Sunday, January 29, 2006

Dr. 90210....homeowners always happier...and a realtor association withholding data??


One evening last week I was doing what most guys do real well...high speed channel surfing. I was flying though "those" channels that you usually don't watch too much in the first place...yeah, you know the channels I'm talking about...everybody has them. Anyway, I was flying through and I heard the word 'mortgage'. So, with my amazingly adept hand/eye, tv/remote coordination, I stopped on what happened to be the E! Tv channel. The show was Dr. 90210, and the topic wasn't boob jobs...but mortgage payments. I have seen bits and pieces of this show before, so I know basically what it is about...top plastic surgeons in Beverly Hills. Well, one of the surgeon's named Dr. Rey is going to be buying a new house and the payments are going to be pretty large. Since I missed most of the show at this point, I made a point on trying to catch a re-run so that I could get more details. I did find the re-run, and I caught it this weekend.

Before we look more into this situation, let me say I know nothing of this Doctor's finances, how much he makes or anything. I can only go by the information he and his wife personally said on camera. I know he makes a ton of money as a surgeon, and I'm sure he makes a decent amount from the show as well. Also, just because I talk about something here, doesn't mean they are an FB...I just find this story interesting. So let's take a look at what is going on...

It appears that Dr. Rey, his wife and 2 kids have found their 'dream home'...a $5 million dollar home. I assume this house is in Beverly Hills or surrounding area, as his office is in Beverly Hills. The show showed the wife going over the paperwork with her mother who is a top RE agent in Canada (if I remember correctly). She admittedly was nervous about moving, and getting their current house sold. They really need to sell their house quickly to avoid paying 2 mortgages at the same time. She says they are getting the bigger house so that her husband can have more space when he is relaxing and not working. She sign's the paperwork, and you see some boxes getting taped-up and ready for storage.

Next they cut to an interview with Dr. Rey. They haven't even bought the house yet, and he admits he is already thinking about the mortgage payment. He says: "let me put this in perspective for you, my monthly mortgage payment is more than I made in an entire year during my residency" (I think I got that quote right). They then show him in the house talking to his wife in the other room. "This means no more vacations, no more expensive suits and expensive shoes". "7 to 11 will be the norm, not the exception". He then says, I'm going to be working so much, I'm not going to get a chance to enjoy this house.

Let's look at this for a minute. Let's see how big this mortgage payment might be. I know you don't make much in residency, so my educated guess when he said this is that his mortgage payment is going to be about $30,000 a month. Let's see what we have here....

I'm going to assume (because I don't know) that they are going to sell their house, and put 1 million down on the 5 million dollar home. So with 20% down, they will have a mortgage of $4 million....again, I don't know how much they are putting down, but based on his comment that his monthly mortgage is more than he made in a year, I'm guessing they aren't putting 3-4 million down.

4,000,000 at 6.25% on a 30yr fixed makes the mortgage payment = $ 24,628,69
Let's not forget property taxes on a $5 million dollar home. I don't know about mello-roos or other special assessments, but in CA is it safe to assume a rate of 1.1% to 1.25%. When underwriting, we would use 1.25% as a safe bet. I'll use 1.2% since that makes it an even $5,000 a month for property taxes.

That puts us at $29,628.69 per month, and we haven't added in homeowner insurance yet. I tried to do a quick and dirty quote over at Allstate. With a 2 million replacement value, the annual premium would be almost $22,000 a year. For the sake of this post, we'll say the monthly payment is $1,371.31, which puts the annual premium at $16,455.72. I guess that sounds about right to insure a 5 million dollar home. That gives us an even $31,000 a month for the PITI payment (principal, interest, taxes insurance). Again, I'm guessing this number is pretty close to being correct based on his statement that his mortgage is more than he made in an entire year as a resident.

