“Them Thar Rich Celebrities”

Many of you know that I spent the first 25 years of my adult life as a used machinery dealer, working for my father in the family firm until I eventually bought the company. Life was different and my career was certainly different, traveling to exotic wonderlands like Kinsman, Ohio or Ft Wayne, Indiana or Shreveport, Louisiana. My car saw over 50,000 miles per year and my United and American Airline accounts grew by over 100,000 miles per year. But most of all, my life was spent with my “customers” who were largely small shop owners, not well educated but with advanced engineering skills, not well traveled but a firm understanding of American foreign and military policy, and not overly paid but a work ethic second to none.

Now I am dealing with my “clients” who have a lot in common with my previous “customers”. I have been blessed to retain close friendships with an abundance of people in both of those worlds. In so many ways except for one they have shared interests, shared skills and shared values.

What’s that one exception? Let me tell you; owning real estate. I’m not sure which group is the smartest; is it the “customers” who prefer to reinvest their profits back into their company to guarantee future growth and profits, or is it the “clients” who see real estate investment as a road to future wealth building?

Both make sense. Both come to light as I recall an incident 14 years ago. I was in a very expensive house in Beverly Hills, priced somewhere north of $10M, and I ran into one of my former “customers” from the Midwest. He was in town with his family on vacation. Of course the next question was “why” as in “why are you here in this house?” His answer brought home the message to me that I had stepped out of one universe to find myself in a new one; “I came to see how them thar f—ing rich celebrities live.” It brought it home in three ways; (a) the house was owned by a surgeon at Cedars-Sinai Hospital and not a celebrity, (b) his lack of proper English grammar and use of profanity would be found unacceptable in my new world but absolutely tolerable in his, and (c) his belief that all expensive homes can only be owned by rich celebrities belittles the fact that high tech, real estate, medicine, accounting, legal and finance are all areas that are much more likely to produce wealth than the entertainment industry. All I could do was laugh at myself as the only person I know who’s seen both sides of Alice’s Looking Glass.

Which got me thinking; what is the state of “them thar rich celebrities” and their $10M+ homes? Before I tell you, consider this;

There are exceptions, but in most cases, property tax is levied at 1.0% of the sale of a home, meaning that someone who just purchased a $10M home is going to get a lovely $100,000 bill from the Los Angeles County Assessor’s Office, going up each year, and California is a very expensive state to live in, so most likely his carrying costs to support that house as an asset would shoot his annual housing costs to $200,000, after you consider insurance, gardening, repairs and maintenance, utilities, housekeeping personnel, and security.

Okay, so you have to have deep pockets. That’s for sure. But smart people don’t get rich by being stupid. So what is the market for the $10M+ arena? It can’t be that hot because I just gave you the reason why no one in their right mind would buy a home for $10M, much less $20M or more.

Not so, my brother.

4 sold in January, 9 in February, 9 in March, 18 in April, 13 in May, 7 in June, 9 in July, 6 in August and 9 in Sept. (This is only from downtown to the ocean known in MLS parlance as CLAW – Central Los Angeles West).

The average sale in this category was broad enough to choke a horse; from a low of $12,628,095 in August to a high of $22,502,163 in May.

That broad swath of land also applies to the size of the house; from a low average of 6,261 sq ft in March to a high of 11,592 sq ft in May. (What are you supposed to do with an 11,600 sq ft house?)

And the time on the market is getting shorter due to the high demand, because Days on Market start at 160 in January but by September they’ve dropped to 81 with only 57 being recorded in July.

There you go, my friends. A lot of “them thar rich” people still buying homes in “them thar” better neighborhoods of Los Angeles. The market has settled down (see blog last month) but not in LaLa Land here. It just keeps marching forward!

–Mark Rogo