Family, Friends & Money: Part II

When it comes to friends, things can become tricky depending on the relationship. True friends should not expect a bailout, but we all know better than that. Depending on the level of friendship, you may just let them indirectly benefit from your possessions: inviting them to your vacation on a chartered boat or jet, occasionally taking them along when shopping, etc. I coined the term “Contingent enjoyment” to define this situation. True friends would not expect you to take care of them.

In terms of practical implementation of the tactics above, there are a variety of strategies. On top of helping relatives (and even friends) achieve financial independence, some type of assistance can be given to lighten their loads. It ranges from buying them a car, covering their car note, paying their mortgage, or giving them an allowance. From my experience, it consists in setting up corporations and initiating those payments from there in order to take advantage of the additional deductions. For allowances, said relative or friend can be put on payroll, thus deducting the taxes immediately. When it comes to loans, I believe one should never loan out more than what they are willing to forgive. That way, in case on non-repayment, there is a lower chance of resentment as one did not financially extends themselves overboard. A promissory note should be signed, so as to clearly define the repayment terms of the loan. It will protect both parties and also show that you mean business. It is up to you to enforce it, but I can assure you that psychologically, they work wonders on the discipline of the person that owes the money. The right strategies will benefit both parties and ensure that money does not become an issue between an affluent individual and the people around them.

As we can see, issues of money are definitely going to arise as individuals tend to feel entitled to your riches or can act downright ungrateful. The key is to set the right parameters from the get-go and to avoid becoming an ATM. Once the right systems are in place, there exists little room for misunderstanding and your financial well-being is protected. You have worked hard for your success and you understandably want to share the fruits of that labor with your loved ones. However, that sharing should not necessarily include cash.

Family, Friends & Money: Part I

Being financially successful in a visible manner comes with consequences. A direct consequence is having people automatically looking to you for money: relatives, friends, acquaintances. It is a great privilege to be able to help your loved ones, but there’s a fine line between doing so and outright supporting them. Issues such as entitlement, lack of gratitude and downright betrayal are a byproduct of people around you making their own assumptions about your hard earned money. Handling such problems can be tricky. How one addresses the expectations from the get-go and the type of strategies used can definitely make a difference.

We all have heard stories of the affluent being blackmailed or taken advantage of by people around them for the sole purpose of extorting money from them. That is nothing new. I can, for example, point to the football player who paid cash for his father’s house and added his brother to the deed just in case. The brother refinanced the house without telling the client or the dad (to the tune of $200,000), spent all the money and started to default on the loan. The athlete had to come to the rescue and bail him out. I can also mention the entertainer whose mother called at the beginning of the year asking for $10,000 although he had just given her $100,000 for Christmas. Upon further review, I realized she had actually received a total $400,000 in cash during that previous year. Mind you, her mortgage and car notes were being paid by the client. Examples such as above suggest a certain entitlement and lack of gratitude from these family members. The athlete’s brother was not happy enough to live mortgage-free, he had to tap into some equity since, as he put it “it’s my house and I can do whatever I want with it”. The entertainer’s mother started living like “she” was a celebrity. Of course the clients feel betrayed and used, but that is only the tip of the iceberg as I did not even get into the constant requests for loans and outright gifts of various nature (need for a car, down-payments on houses, etc…) from friends and acquaintances.In our communities, one person making it is a sign of hope for the entire family. Although it is true, it does not absolve the other family members from their financial responsibilities altogether. The key is to nip things in the bud and establish expectations early on. As the saying goes, “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime”. The idea is to let family know that you will use your new-found wealth to assist them in getting on the path to self-sufficiency, and even let them enjoy your material possessions. However, you will expect them to sustain that effort and only come to you for legitimate emergencies. I know it is easier said than done, but it is a must. Not doing so will jeopardize your wealth building effort and indirectly affect your relatives in the long-run as well. What good is it to the family if you end up broke? As with the airline oxygen mask, take care of yourself first before helping the person next to you. Giving out cash randomly, ATM-style, is not the way to go. Instead, paying for one’s college tuition, helping them start or buy a business, even giving them a job is the solution.

...To be continued

Ultra Spotlight: PREMIER ART

Introducing Ultra Spotlight! This segment will feature individuals, companies and products of interest to the African American affluent community. Our first spotlight inductee is Onaje Henderson with Premier Art LLC. We hope you will enjoy this feature and walk away with additional and valuable insight about its subject matter.