I know that top surgeons make a lot of money, but they also have a lot of expenses as well. LA county has 8.25% sales tax, 9.3% state income tax, and the usual federal taxes. The office is right by Wilshire and Santa Monica Blvd, so the office space can't be cheap either. Not to mention all of the expenses of doing business as a surgeon. I'm sure he can 'afford' this house, the question is just at what price? He even said "no more vacations" and long hours will be the norm, not the exception anymore. I can only imagine the amount of work that has to be done to keep making that payment month-in, month-out. It is hard for most doctors/surgeons to make any measurable amount of 'passive income'. They are paid extremely well for their skill and expertise...but when they go on vacation, they aren't making that big money. That isn't necessairly a problem, but it can be if you need to make 80-100k a month to afford your montly bills (before taxes).

I don't know what is going to happen, but you can find out Monday at 10pm on E!. At the end of the last show, they showed some scenes from the next show. I don't know if they will go through with the purchase of the other house or not. It will be interesting to see how it all pans out. I wish Dr. Rey and his family the best....I'm just glad I'm not on the hook for a 31k a month mortgage! Even if I was making the big money, I don't handle financial stress like that very well.

That brings me right into my next story. Apparently there was a nice article in the SF Gate that said that homeowners were physically and mentally happier than renters.

----"Even after controlling for such variables as level of income, education, race, etc., studies conclude that homeowners, as a group, are physically and mentally healthier.

They are happier and more satisfied with their lives. Their children receive more education and are less likely to get into trouble. Their daughters are less likely to become pregnant as teenagers. They vote more often and take a more active role in their community. They are more likely to recycle and less likely to get mugged."----

I don't doubt a lot of what they say, the problem is that you have to read down about half way to get to this gem: "Mathur is also quick to point out that it would be unwise to apply the results of the studies across the board to the Bay Area. Most of the studies were conducted in areas where an average home could be purchased for about $200,000."

Since you can't buy a home in California for 2.5 times that, and in San Francisco for 3-4 times that, doesn't that kind of discredit a lot of what the study says?!?!? I think lots of home owners are happy, especially the ones that bought in the 200k range, and others that have homes they can truly 'afford'. I also know that lots of home owners are worried about the large mortgage payments needed to 'afford' the current housing prices in California. I guess they were banking on people just reading the heading, and few paragrahs in before moving on. I don't think you should take a study done with 200k homes in other places, and try to relate that to the San Francisco housing market. In many cases, buying is better than renting...but in many areas of California, there is too big of a disconnect between income and housing prices.

***I just received an e-mail from a reader about this story from the Santa Barbara News-Press - Home Sales on a Slide Across the County. I guess the interesting thing here is this part of the article:
Over the past several years, the News-Press has obtained sales and median price data for the South Coast from the Santa Barbara Association of Realtors. The group recently told the News-Press that it now refuses to make this data available to the newsroom. Other associations of Realtors across the county willingly continue to share sales and price information with the paper.

I'm not going to jump to conclusions here, I just want to get this info out. If they are in fact withholding the data, I think it is safe to say that it isn't because things are looking good for real estate!

I look forward to the comments on all of these topics!

SoCalMtgGuy

32 Comments:

Blogger Drew said...

"No more vacations..."

What a mess. That dr. would do himself and his marriage a favor by buying a much, much cheaper house (you CAN get something decent for around $1 million) so he can be able to take a few relaxing, luxurious vacations per year.

He has a VERY stressful job, and I seriously doubt if those big, extra rooms will allow him to "get away" when he needs to relax.

Sometimes getting away is a must.

1/29/2006 10:56 PM  
Anonymous Anonymous said...

About the Dr.:
Oh well and I shall continue to live a balanced life with proper rest and healthy homecooked meals so I will not need the Dr. services so much.


About the realtor association:

Thank you for your honesty, the red flag hint is much appreciated.

Northerngirl

1/30/2006 12:02 AM  
Blogger InvestWith6S said...

