Celebrities are real people who have hopes and dreams like us. They are often looking for investment opportunities in income-producing assets, so they no longer have to work for a living.
Celebrities invest in several different ventures, which unfortunately are inaccessible to us. However, we can invest in large deals like hotels, apartments, or office buildings using real estate crowdfunding like celebrities.
Instead of letting professionals manage their real estate investment using real estate syndication, they invest in personal residences, which turn out to be money pits. Let us look at the five worst celebrity real estate investments and what we can learn from them.
1. Farmington Mansion – Mike Tyson and 50 Cent
The first real estate blunder I’m going to talk about is a 52 room mansion in Farmington, Conn.
It seems to bring bad luck to celebrities since two celebrities have owned it and lost money. Mike Tyson held it. He bought it for $3 million in 1996.
Tyson tried to sell it for $22 million a year later. Maybe he thought his name would attract buyers, but that didn’t happen. He could sell it at a profit to 50 Cent but not at the price he wanted.
He sold it for $4.1 million, but it took years to find a buyer.
One could argue that Tyson bought this massive mansion at the wrong time because he hit financial issues quickly after buying it. The truth is that it’s wise to plan for financial hiccups.
What happened to 50 Cent was a bad real estate investment. 50 Cent purchased the mansion at a reasonable price. The goal after buying a house should always be to make it more valuable.
50 Cent invested between $6 to $10 million into the mansion. He wanted to renovate it, but he based these changes on his wishes. He followed his desires rather than what might improve the property.
A few years later, he had financial issues and listed the house at $18.5 million, but it didn’t sell at that price. He filed for bankruptcy, and the mansion sold for $2.9 million. It looks like his investments didn’t increase the value of the estate.
2. The Neverland Ranch – Michael Jackson
The subsequent real estate investment I need to mention is the Neverland Ranch.
Yes, Michael Jackson owned this notorious property at one point. The king of pop purchased the property in 1988 for a whopping $17 million.
At the time, it was a mansion with a lot of open space, but Jackson wanted it to be more than that. He invested $35 million into the property and transformed it into the Neverland Ranch.
Jackson added a Ferris wheel, a zoo, a train, and even a large theater. It was a place for kids and grown-ups who were young at heart.
Years later, controversy hit Jackson hard, and his career tanked. If all that wasn’t enough, Jackson defaulted on the Neverland Ranch. He owed too much on it and couldn’t pay. He lost the property and left.
The property was listed at $100 million, but no one purchased the property at that price. It could be that Jackson’s name and the alleged crimes that took place at the Neverland Ranch made it impossible to find buyers, or it could be that Jackson’s renovations weren’t universally appealing.
The price of the Neverland Ranch continued to drop. It sold at $22 million, and the person who bought it renamed it and removed some of the additions Jackson made.
Keep in mind that his additions cost Jackson almost double what he paid for the property. There’s no doubt that this looks like a bad real estate investment.
3. Newport Beach Waterfront – Nicolas Cage
The following property I have to talk about belonged to Nicolas Cage. The waterfront property in Newport cost him $25 million, but his real estate investments didn’t stop there.
He owned 14 other properties, including two mansions in Europe that cost him a few million dollars. Cage even owned a deserted island in the Bahamas.
None of these properties were bringing him any additional cash. Someone had to take care of the properties for him when he wasn’t there. Cage also spent a lot of money on many other extravagant expenses.
All of this put him in a predicament that no real estate investor wants to be in – owning high-maintenance property that’s not giving you anything in return.
It was no surprise that Cage had to file for bankruptcy. He lost the Newport Beach property and others. His career was fine. He was spending too much on these properties along with the rest of his expenses.
In essence, he tried to take on more than he could handle and paid the consequences. He is recovering from those financial woes as he takes on all sorts of roles. Hopefully, all of this has taught Cage a lesson about real estate, but only time will tell.
4. Manhattan’s High Rise Hotel – Jay Z
Jay Z is one of the most successful musical artists and business people. He’s invested in all sorts of things, including apparel, SPACs, startups, and much more.
One thing Jay Z wanted to try was owning a luxury hotel. He, and some partners, purchased a luxury hotel intending to renovate it.
Jay Z was going to start an entire line of hotels called J Hotels, but that didn’t happen. He borrowed $52 million and an additional $11.8 million against the hotel.
The cash was going to be used to renovate and launch the hotel, but things went south quickly. The hotel’s value dropped, and Jay Z wanted to return the property. The deal took a while, and Jay Z ended up losing $3.7 million in damages, not to mention that he defaulted on the loans.
Investors noticed the setback and realized that Jay Z isn’t as lucky as he might have imagined. Lenders sometimes are less willing to work with a business person if that person doesn’t deliver. That’s how Jay Z appeared.
Maybe his misfortune was due to timing since property values did drop, but a wise investor doesn’t invest without considering all potential downsides.
A good investor usually has a few plans should things go south, and Jay Z failed to do that.
5. Henderson Home – Toni Braxton
The next celebrity is Toni Braxton and her home in Henderson, Nev. The Grammy winner went into bankruptcy and lost her $2.6 million home, and it only sold for $1 million.
You could say that she lost the property because she had career issues, but if the real estate was a good deal, it should have held its value before falling into foreclosure. Perhaps Toni failed to do due diligence before buying. She also committed a sin that no real estate investor should ever make: to borrow more than what you have in assets. Sadly, her assets didn’t go beyond $10,000, yet she borrowed nearly $50,000, which isn’t a good thing.
You can see why she had to file for bankruptcy—couple all that with the fact that she accumulated $500,000 in overdraft fees just in 1997.
The Bottom Line
The reality is that, sometimes, people make poor financial decisions. While her house wasn’t as expensive as some of the other homes mentioned here, poor money management allowed the house to weigh her down more than it should have.
There you have it. Now, you know about the five worst real estate investments made by celebrities. I hope learning about their mistakes helps you avoid some of the issues one could encounter. Although your losses might be minor, they are still mistakes you don’t want to make in life.
Photo credit: Sharon Alagna
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