1. Please tell us about yourself and your company?
My name is Onaje M. Henderson. I am Managing Partner of Premier Art LLC. Premier Art, LLC manages and represents a roster of acclaimed African American visual artists. A partnership comprising of myself and my brother, Omari Henderson, the company markets its artists’ works through innovative consumer enrichment programs and events, as well as by providing corporate, individual and municipal client consulting.

Our approach is grounded in understanding each client’s priorities, desires, parameters, and budget. With this technique, we are able to effectively consult with both new and seasoned collectors.

2. I am a great fan of your Art-tasting concept. Tell us about it and explain how you came up with that idea.
An ‘Art Tasting’ is an event designed to educate art enthusiasts and collectors on valuing art in an intimate setting with friends and family. The purpose is to have guests connect with an artist (or group of artists) and have an informal, non-intimidating discussion about Fine Art. An Art Tasting can be utilized for corporate excursions, dinner parties, house warmings, and private social functions.
The Premier Art ‘Art Tasting’ idea initially came from noticing that there were very few young collectors. We realized that young professionals, who had the disposable income, were not investing in art. It was not because of a lack of interest in the subject, but more often than not, they were simply unaware. The art tasting concept was developed initially to serve this group. It has since grown to educate all age groups and can be adjusted for any setting, from a dinner party to a corporate lunch and learn.

3. What is your definition of affluence?
The basic definition of affluence is having an abundant supply of a particular resource. I think the definition of affluence when speaking monetarily is a bit different. There are a number of consumers in the market place who have enough money to purchase whatever they wish. To have the ability to not only purchase goods and services, but to also understand the what and why of your investment equals affluence.

4. Art is usually perceived as a playground for the wealthy. How do you think your product fits in an affluent lifestyle?
The beauty of fine art is that it can fit the lifestyle of anyone. Our client base ranges from the middle class to the extremely wealthy. It is an investment that can hold both an intrinsic value as well as be a sound investment for your long term portfolio. Because art never depreciates in value, it is something that can be passed down for generations and continue to grow in its significance to a particular as well as in its value.

5. Why is it that so many of us shy away from Art as collectibles? Is it a lack of awareness or just a lack of interest?
It is definitely a lack of awareness. Like yachting and polo, art collecting has long been considered a rarified realm inhabited solely by deep-pocketed connoisseurs speaking an impenetrable vocabulary. Potential collectors believe they are priced out of the market to buy and collect art. Moreover, the prospect of visiting a gallery intimidates many.

Realizing that these misperceptions were barriers to purchase, we redefined the art experience in a manner that has broadened the audience and market for buying and collecting original art.

6. In these tough economic times, what advice can you give affluent individuals?
It is important to understand that there are a number of ways to diversify your portfolio, and art is definitely one. Collecting has both a financial and an intrinsic value. When investing in art, it is important to realize that artwork will outlive generations, so the investment can definitely be considered long term. The best way to begin a collection initially is to buy what you like and understand what you are purchasing.

7. In your eyes, does the price of a product/service always indicate its quality (as it pertains to your field)? If not, what should people be paying attention to?
No. We always tell people to buy what you like, but that also comes with some responsibility. When “buying what you like” you should also be sure that you are buying from a reputable, established art business or artist. You should also ask for a Provenance and slide or CD that contains the image of the piece. The Provenance is the birth certificate of the painting. It tells you when it was completed, the materials used, the Artist, and each location that it has been displayed. Along with the slide or CD, the Provenance can be placed in a safety deposit box (or other secure area) so that you have a record of the purchase.

8. As it relates to your experience, what is the biggest mistake that black people make when first coming into some money?
Many new to wealth tend to make the mistake of not investing and do very little research if any in ways to grow their wealth. Art is an asset that always appreciates in value. We have many first time clients who will go out and spend millions on material goods that do nothing but depreciate in value and then when purchasing a piece of art, they want to negotiate the price of the artwork, or simply do not understand the value in the work.

9. Any advice addressing that problem?
A major fix to the problem comes in the area of education. Many of us who can afford to collect, do not because we just don’t understand the importance or value that could come from building a collection. This is where events like the ‘Art Tasting’ come into play.

10. Time to answer the Ultra Quizz:
a. What is your favorite vacation spot?
Turks and Caicos

b. What is the top luxury item on your wish list right now?
Charles White original

c. Who would you like to work with the most?
Everyone who is interested or could become interested in art collecting. Barack Obama

d. When it comes to your money, anything you'd like to do better?
Make More!

e. Describe your current living quarters in 5 words: Modern and Full of Art

Thanks again Onaje for your insight, and we really appreciate your taking the time to educate us all about your company and services.

