Thursday, November 15, 2007

Cooperative Snooping

I'm not always a nosy person but when it comes to this blog, sometimes I just have to dig into things! I was hanging out with a friend of mine who recently started serving on the board of the co-op apartment building she lives in. We were having dinner a day earlier than we'd planned because she would be interviewing the prospective buyers of an apartment the next night, and when she mentioned that she had all their documents in her bag, I said, "OOH! How much money do they make?"
My friend laughed but actually did quote me some figures. (Yes, this probably a bit unethical of her, but I wasn't told what the people's names were or which unit they were buying in the rather large building, so I suppose no harm was done.) The husband, a lawyer, had income of about $500,000 according to his last tax return, while the wife only made about $45,000 (I'm not sure what her job was). They are close to retiring and their net worth is a little over $3 million including home equity. They own their other home free and clear, with no mortgage, and no other debts.
Of course I had to sigh and rue the fact that I will probably never make $500,000 and never be in the position to buy a little pied-a-terre in New York City when I retire. (Not that I'd need one, since I already live here, but you get the point.) But I also thought "Shouldn't a $500,000-earning lawyer in his 60s have a higher net worth than $3 million? If all my savings projections, which are usually a little on the conservative side, work out, I expect or at least hope to have a net worth of about $3 million when I retire. And I'll be lucky if I ever make $200,000 a year, let alone $500,000!"
Given that this couple had been living in a less expensive area than NYC all these years, you'd think they could have saved more... but on the other hand, maybe they didn't think they'd need it, and were happy to just spend more money along the way. Their current financial position, plus a couple more years of working, will probably allow them to live a pretty sweet life. And they'll collect social security, and who knows, perhaps a pension too. Of course the apartment they are trying to buy probably costs over $600,000, with over $1,000 a month in maintenance costs... maybe the $3 million was their net worth not counting what they'd be putting into the new apartment? I don't know... now I wish I'd been even nosier!

This is one of the interesting things about living in a co-op building in New York. If you serve on the board, which I've done in the past, you basically know everything about your neighbors' finances. I didn't live there long enough to have to interview any new buyers, but I had access to records that at least showed me what some of my neighbors had paid for their apartments, and if I'd really dug through the archives I probably could have found everyone's original board packets which usually include tax returns, bank statements, letters of recommendation and a full recap of assets and liabilities.

Sometimes I wish I'd bought a co-op instead of a condo. I love my apartment and in some ways I'm glad not to have restrictions on being able to rent it out if I ever need to, but I wish I could have a say in who my neighbors would be. Also, by Brooklyn standards at least, I was a pretty good candidate for passing a co-op board interview: my income is steady, I had a good cushion of savings, I don't have pets, I'd been on a co-op board before, and I'm good at playing the part of a demure, quiet, responsible, professional young woman, rather than the freak I actually am-- a freak who likes snooping into other people's finances!


Anonymous said...

Answer is easy. 500K for a lawyer close to retirement is change. Entry-level lawyers make 200K now, at least at elite firms.

If he's only making 500K close to retirement, he probably started at nothing, and clawed his way up to that. Commendable, but that means for a long time he had a lot of student loans and not much income at all.

Anonymous said...

Tax planning ... ie. a revocable trust. BTW ... something you might want to consider Madame X.

Escape Brooklyn said...

Nah, living in a co-op stinks. You did the right thing to buy a condo. I would have if I could have afforded it, but when I bought condos were a lot more expensive than co-ops. I think that's still generally true in Brooklyn.

Just look on PropertyShark if you're curious about how much people paid for their apartments.

Anonymous said...

Hmmm......interesting post. I thought I was the only nosy one, trying to figure out other people's finances and what not, especially after I decided to take a hold of mine. It's sort of an interesting benchmark and raises a lot of questions that it really answers. Guess the only way to find out why people are in the financial situation is to ask....otherwise you are just speculating at best.

mapgirl said...

Had a little incident this week with my HOA. All things being equal, I want other ppl to get out of my face when it comes to my home. Oh well. I bought what I could afford. No subprime wackiness for me!

Anonymous said...

Every month in Money Magazine there are stories about people making what I would consider to be a lot of money, but who have saved almost nothing. That $3 million is better than many. The couple might have had some emergency that used up their savings, or one or both of them might have changed careers or had some business setback. It's possible they put a bunch of kids through school, and didn't ask for a payback. But, considering they are getting a pied à terre in New York City, I bet they also live much higher off the hog than most of us, and that's where the money goes.

They certainly have a hell of a lot more money than I do right now, and much more than I'm likely to have when I retire. And they certainly have enough net worth to live comfortably in retirement, especially if they sell the house, and live in NYC -- to live comfortably, but probably not as well as they are used to.

