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...