Quiet “stealth-luxe” fashion is dominating runways and TV screens – but why now? Clare Thorp explores the low-key, under-the-radar world of stealth wealth. If you’re trying to blend in among the super-rich, carrying a handbag worth $3,000 might seem like a plausible way to do it. But, as the first episode of the current season of Succession showed, when you’re mingling with the ultra-wealthy, it’s not quite as easy as that.
In a scene that quickly went viral, Cousin Greg brought a date, Bridget, to the birthday party of Logan Roy, billionaire founder and CEO of media conglomerate Waystar-Royco. By inviting a stranger into Logan’s private home, he had badly misread the situation. But if Greg made a faux-pas – his date made a bigger one.
By carrying a “ludicrously capacious” bag – as Greg’s tormenter and co-conspirator, Tom Wambsgan designated it – Bridget immediately marked herself out as an interloper in this exclusive world. “What’s even in there?” asked Tom mockingly. “Flat shoes for the subway? Her lunch pail? It’s gargantuan. You could take it camping. You could slide it across the floor after a bank job.”
The ultra-rich, of course, rarely need to carry anything themselves. But it’s not just the size that’s the issue. The distinctive checked print is immediately recognisable– even without an accompanying logo. This is a bag that wears its price tag on its sleeve. It’s flashy, attention-grabbing and everything the Roys and their ilk are not – because, once your bank balance is in the billions, you don’t need to try to impress anyone.
Over four seasons, Succession has given us a glimpse – albeit a fictional one – into the lifestyles of the richest people in the US, and shown how billionaires differentiate themselves from a bog-standard multi-millionaire. The show famously has wealth consultants to advise on every minor detail, and costume designers who carefully construct a wardrobe that truly reflects the 0.01%.
Shiv Roy might be able to afford any couture gown she desires, but you’ll most likely find her in a plain black polo neck, brown trouser suit or beige shirt (though one made from the finest silk).There might be the odd pinstripe or check – or an occasional flash of colour for a social event – but for the most part this is suppressed, not stand-out, style.
Her brother Kendall, meanwhile, loves Loro Piana, an Italian label that specialises in low-key pieces made from the finest fabrics, where a coat can cost $25,000 (though you can pick up one of Kendall’s beloved cashmere baseball caps for a bargain $495). As Colleen Morris-Glennon, costume designer for TV series Industry – another show that allows us to hang out with the fictional super-wealthy – explained to Vogue, the richer someone is, the harder they can be to pick out in the crowd. “The last person you’d think was a billionaire is the billionaire……
New large language models will transform many jobs. Whether they will lead to widespread prosperity or not is up to us.Whether it’s based on hallucinatory beliefs or not, an artificial-intelligence gold rush has started over the last several months to mine the anticipated business opportunities from generative AI models like ChatGPT.
App developers, venture-backed startups, and some of the world’s largest corporations are all scrambling to make sense of the sensational text-generating bot released by OpenAI last November. You can practically hear the shrieks from corner offices around the world: “What is our ChatGPT play? How do we make money off this?”
But while companies and executives see a clear chance to cash in, the likely impact of the technology on workers and the economy on the whole is far less obvious. Despite their limitations—chief among of them their propensity for making stuff up—ChatGPT and other recently released generative AI models hold the promise of automating all sorts of tasks that were previously thought to be solely in the realm of human creativity and reasoning, from writing to creating graphics to summarizing and analyzing data.
That has left economists unsure how jobs and overall productivity might be affected. For all the amazing advances in AI and other digital tools over the last decade, their record in improving prosperity and spurring widespread economic growth is discouraging. Although a few investors and entrepreneurs have become very rich, most people haven’t benefited. Some have even been automated out of their jobs.
Productivity growth, which is how countries become richer and more prosperous, has been dismal since around 2005 in the US and in most advanced economies (the UK is a particular basket case). The fact that the economic pie is not growing much has led to stagnant wages for many people.What productivity growth there has been in that time is largely confined to a few sectors, such as information services, and in the US to a few cities—think San Jose, San Francisco, Seattle, and Boston.
Will ChatGPT make the already troubling income and wealth inequality in the US and many other countries even worse? Or could it help? Could it in fact provide a much-needed boost to productivity?
ChatGPT, with its human-like writing abilities, and OpenAI’s other recent release DALL-E 2, which generates images on demand, use large language models trained on huge amounts of data. The same is true of rivals such as Claude from Anthropic and Bard from Google. These so-called foundational models, such as GPT-3.5 from OpenAI, which ChatGPT is based on, or Google’s competing language model LaMDA, which powers Bard, have evolved rapidly in recent years.
They keep getting more powerful: they’re trained on ever more data, and the number of parameters—the variables in the models that get tweaked—is rising dramatically. Earlier this month, OpenAI released its newest version, GPT-4. While OpenAI won’t say exactly how much bigger it is, one can guess; GPT-3, with some 175 billion parameters, was about 100 times larger than GPT-2.