The Santa Barbara Association of Realtors is just following in the FED's footsteps (M3 will now be hidden by FED ... I bet because it also is getting very telling).

I've been reading your blog for a few weeks now (I've been a long time reader of Ben's blog).

I really enjoy your anecdotes. Keep up the good work!

1/30/2006 2:25 AM  
Blogger Metroplexual said...

Next they cut to an interview with Dr. Rey. They haven't even bought the house yet, and he admits he is already thinking about the mortgage payment. He says: "let me put this in perspective for you, my monthly mortgage payment is more than I made in an entire year during my residency" (I think I got that quote right). They then show him in the house talking to his wife in the other room. "This means no more vacations, no more expensive suits and expensive shoes". "7 to 11 will be the norm, not the exception". He then says, I'm going to be working so much, I'm not going to get a chance to enjoy this house.


My sister inlaw went through residency in nj in the late 80's and was getting paid $30k a year so if this Dr. is younger than 41 and did his residency in CA I'm guessing it is a higher mortgage.

BTW, she upgraded her housing as well, and almost couldn't sell her old house (which was paid off)in Billings MT. Her husband is a plastic surgeon and they had to borrow money from both of their parents to the value of the old house to swing the deal.

I hope they love the new place.

1/30/2006 3:04 AM  
Anonymous un said...

Did you hear the national debt also hit (again) the official ceiling? I suppose they solve it like everybody else; just hide the fact like the others do (M3,...)

1/30/2006 6:10 AM  
Anonymous Anonymous said...

What a bunch of crooks. Spinning the truth no longer working now have to hide the truth.

hahaha!

1/30/2006 6:19 AM  
Blogger Rob Dawg said...

FB plastic surgeons 50 miles to east, realtors witholding data 50 miles to the west, Bakersfield 50 miles to the north and my neighbors are the owners of Moretech Financial Services. Why do I feel like I've got a giant bullseye painted on my roof?

1/30/2006 7:29 AM  
Blogger Arioch said...

Amazing that expenses seem to expand themselves to equal (or exceed) income, no matter what it is.

So many people have large incomes, yet they are in the same pickle as those fighting monthly bills on minimum wage.

The situation doesn't change, however the scale and scope of it does. It just makes a larger "kaboom" noise if it collapses.

1/30/2006 8:36 AM  
Blogger drwende said...

There was a period in mid-2005 when Sacramento-area prices started moderating... and suddenly the local paper didn't update their sales-and-median-price tables for at least three months, probably more. The data's there now, so I can't prove it -- but I was surprised to find spring 2005 sales last week, as they sure weren't there last summer. Someone wasn't eager to get the news out then.

1/30/2006 8:45 AM  
Blogger ocbroker said...

HI SoCal,

well please let me factor in too, I write a lot of insurance policies for Doctor's (Surg, Plastic Surg, OBGyn), you also need to factor in his Med Mal, not sure of his profession, but I am willing to guess Plastic Surg, any how's I am going to be kind and assume he is paying $80k plus remember I ambeing nice especially if he is a plastic surg, now average that out 8K a month, along with work comp, property and general Liability insurance you can now boost that to 10K a month, plus payroll taxes and any benefits for any employees. Don't forget if he is that busy yes he will have a least 3 minimum staff working the office, at least a couple of licensed RN's (not cheap) so couple this togehter with his mortgage boy I would not want to be this guy.

Not to mention if we do have a slow down or crash in the economy, I think if he's a plastic surg he may see his income decrease.

Just thought I would add this.

1/30/2006 8:53 AM  
Blogger SoCalMtgGuy said...

Thanks OCbroker!

I knew there would be a ton of other expenses that would have to be paid before he gets his paycheck.

That said, he is pretty established in Beverly Hills. I think it would have to be a pretty major downturn for some of these guys to get hit hard. They are doing elective surgeries for people with money.

I'm sure they might get hit some, but apparently this guy was booked full before he started the show (per the website). He has seen an increase in people travelling from all over the country now that the show is popular.