Please visit Premier Art at: www.premierart.net

Ultra Tidbits

*The contents of Michael Jackson NeverLand ranch (now rebaptized Sycamore Valley Ranch) are set to be auctioned off in April at a four-day public auction in Beverly Hills, CA. Over 2000 items itemized in a $500 catalog will be for sale. The items are priced to sell, but should still bring a bounty as they range from the mondaine (books and sequined jackets) to the more elaborate (marble and gold statues, the property's iron gates). This brings new meaning to the term "garage sale". However, on a more serious note, this is another illustration of the value of hidden wealth that affluents individuals may have accumulated during these past gilded years. One person's trash is another person's treasure, so check your garages!

*For the domestic jet-setters and Atlanta locals, there is a luxury getaway available locally: Villa Oceane. Off of Peachtree Rd and one block from the Buckhead Ritz-Carlton, this penthouse is available for $10k a month. It has been used for locations shoots but is now up for rent. Features include a roof-top infinity hedge pool, a four car garage and white marble floors throughout. I can envision this as a more affordable option for celebrities in town for a couple of weeks or more (recording sessions, filimg, vacation, etc...). It beats a presidential suite for such prolongued stays and it saves money.

*In these challenging times, and despite calls for restraints, certain luxury brands are bucking the trend. Maybach is unveiling a top of the line version of its luxury cars, dubbed the Zeppelin. Priced at over $600,000, I am not sure there will be a rush to purchase this version despite uber-luxurious amenities. The car goes on sale in March for a September 2009 delivery date.

Moral Capital Preservation

Given the recent news about a certain celebrity and their domestic violence issues, we think it is time we address the ramifications of such actions. Yes, celebrities and high profile individuals mostly shy away from the “role model” title, but they cannot escape it. Indeed, to whom much is given, much is required. Unfortunately, the financial repercussions are damaging to the celebrity and their entourage.

Direct costs associated with a PR blunder are usually related to the celebrity’s earnings. NFL player Michael Vick had to forego the last few years of a 7-year contract worth over $100 million, and was asked to repay a $20 million sign-in bonus. New York Giants Plaxico Buress suffered similar sanctions on a $25 million 4-year contract. Lost endorsements, appearance fees and future revenue add to the tally. Besides the obvious direct costs associated with a major PR blunder (loss of endorsement, firing from the team, cancellation of shows, etc.) there are hidden indirect costs that can be even more damaging.

Typically, in such cases, the publicity machine goes into over-drive and such work does not come cheap. If there are legal implications, the hourly bill is usually stiff as well. With top lawyers commanding hourly rates in the hundreds of dollars, the legal bill can be in the high six or even seven figures. A little know fact is that even existing loans can be called, as was the case with Michael Vick when two banks asked for immediate repayment in full of two loans. The loans (totaling $1.1 million and $2.2 million respectively) were called due to “an adverse change in his employment which could affect the borrower's ability to repay the note." Such costs have a trickle-down effect affecting others such as a mother whose mortgage was covered, the friends that were employed by the celebrity or even the ex-wife due to the inability to keep up with child support payments.

When it comes to African Americans, celebrities are usually the first ones in their families to come into such wealth. There is no readily available hand-book telling them how to handle it and showing them the cost of their bad choices. In addition to Tax and Estate planning, Investments, Insurance and Retirement, it is time to add one more category to the typical financial planning spectrum: Moral Capital preservation. It affect a person’s current and future earnings, as well as their freedom in some cases. Our brothers and sisters disregard this component of their wealth, but we can only try to help with this blog.

Fractional Equations

Fractional ownership has always been a way for the affluent to enjoy certain luxuries without the financial burden of outright ownership. Many of the current fractional ownership programs target products that people use from time to time, which doesn't justify the year-round costs associated with maintaining such items. Therefore, fractional ownership was mostly limited to vacation homes and private jets.

However, as luxury became democratized fractional ownership became a way for the mass affluent to afford luxury products in quantities that they could barely afford individually. Case in point, "Bag Borrow or Steal", an online membership community where members can rent luxury items (handbags, jewelry, sunglasses and watches) at affordable rates. It allows members to enjoy all those products without overstuffing their closets.

Individuals with more money have another fractional option: Art. Initially the playground of the Very High Net Worth and above, ownership of works of arts from old masters and modern artists is now within their reach thanks to companies such as Untitled Partners. They offer fractional ownership of Art on a rotational basis to small groups of affluent investors. The groups collectively own the pieces and keep them on a rotating 3 month basis from a calendar they agree upon. Premier Art here in Atlanta is the leading African American company offering such services and even more, when it comes to African American Art.