But it was the release of ChatGPT late last year that changed everything for many users. It’s incredibly easy to use and compelling in its ability to rapidly create human-like text, including recipes, workout plans, and—perhaps most surprising—computer code.For many non-experts, including a growing number of entrepreneurs and business potential
people, the user-friendly chat model—less abstract and more practical than the impressive but often esoteric advances that been brewing in academia and a handful of high-tech companies over the last few years—is clear evidence that the AI revolution has real potential.
Venture capitalists and other investors are pouring billions into companies based on generative AI, and the list of apps and services driven by large language models is growing longer every day. Will ChatGPT make the already troubling income and wealth inequality in the US and many other countries even worse? Or could it help?
Billionaire hedge fund manager Alan Howard paid $59 million for a Manhattan townhouse in March. Just two months later he obtained a $30 million mortgage from Citigroup Inc.
Denis Sverdlov, worth $6.1 billion thanks to his shares in electric-vehicle maker Arrival, recently pledged part of that stake for a line of credit from the same bank. For Edgar and Clarissa Bronfman the loan collateral is paintings by Damien Hirst and Diego Rivera, among others. Philippe Laffont, meanwhile, pledged stakes in a dozen funds at his Coatue Management for a credit line at JPMorgan Chase & Co.
In the realm of personal finance, debt is largely viewed as a necessary evil, one that should be kept to a minimum. But with interest rates at record lows and many assets appreciating in value, it’s one of the most important pieces of the billionaire toolkit — and one of the hottest parts of private banking.
Thanks to the Bronfmans, Howards and Sverdlovs of the world, the biggest U.S. investment banks reported a sizable jump in the value of loans they’ve extended to their richest clients, driven mainly by demand for asset-backed debt.
Morgan Stanley’s tailored and securities-based lending portfolio approached $76 billion last quarter, a 43% increase from a year earlier. Bank of America Corp. reported a $67 billion balance of such loans, up more than 20% year-over-year, while loans at Citigroup’s private bank — including but not limited to securities-backed loans — rose 17%. Appetite for such credit was the primary driver of the 21% bump in average loans at JPMorgan’s asset- and wealth-management division. And at UBS Group AG, U.S. securities-based lending rose by $4 billion.
“It’s a real business winner for the banks,” said Robert Weeber, chief executive officer of wealth-management firm Tiedemann Constantia, adding his clients have recently been offered the opportunity to borrow against real estate, security portfolios and even single-stock holdings.
Spokespeople for Howard, Arrival and Laffont declined to comment, while the Bronfmans didn’t respond to a request for comment.
Rock-bottom interest rates have fueled the biggest borrowing binge on record and even billionaires with enough cash to fill a swimming pool are loathe to sit it out.
And for good reason. With assets both public and private at historically lofty valuations, shareholders are hesitant to cash out and miss higher heights. Appian Corp. co-founder Matthew Calkins has pledged a chunk of his roughly $3.5 billion stake in the software company — whose shares have risen about 145% in the past year — for a loan.
“Families with wealth of $100 million or more can borrow at less than 1%,” said Dan Gimbel, principal at NEPC Private Wealth. “For their lifestyle, there may be things they want to purchase — a car or a boat or even a small business — and they may turn to that line of credit for those types of things rather than take money from the portfolio as they want that to be fully invested.”
Yachts and private jets have been especially popular buys in the past year, according to wealth managers, one of whom described it as borrowing to buy social distance.
Loans also allow the ultra-wealthy to avoid the hit of capital gains taxes at a time when valuations are high and rates are poised to increase, perhaps even almost double. Postponing tax is a “significant benefit” for portfolios concentrated and diversified alike, according to Michael Farrell, managing director for SEI Private Wealth Management.
Critics say such loans are just one more wedge in America’s ever-widening wealth gap. “Asset-backed loans are one of the principal tools that the ultra-wealthy are using to game their tax obligations down to zero,” said Chuck Collins, director of the Program on Inequality and the Common Good at the Institute for Policy Studies.
While using public equities as collateral is the most common tactic for banks loaning to the merely affluent, clients further up the wealth scale usually have a bevy of possessions they can feasibly pledge against, such as mansions, planes and even more esoteric collectibles, like watches and classic cars.
One big advantage for the wealthy borrowing now is the possibility that rates will ultimately rise and they can lock in low borrowing costs for decades. Some private banks offer mortgages on homes for as long as 20 years with fixed interest rates as low as 1% for the period.
The wealthy can also hedge against higher borrowing costs for a fraction of their pledged assets’ value, according to Ali Jamal, the founder of multifamily office Azura.