Either way, I'd rather not have the additional financial stress on top of the stress of doing surgery all the time.

I think many people will still spend the money on plastic surgery...even in down times. After all...it is hollywood!

SoCalMtgGuy

1/30/2006 9:06 AM  
Blogger kkollwitz said...

It's better to have live beneath your means...which is patently obvious to most people here. Why make yourself anxious over more/bigger/better stuff?
How about more/bigger/better serenity instead.

1/30/2006 9:20 AM  
Blogger Blissful Ignoramus said...

I'm guessing this article could have motivated the move by Santa Barbara realtors.

1/30/2006 9:41 AM  
Blogger Joe Schmoe said...

Dr. Rey's office is a couple of blocks from mine, and I see him and his wife around fairly often. I last encountered them at the mall; I was having lunch and they were shopping with the two kids.

Dr. Rey is actualy a very impressive person; one time on the show, he went down to Brazil on a Doctors Without Borders aid project. It turns out that he's from Brazil -- from the slums of Rio. They visited his old house; it was a genuine third world slum!

Also, while Dr. Rey comes accross as a flake on the show, he's actually very astute. Plastic surgery is all about marketing. And Beverly Hills is ground zero for plastic surgery -- the field is very crowded here. The show is free publicity for him; he's smart to do it. I don't know if he's the best surgeon in town, but he's certainly a good marketer.

Vis a vis FB status, if he's an FB it's obviously a matter of choice. There is certianly no need for a $5mm house in LA, even on the west side.

The high end market here is kind of interesting; there is a very dramatic increase in value once you get over $1mm. I might even go so far as to say there is no bubble in houses priced for more than $1.5mm.

In LA, a $3mm house is a REALLY, REALLY nice place. It's the kind of house that rich people are supposed to live in, not a tract home with a huge price tag. And a $6mm house is twice as nice as a $3mm house, etc.

Here the bubble seems to largely be confined to sub-$1mm properties. $800k houses should be worth $400k, $400k homes should be worth $200k, etc. On the high end, things seem more reasonable, if further out of reach.

1/30/2006 10:00 AM  
Blogger Jeff D said...

I'm always amazed at how people can have absolutely gargantuan incomes, but yet they still manage to put themselves in a position to struggle financially.

It seems very few can actually be fiscally responsible enough to just downsize their lifestyle enough to fit their income level.

How much better is Dr. Rey's life going to be with a $5 Million home if he's working himself to death? He'll end up with a lonely and bored wife and kids that won't know their Dad very well. But hey, they'll have a big fancy house though......

Did you see that the savings rate dipped negative for the first time since the Depression?

Housing and it's "wealth effect" are mentioned;

http://tinyurl.com/d84yy

1/30/2006 10:02 AM  
Blogger SoCalMtgGuy said...

joe schmoe,

I have nothing against Dr. Rey. I like the way he interacts with his patients. I know that he came from nothing, so his story is a great success.

I was just making the point that even people who are making 7-figues (I assume) can still get in a 'crunch' with things if they try to do too much too soon.

What do you do in Beverly Hills? Just curious.

Thanks!

SoCalMtgGuy

1/30/2006 10:31 AM  
Blogger Joe Schmoe said...

SoCal-

I am a lawyer in Century City. Although I have a good job, I too am priced out of the market.

I love your blog, thank you so much for writing it!

1/30/2006 11:13 AM  
Blogger Former LA Homeowner said...

Joe Schmoe and So Cal,

Attorneys in LA are being priced out of the market? What is going on in this world? We should all be in real estate and make serious dough.

I don't want to be under the knife of a surgeon who works himself to death. He may cut the wrong body part.

1/30/2006 1:22 PM  
Blogger Out at the peak said...

Everyone seems to be priced out of the market. The only ones that are buying are the ones who think they can afford it.