Anonymous said...

Do they need more than $3 million?

Anonymous said...

A person making $45k has a spouse who earns $500k

Lets assume that the blog owner makes $90k, then basic math says that any prospective spouse has to earn $1 million

Damn ... that definitely cuts me out of the picture :D

Anonymous said...

My own income for the past several years has been in the zipcode of the lawyer you speak of (sometimes lower, sometimes higher, and more recently well north of the mark), and my NW exceeds his. Only I'm about 20 years younger. So, I see your point.

But, a number of things come to mind:

The attorney may have only recently come into this level of income, or it could be just a one-year blip. Generally speaking, high-income folks don't have steady incomes, it often varies quite a bit from year-to-year. Whenever my wife asks me how much income we made for the year, I usually ask her "Under what methodology?" Should I include bonuses? stk option awards, deferred comp, cash distributions from investments, rental income, etc... should I tax adjust these items... you get the point.

And then with NW, what do you include? And how do you value it? How much is a home or a business or partnership interest worth? Do you include trusts? unvested options? deferred comp that you cannot access for years, etc.

I too used to be on a co-op board. And I can tell you, there are a lot of different ways to slice and dice your financial statements. So, its really hard to get a clear picture of someone's true financial status from such a snap-shot.

Also, the lawyer in question may be getting a pension upon retirement, which would reduce the need for NW to fund retirement. And/or they could have already transferred substantial assets to children, trusts, etc. More ways to muddy the picture than you can count.

Anonymous said...

Whoever posted that nonsense about the revocable trust has no idea what they are talking about in taxes or in co-op boards.

Your income stays the same no matter what trust you put it in. And a revocable trust is exactly the kind of asset you would disclose to a co-op board to show your net worth.

Madame X said...

escape brooklyn-- I think Property Shark only shows the last couple of years' sales for coops, and even that was only introduced fairly recently.

anon 5:49-- I'm open to considering potential partners with less than $1 million income, but only if they're from Ghana!

Anonymous said...

anon 6:29 has it exactly right, when you start making a high income "counting your pennies" is actually fairly complicated. A lot of people think earning a high income just means you get a bigger pay check but actually it isn't that simple. Usually the extra income comes from sources other than salary (e.g. business assets, stock or stock options, royalties, etc..) and often the taxes on them are also complicated. To further add to the complexity, not many people have to deal with these unusual sources of income and so it is hard to find accountants or tax experts who have experience with it. As an example, several years ago my husband and I had some unusual sources of income and we found a tax expert to help us with our tax documents. A year later the govt. billed us several tens of thousands of dollars, plus fees, because this "expert" didn't fill out our documents correctly - and this guy had been recommend by 2 different trusted sources. Nowadays my husband and I have learned we must educate ourselves on tax matters since we still haven't found an "expert" who we feel has more knowledge than we do. Making, and keeping, large amounts of money isn't that simple.

Anonymous said...

To your point anon 2:06pm, my experience very much echos yours. It is very difficult to find professionals truly well-versed in the investment and tax needs of high-income individuals. The one thing that continues to surprise me is the complexity generated by wealth. At the upper reaches of "rich," those people can afford teams of the very best lawyers and tax advisors. But at what I'll call, the entry-level to well-off, there are a lot of hacks out there happy to charge up fees, but short on real skills and experience. So, you have to spend a lot of time educating yourself. It's really a job unto itself. Helps if start educating yourself early, rather than having to learn it all suddenly (explains why so many lotto winners end up broke).

Anonymous said...

By the way, hasn't it occurred to anyone that the lawyer may not have wanted to show too much in assets to the co-op (or conversely may have artificially inflated some figures). When I purchased a co-op years ago, my attitude was what business is it of theirs. They don't have to know everything. They just need to know enough to approve my application - the nosey S*B's. Of course, once I was on the Board, I asked the newbie applicants lots of probing financial questions. After all, you can't just let anybody in (irony intended).

English Major said...

Laura Mercier recently bought a full floor in my parents' loft building, and you can bet I wanted a peek at her financials!

The fact that she was paying cash for her $7-million-plus apartment told me all I needed to know, though.

Anonymous said...

I'll second what another poster said. I'm a lawyer, just graduated from law school last year and I'm making $170K this year and $500K will come my way in a few years if I decide to stick with this. So the fact that he made $500K and was close to retirement means diddly. It is very likely that he was earning much less for most of his career. Also keep in mind the progressive tax system. If you're living in NYC, after something like $330K (I forget the tax bracket numbers) you are paying almost 50% of your salary in federal, state, and city taxes.