“With ultra-high-net worth clients, you’re often thinking about the next generation,” said Jamal, a former Julius Baer Group Ltd. managing director. “If you have a son or a daughter and you know they want to live one day in Milan, St. Moritz or Paris, you can now secure a future home for them and the bank is fixing your interest rate for as long as two decades.”
Securities-based lending does comes with risks for the bank and the borrower. If asset values plunge, borrowers may have to cough up cash to meet margin calls. Banks prize their relationships with their richest clients, but foundered loans are both costly and humiliating.
Ask JPMorgan. The bank helped arrange a $500 million credit facility for WeWork founder Adam Neumann, pledged against the value of his stock, according to the Wall Street Journal. As the value of the co-working startup imploded, Softbank Group Corp. had to swoop in to help Neumann repay the loans and avert a significant loss for the bank. A spokesperson for JPMorgan declined to comment.
Still, for the banks it’s a risk worth taking. Asked about securities-backed loans on last week’s earnings call, Morgan Stanley Chief Financial Officer Sharon Yeshaya said they’d “historically seen minimal losses.” Among the bank’s past clients is Elon Musk, who turned to them for $61 million in mortgages on five California properties in 2019, and who also has Tesla Inc. shares worth billions pledged to secure loans.
“As James [Gorman] has always said, it’s a product in which you lend wealthy clients their money back,” Yeshaya said, referring to Morgan Stanley’s chief executive officer. “And this is something that is resonating.”
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They started investing in real estate 30 years ago… with so much hope for their future. A rental house here, a duplex there… and soon they had a rental portfolio anyone would be proud of. They actively managed their properties and worked to make sure they were operating at peak efficiency. Several years ago both the husband and wife retired from their day jobs and eased into retirement – funded by their rental income and social security.
This year they are filing bankruptcy and losing a majority of their properties to foreclosure.
This is not some made-up example… this is the story of one of my best friend’s parents, and they are not alone. In fact, 95% of the properties I’ve purchased have been foreclosures purchased from landlords who have failed and lost their properties in a foreclosure. Most of them, I would guess, will never again get into real estate investing. They worked hard for years to build a financial future for themselves, only to see it come tragically crashing down around them – dashing any hopes for lasting wealth creation.
This begs the question: why?
If real estate is as good of an investment as we all (on BiggerPockets) make it out to be… why do so many real estate investors fail? Perhaps more importantly: how do I avoid this possibility in my own life? This is the question that has been swimming around my mind for some time now. Each week on theBiggerPockets Podcast I ask our guest “what is it that sets apart successful investors from those who fail?”
I’m intrigued by this idea and scared that I may end up the same way. After all, as Mark Cuban famously said “everyone is a genius in a bull market.” Is that what real estate is? Do some people simply get lucky, and others not so? What are some of the trends that lead to this failure… and what are some trends that can minimize this risk?
I thought I’d take the opportunity to hammer out my thoughts here and get your feedback as well. Definitely jump into the comments below and let’s talk. Too Much Risk? Let’s talk about the elephant in the room first: risk. Risk in inherent in every investment there is. After all, you know the phrase, “more risk, more reward.”
However, there is obviously a tipping point where the risk becomes too great, as my friend’s parents discovered. Perhaps it’s over-leveraging properties by obtaining too many “low down” deals or maybe it’s trying to buy too many, too fast. Maybe it’s constantly refinancing the properties, pulling out all equity and investing it in more and more deals. Whatever the reason for their bankruptcy, it’s clear that the risk became too great and they lost.
As rock ‘n roller Nick Cave sang, “if you’re gonna dine with them cannibals; Sooner or later, darling, you’re gonna get eaten . . .” So how should someone prevent this? Avoid risk altogether? Only invest in 100% safe deals? Of course not.Risk is required for entrepreneurs, but learning to navigate that risk will define your success.
Like a team of white-water rafters braving the wild waves, you can’t always see what the future will hold, where the rocks hide just below the surface, or where the next waterfall will be. However, by having the right people in the boat with you, keeping an eye out for potential dangers, working to avoid the problem areas, and wearing the proper life-saving jacket, you can avoid a premature death. I would caution anyone reading this post, including myself, to think of risk as a dangerous, but powerful tool. Never forget that this tool cuts both ways.
Not Enough Education
Far too many people jump into buying real estate before understanding what they are doing. They simply decide that real estate is the right path, and they start buying properties. There is a big difference between being busy and being effective, and this is the case with a lot of real estate investors; they believe that because they are buying properties they are going to succeed. Never mind the fact that they bought the wrong property in the wrong area with the wrong financing.
The solution to this problem is proper education. I’m not talking about the “Get Rich Quick” late-night TV kind of education. I’m talking about taking the time needed to build an educational foundation that can support your investing future. At BiggerPockets, our mission is to help you build this foundation through a variety of methods, like the Forums, the Podcast, the Blog, and more.
