she recounted her solo hotel stay, she exclaimed that the high point of her trip was being able to watch reality television without her family’s judgment. I told her that when her family gives her guff, she should point out that beyond the pure (albeit debatable) entertainment value, there are lots of lessons and takeaways that can be gleaned from the stars of reality TV, film and the music industry.
Unfortunately for celebs, when it comes to real estate, the lessons they can teach us tend to be cautionary tales. Behind their ultra-bright veneered smiles, many pararazzi magnets hide housing horrors and real-life real estate dramas.
Here are five Hollywood-inspired lessons to file in your mental rolodex under “Real Estate – What Not
Celebrity Real Estate Mistake #1: Overspending. If you’d seen the episode of Real Housewives of New Jersey in which everyone’s favorite “Skinny Italian” table-flipper Teresa Giudice pulled out a fat bankroll of cash to pay for her four kidlets’ every little leopard printed, pink ruffled, pose-striking desire, it probably came to you as no surprise that her home with husband Joe ended up with their home – and all its contents – on the bankruptcy auction block in 2009. (To be fair, Giudice has always maintained that her home was not in foreclosure.) Nevertheless, the auction listing confirmed the worst overspending suspicions; the Giudice estate was laden with gilt rococo couches, faux marble chess sets, even a suit of armor!
Bottom Line: Los Giudices took lots of heat in the press for their over-the-top spending, but they certainly weren’t the only American family who spent so much at the top of the real estate market that they ended up with debt they couldn’t sustain and mortgage problems when the market crashed. Spend less than you make. Save up for rainy days. And ask yourself before you buy anything: Do I really need this? And if it’s a major purchase which could someday come between you and your mortgage payment, ask yourself this, too: Would I stake my house on it?
Celebrity Real Estate Mistake #2: Assuming the bank will work with you. Here, again, the Real Housewives are our teachers, but this time, we’re talking about Lisa Wu Hartwell in the ATL and Alexis Bellino in the OC. From the blogosphere and their own admissions, it seems that they both were in loan workout talks with their banks, having sought assistance with their upside down mortgages, when things went south.
Wu Hartwell (a real estate agent) and her baller hubby Ed were in the middle of negotiating a short sale on their home when the bank sold it at a foreclosure auction. Bellino and her husband, Jim, tried for months to secure a loan modification and keep their home, but had multiple foreclosure notices filed against their Newport Beach home as well before finally selling the place for nearly $2 million less than they owed on it.
Bottom Line: Many homeowners stop making mortgage payments in the hope it will “encourage” the bank to work with them and grant a short sale or loan mod – and the fact is, sometimes it works. Some banks even flat out tell their borrowers not to bother applying for help unless they’re behind on their payments. But the fact is, once you start missing payments the snowballing past due amount can quickly get out of hand, and take you from simply wanting a loan mod to the bank’s cooperation being essential to keeping your home. Before you start missing payments, understand that you could very well end up losing your home if the bank doesn’t play ball.
Celebrity Mistake #3: Knowing nothing about your own finances. Real Housewife of OC Lynn Curtin was shocked to tears when her teenage daughter was handed an eviction notice. She was surprised, but her husband wasn’t – he’d been hiding their deteriorating financial situation for a long, long time. The end result? She and her kids had to move out of their luxury waterfront rental home – and into Grandma’s condo.
Bottom Line: Ignorance ain’t bliss. No one but you is responsible for your awareness of your own finances, no matter what your division of labor with your spouse around paying bills or bringing home the bacon happens to be. Since homelessness is the most severe, but highly possible, real estate result of willing cluelessness about your financial situation, it behooves you to stay on top of what comes in – and goes out – of your accounts on a monthly basis (and to be certain your housing expenses are paid!).
Celebrity Real Estate Mistake #4: Flipping a house, expecting a fast fortune. In 2007, Ricky Martin paid over $16 million for this house, then poured a good deal of cash (and some very good taste I might add) into it, preparing to flip it. He’s made beaucoup bucks using this strategy in the past – but this one was timed all wrong. The market tanked right around the time he listed the home for sale at $22.5 million in 2007 – and it’s still on the market at $18.5 million! Given the fact that a mortgage on $16 million would run a mere mortal a cool $100K/month, it’s a good bet he’s losing money faster than his notorious hips can swivel.
Bottom Line: Flipping houses can be high reward, but it can also be high risk. Even well-connected, well-funded repeat flippers can occasionally take a bath. If you don’t have the cash to withstand a disastrous flip, don’t even try it.
Celebrity Real Estate Mistake #5: Not paying your taxes. In the face of tax liens in the millions of dollars and allegations of fraud by his financial advisor, Nicolas Cage lost at least 3 homes to foreclosure in 2009, and has at least one more still on the market. Comedian Sinbad’s new reality series actually opens up with a stand-up routine devoted, in part, to losing his home due to tax issues. Chris Tucker’s $11 million tax lien was publicized right before his 6,000-plus square foot Florida home went on the market.
Bottom Line: Of course, most of us don’t have the millions in income it takes to create millions in income taxes. Yet the IRS says around 10 million Americans – most of whom don’t have Academy Awards – fail to file their returns every year. Occasionally, late returns cause a domino effect into a tax problem that impacts an individual’s ability to pay their rent or mortgage. So, pay your taxes. Get a financial advisor or tax preparer with stellar references from long-time clients, and make sure you understand what’s going on with your taxes – don’t just sign the papers. (See Celebrity Real Estate Mistake #4.)
Full Story From Tara
Pound Ridge Celebrity Homes