At an even higher level of wealth, individuals also became prudent in their spending, but new fractional ownership categories surfaced. Synchrony, based in Fort Lauderdale, FL, offers yacht fractional ownership to the tune of $4.8 million for 5 years ownership in a $20 million yacht (starting rate). "For six weeks a year, Synchrony yacht owners can access any yacht in the company's luxury fleet while maintaining a vested interest in one specific boat" without having to worry about maintenance costs.

These fractional options allow people to keep living the lifestyle they are used to in a less frivolous manner and with more financial acumen.

The Affluent Hierarchy Series

Announcing the Affluent Hierarchy Series...

When dealing with an ailment, it is said that knowing is half the battle. When it comes to money matters, many people usually misunderstand their true level of wealth, which typically leads to overspending in various areas and ultimately to financial distress. This series will address the various levels of wealth that are widely accepted within the luxury market as well as which prudent purchases are clearly within their reach. Please understand that this is not a cut and dry process, and we will tread carefully and to the best of our abilities. This series is intended as a roadmap for the affluent, to be used as a tool to truly assess one's financial stability.

The first thing to know about being affluent is of course HOW affluent. The typical benchmark is investable assets, meaning the amount of money you have invested or available. In other words, should you stop making money tomorrow, your investable assets are whatever you can depend on from that point forward. Categories are as follow:

*Mass affluents: Investable assets between $200k and $1 million US (Upscale individuals with substantial earnings but little assets)

*High Net Worth Individuals (HNWI): Investable assets between $1 million and $10 million US.

*Very High Net Worth Individuals (VHNWI): Investable assets between $10 million and $30 million US

*Ultra Hign Net Worth Individuals (UHNWI): Investable assets over $30 million (with the rich getting richer, that segment also includes the super rich with assets over $100 million, Billionaires and Multi-Billionaires)

We will use those levels as the basis of the discussion for our series.

A small World Indeed

Online social networking is a fairly recent phenomenon, and many options abound from LinkedIn to Facebook. However, the affluent and High Net Worth community has been enjoying the same kind of experience via "SmallWorld", a private, invitation only club of 250,000 members worldwide. Founded in 2004, the network is mainly about lifestyle, society, celebrity and features members such as Naomi Campbell, Ivanka Trump, Tiger Woods and Paris Hilton.

Although SmallWorld share similar features with Facebook (profiles, an event calendar, private messaging), the similarities stop there.

Small Word members can list multiple cities as their location of residence (which is very jet-set like). They can purchase or sell luxury items on the site, and the kicker is that only certain members can invite other people to join. Once invited, an individual has to be approved by five other members to be admitted, as a way to verify wealth levels.

As is always the case when it comes to the very rich and affluent, we can safely assume that things have to take on another dimension. Can you imagine the status updates??? I.e "So and so is on his way to the Oscars" or better yet "I am about to fly commercial, pray for me!!!!"

The rules are very strict however, and networking with too many celebrities or aggressively selling products to members is cause for cancellation of one's account. Administrators closely monitor the site to enforce the rules forbidding one to “annoy, harass or unreasonably disturb members, or try to connect to members with whom you have no previous contact".

Maybe some of those rules should apply to Facebook. Just Maybe...

What Recession???

For the affluent Kamikaze, here it comes: word is Tom Ford unveiled a new pair of jeans priced at $990. That would get you a special type of Japanese denim, silk lined pockets and 18 karats gold plated front buttons. The interesting thing is that they come in generic boot cut or straight leg style, nothing special. At least with the current price of Gold, you can always melt the buttons when times get hard.

I mention it because some people I know are already raving about how cool it is, and how they could impress their friends with it. I am all for exclusivity and opulence or what have you. I am sure many fashionistas will go for this and enjoy the feeling of superiority confered by wearing such a pricey item. However, in this day and age I really think restraint is the name of the game. I have mixed feelings about this. What do you think: Yes? No? Maybe?

Derek Blanks

Photographer Derek Blanks hosted his website launch party last Friday at 595 North in Atlanta. That man is a G.E.N.I.U.S. He's worked with the best in black entertainment and many more are lining up to grace his portfolio. Derek is bound for great success and we wish him well. A few personalities were in the place, including Nene Leaks, Antonia Carter (Lil Wayne's ex wife), VIP Designer Darcy Harris and a few others.