Furthermore, I encourage you to continue your education through books, meetups, and other low-cost sources. You don’t need to spend tens of thousands of dollars to gain an education. Information has been democratized, so you simply need to reach out and grab it. No one can do it for you!
Not Enough Analysis?
When I first began investing in real estate I thought I knew what I was doing… but I made some big mistakes because I didn’t do a careful enough analysis. Had I continued on that path, I would have been in the same boat my friend’s parents are in. You see, so many people buy properties without doing the right math. As I often say, “without the right math going into an investment, you’ll never get the right profit coming out of it.”
The future is impossible to know, but with a solid analysis – it’s much easier to predict. It’s for this reason that I began to invest a lot of time and effort into building an in-depth spreadsheet that I could run all my potential deals through. Soon after, we took that spreadsheet, added a ton of new features, cleaned it up, and turned it into the BiggerPockets Property Analysis Calculators that hundreds of people are using every week to analyze their potential deals.
It’s my hope that this tool will save tens of thousands of investors from making the same mistakes that millions of others have made. No matter how you do your math, just make sure you are doing it – and doing it right.
Are You Working ON Your Business or IN Your Business? Is real estate your investment or your hobby? I believe one of the greatest reasons investors fail is because they don’t treat their business like a business.
They never develop systems to help them as they grow.
They treat their tenants like friends.
They don’t create clear policies for finding good tenants.
They simply approach their investing like a church picnic, and it shows.
If you want to avoid failing, treat your business the same way a CEO would look at a business, because that is what it is. Monitor your business’ health, hire the right people to do the right jobs, and continually find ways to improve your bottom line and create a longer-lasting business.
Let’s Sum Up
There are a variety of reasons that a real estate investor may fail. However, in my limited time on this planet, I’ve seen the above four mistakes played out time and time again in the lives of those who have failed in their investments. It breaks my heart to see someone so excited for what real estate could do – only to lose it all in a foreclosure or bankruptcy. Don’t be that person.
If you want to avoid losing all the hard work you are putting in (or the hard work you are about to,) pay attention to the four points in this article: Understand that risk is a powerful but dangerous tool, so tread cautiously, Build a solid educational foundation for yourself before getting in too deep, Don’t skimp on the math, Always understand the numbers for any property you buy, Work ON your business, not in it & Treat your investments like the business that it is.
Real estate investment platforms connect real estate developers to investors who want to finance projects, either through debt or equity. Investors hope to receive monthly or quarterly distributions in exchange for taking on a significant amount of risk and paying a fee to the platform. Like many real estate investments, these are speculative and illiquid — you can’t easily unload them the way you can trade a stock.
The rub is that you may need money to make money. Many of these platforms are open only to accredited investors, defined by the Securities and Exchange Commission as people who’ve earned income of more than $200,000 ($300,000 with a spouse) in each of the last two years or have a net worth of $1 million or more, not including a primary residence. Alternatives for those who can’t meet that requirement include Fundrise and RealtyMogul.
Tiffany Alexy didn’t intend to become a real estate investor when she bought her first rental property at age 21. Then a college senior in Raleigh, North Carolina, she planned to attend grad school locally and figured buying would be better than renting. “I went on Craigslist and found a four-bedroom, four-bathroom condo that was set up student-housing style. I bought it, lived in one bedroom and rented out the other three,” Alexy says.
The setup covered all of her expenses and brought in an extra $100 per month in cash — far from chump change for a grad student, and enough that Alexy caught the real estate bug. Alexy entered the market using a strategy sometimes called house hacking, a term coined by BiggerPockets, an online resource for real estate investors. It essentially means you’re occupying your investment property, either by renting out rooms, as Alexy did, or by renting out units in a multi-unit building.
David Meyer, vice president of data and analytics at the site, says house hacking lets investors buy a property with up to four units and still qualify for a residential loan. Of course, you can also buy and rent out an entire investment property. Find one with combined expenses lower than the amount you can charge in rent. And if you don’t want to be the person who shows up with a toolbelt to fix a leak — or even the person who calls that person — you’ll also need to pay a property manager.
“If you manage it yourself, you’ll learn a lot about the industry, and if you buy future properties you’ll go into it with more experience,” says Meyer. This is HGTV come to life: You invest in an underpriced home in need of a little love, renovate it as inexpensively as possible and then resell it for a profit. Called house flipping, the strategy is a wee bit harder than it looks on TV. It’s also more expensive than it used to be, given the current higher cost of building materials and mortgage interest rates. Many house flippers aim to pay for the homes in cash.
“There is a bigger element of risk, because so much of the math behind flipping requires a very accurate estimate of how much repairs are going to cost, which is not an easy thing to do,” says Meyer. His suggestion: Find an experienced partner. “Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project,” he says.
The other risk of flipping is that the longer you hold the property, the less money you make because you may be paying a mortgage without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you don’t mind a little dust.