Even the Rich Can Buy Too Much House

A key part of my formula for buying a house is to purchase a house you can afford. And just like someone with a large income can spend more than that income and become worse off financially, people who are well-off can also get themselves in trouble by buying too much house. Check out this place that the owners are now putting up for a closed-bid sale:

26,000-square-foot dream house on 30 acres [in Greenwich, Conn.]

The Cheslocks, who sold their previous home in Greenwich for $12 million, bought the property for $7 million in 2000, spent nearly $14 million and four years building the house, and put it on the market in 2006 for $31 million.

As the real estate market slowed and the overall economy worsened, the couple grew anxious, not least because a merchant banking firm that Mr. Cheslock co-owned lost $100 million in value, leaving his net worth at, by his own off-the-cuff accounting, “something just under $100 million.”

So, borrowing a page from the foreclosure world, the Cheslocks on Friday opened a five-week auction with bids starting at $19 million.

“Like two-thirds of what we think it’s worth,” Mrs. Cheslock said.

The upkeep, more than $200,000 a year, was part of what soured the dream.

Ok, these people aren't in a desperate situation, but it appears to me that they're selling in part because the house is too expensive and their income (though it doesn't say this) has probably taken a hit. Yes, part of the reason is also that it's simply too big for two of them, but didn't they know that when they started the process?

I think it's a clear case of someone buying too much house -- more than they could afford and more than they could take care of. And now they have to sell in a down market and take their lumps like everyone else. But, boy, are those big lumps!

Comments

["Mo" Money]

Looks to me like they thought they could cash in on the real estate boom, and instead got caught in the bubble like so many others who thought the boom would last forever. Lesson here is that everything (say everything) has cycles.

[MoneyBlogga]

This type of situation repeats itself all over Los Angeles: People who thought they could "flip" their way to riches. For a while, that was true but as each flip was finished and a bigger more derelict one acquired, the stakes got bigger. Many people were stuck with expensive flips that lost money when the market pretty much turned overnight. The investor/flip market was a huge driving force in the price run-up with investors bidding head-over-head until the bubble popped.

[indio]

I live in Greenwich and I can tell you this is a frequent occurrence. The number of foreclosures list on yahoo for homes that are over a $1M is truly remarkable. A lot of people didn't build these homes for spec, they just had to have the biggest, most impressive house in the neighborhood. They often buy two houses next to each other and knock both down to build a palatial home. Since most of the Greenwich big money is made on Wall St, you can bet there are folks feeling the pinch

[kitty]

It doesn't seem like it is a case of buying too much house. Surely someone whose net worth is well over 100 million - as their was before their business lost money - can easily afford a 21 million house. I'd bet the net worth of most people who buy houses isn't 5 times the house value. Also, they presumably paid cash for it.

Even if these 100 million were invested in regular CDs, you'd still get more than enough income to pay 200K in upkeep.

They lost half of what they had in their business. Not to mention that the business is probably what was bringing them money, and right now it is probably losing money. I'd bet a lot of people who lost over half of their networth and their income would want to move to a smaller place even if at the time they had bought it they could easily afford it.

I live in Westchester about 30-40 minutes from Greenwich. I have a friend who lives in Greenwich. Sure there are million dollar homes facing foreclosure but it doesn't look like this is the case here. It doesn't look like they even have a mortgage.

[kitty]

A couple of words to add after I actually read the article. It seems like they bought more house then they really needed or feel comfortable living in. It doesn't sound at all like they cannot afford it - just don't want to because they don't need as much house, and the upkeep wastes them money. Most of 200K upkeep is the serving personnel - cleaning, grounds, etc. No mortgage, and no threat of foreclosure.

So if it is the case of "buying too much house" it is the case of "buying more house than we really need or even are comfortable living in" and not that of "buying more than we can afford". The only real problem now is that they'll lose some money on sale. But if they are "in trouble" I'd imagine a lot of people here would like to have their trouble. I bet that after they sell their house even at a loss, they will still have a lot more money than all of combined.

[Foobarista]

I can't imagine that this is a "flip"; houses at this level often take years to sell, even in good times. And typically the buyer massively redoes the house anyway. If they were flippers, they'd do far better setting up a company to do lots of little flips than one monstrous one.

[Lord]

They are probably just trying to sell before it loses more value, but it is already a little late for that.

[MetaMommy]

Cry me a river. Sounds like they wanted something fun to show off to their friends, and now they're over it. Unfortunately for them, the bills remain. They probably thought that with their great taste, people would be clamoring up their driveway at the thought of living there. It's always a hard thing to accept that you don't have great taste.

I notice the reference of their net worth, but not their annual income. The bulk of their money might be tied up, so they might benefit from freeing up the "equity" in their home.