For someone who should respect wealth more than anyone else, this doctor is painting himself into a tight corner.

As for SBAOR, a bunch of us from Ben's blog went crazy last night. We all reported it to ABC News, and others were dedicated to making sure the word hit mainstream media.

1/30/2006 3:51 PM  
Blogger Wes D said...

I used to be involved with a financial advising company, and I remember one story where the man was a MD and his wife was out running up bills all day. (no sexist pun intended!) She finally came to the office when they could no longer make their MTG payment. I don't remember any other details except they were $40,000 in credit card debt and had income of $190K or so a year.

1/30/2006 4:31 PM  
Anonymous Anonymous said...

Savings rate the lowest since 1929(per Commerce Dept today).

Exxon has the greatest quarter and year in the history of American publicly traded companies, but its' actual oil production is down, even factoring in the twin bitch hurricanes. Yes, Hubbert's Peak is real. Peak oil is real.

Probably by the end of the week the Fed Funds rate will top the 10 year treasury yield. Usually you feel the bullet before you hear the report of the shot, but the yield curve is giving all investors a warning here that best not go unheeded.

Bird flu is a mutation or two away from Pandemic land.

We promoted democracy in the Mideast and they used to elect Islmasit parties.

George Bush is President for two more years.

MRE's(Meals ready to eat) cost 60% more than they did a year ago. If you can find them.

Yet Americans attach no risk premium to any of these things, preferring the Tinker Bellism of clapping they're hands and believing. Yes, Peter, housing markets really can go up a a double digit pace when wages are are growing at low single digit rates and the population growth is even lower than that.

America - what a bunch of morons.

1/30/2006 6:17 PM  
Blogger 41cadillac said...

I am not a realtor but I can show the Doctor some beautiful homes just east of Beverly Hills (25 minutes in traffic, no freeway) for $2,500,000. He is foolish to buy now anyway. My opinion is Los Angeles will also see 50% or more drop in home prices.

1/30/2006 7:44 PM  
Anonymous Anonymous said...

If they buy this house, I predict within 2 years his wife will be filing for divorce.


He wants to buy this $5M house so he can have more space to relax, and to do that he needs to work 7-11 and will not be able to spend time with his family. His wife has already expressed her discontent at Dr. Rey's absence and lack of attention in the home. If he is not careful, the "extra rooms" at a cost of $5M will be split 50/50 in their divorce agreement.

1/30/2006 8:17 PM  
Anonymous Anonymous said...

Help!

My work finally put up a firewall and are blocking 'offending' websites. Yours is the only website I can no longer access from work. (I'm home now.) Any chance you can make a mirror site with a less blockable name????

I'm probably not the only one having this problem.

Love your site. Thanks.

1/30/2006 8:32 PM  
Blogger WArenter said...

Robert Coté said...

Post at 1/30/2006 7:29 AM
----------------------------

LOL

1/30/2006 9:20 PM  
Blogger wtHell said...

Divorce court or heart attack here we come!

1/31/2006 9:04 AM  
Anonymous Anonymous said...

Zero sympathy. This guy's priorities are laughable

I guess some people need to keep up with the Joneses at any cost.

(shaking head)....

2/02/2006 1:00 PM  
Anonymous Anonymous said...

the word Realtor should be capitalized

2/05/2006 6:36 AM  
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5/03/2006 7:48 PM  
Anonymous Anonymous said...

Just in case you people haven't been reading correctly, Dr. Rey ISN'T the one who wants the fancy, dancy, $9 million house! It's his stupid, spoiled brat of a WIFE!! She doesn't care about him or what he thinks or feels. She's the one who wants a bigger and better house near her horrible mother. I truly feel sorry for Dr. Rey. He's caught between a rock and a hard place. She complains that he's never home and he's always working. Did she ever wonder why? DUH...she spends all the money he makes so he has to spend all his time working! Get rid of her - any way you can Dr. Rey!!!!!

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