Congratulations to Derek and you can preview his work at http://www.dblanks.com/.

Purchasing Real Estate Part II

Besides figuring out what to purchase and when, the most important factor is how to pay for it. As each of those properties is usually mortgaged, the financial commitment should be commensurate with the time spent there. I speak from experience as I worked with a person who spent close to 2 million dollars on a residence, never spent one night in it, and 12 months later decided to spend 3 millions dollars on a pied-a-terre in a different city. It took us a few days to realize that they also intended to keep the first residence. As this anecdote reveals, the numbers themselves need to make sense. It may be acceptable to have a million-dollar primary residence and secondary residence, but the same would not apply to a vacation home or a gift to a relative. Even with a 20% down payment, a multi-million dollar property costs about $4 to $5,000 a month per million. When the mortgage payments start compounding, the clients may not realize that their liabilities can easily range in the tens of thousands monthly. The key is that payments need to be sustainable past the peak of one’s career. $40,000 a month may be manageable now, but not so much 6-7 years down the road once the income stream has considerably dwindled.

Caution should be used when getting in the realm of a multi-property portfolio as serious long-term planning should be undertaken and properties incrementally added as the financial situation of the individual is solidified. In other words, the real estate holdings should not represent an excessive percentage of an individual’s Assets. Best practices include substantial down payments (20-25%) and aggressive paydowns or payoffs whenever possible. Such actions actually reduce the mortgage payments, and create savings in the form of accumulated equity. That equity can be tapped in the form of an equity line of credit even if one is not needed. Experience proved that it is better to obtain credit when things are going well. Banks hesitate to give loans to people already in distress.

The truth of the matter is, Real Estate is still the most tangible investment one can make, but it is also the most emotional one. Each purchase should be approached in a level-headed manner and with the help of a professional.

Purchasing Real Estate Part I

In this age of MTV cribs and other celebrity oriented shows, the general public is more aware than ever of the lavish residential accommodations where their favorite entertainers reside. While purchasing a showcase primary residence is usually publicized, many additional purchases and their purposes elude the average person. As with everything else, there are pitfalls to avoid and best practices to observe. While the amount of money at stake amplifies the cost of the mistakes, it also magnifies the value of the rewards.

Just to be fair, we need to acknowledge that at this level of wealth, a real estate purchase is a less stressful endeavor. Besides the obvious need for a primary residence, an entertainer makes those purchases for a variety of reasons: secondary residences, vacation homes, investment properties or even a gift for a relative.
The nomadic nature of an entertainer’s life leads the majority of them to own various properties, whether on both coasts or in various cities where they split their times (i.e NYC and their hometown in Alabama for example). From my experience, such polarizing cities include New York, Los Angeles, Miami or Atlanta, based on the prevalence of enough power players of a specific industry (Film, music) to warrant their presence in that city. The purchase of a vacation homes is made in order to provide a pied-a-terre in locations where the celebrity makes recurring trips to relax or escape (i.e South Beach, Cabos, Aspen, etc…). When it comes to investments, those purchases arise from a good opportunity that presents itself or from an active pursuit of such opportunities, in which case the entertainer does it out of passion. They either want to flip those properties, or add them to their portfolio for appreciation purposes or even combine them with their existing property to increase the value of the compound-like property it will form. Finally, celebrities purchase properties for their parents, siblings and sometimes un-related parties (yes, the other woman too). This is usually done to upgrade the living conditions of the people mentioned and let them share in the wealth.

Depending on the location, different types of properties are available on the market to meet the aforementioned purposes. It is therefore important to match the right type of accommodation to each specific situation. In general, mini-mansions, sprawling condos or penthouse units are considered for secondary homes. This is necessary because the whole family or entourage makes trips to the second home which features the same type of amenities as the primary residence. The vacation home is usually adapted to the location and therefore varies in size: a condo in south beach, a villa in Cabos or a cottage in Aspen. However these are general guidelines and not everybody should adhere to those. A recent trend is to go the condo-hotel route with luxury providers such as Four Seasons or W Hotels for example. The investment properties are usually big ticket items where the fact that the previous owner was a celebrity may increase the re-sale value. Someone out there is wiling to pay a premium for the privilege of living in Usher’s former house, trust me. They are usually single family units in a neighborhood where the entertainer themselves live in or would want to live in. Family members usually get whatever is appropriate for them, from a townhome to a house or a condo, although rarely of the same caliber or neighborhood as the celebrity.

To be continued...