One of the oft-stated "facts" about Jimmy Wales is that he made himself financially secure as an options trader. I'm a little curious about this because I don't think it's true.
So I did some digging. Jimmy sold his house last December for $230,000; he had bought it back in 2002 for $180,000 so that's a pretty decent capital gain. We'll get to that in a bit.
The more interesting thing is that when he bought it, he took out a 30 year fixed note for $171,000. Now, I'd expect even someone with substantial wealth to take out a mortgage. But that's a note for 95% of value—the maximum that most lenders will write a plain 30-year fixed note for. Anything less and you end up in creative financing territory. Most lenders require private mortgage insurance on notes for more than 80% of value, and the conventional financial wisdom is to avoid PMI if you can. Either Jimmy has some special pull with IndyMac Bank (thereby avoiding PMI), didn't care about paying PMI, or simply didn't have $27,000 in additional cash to make a 20% down payment.
Here's where it gets more interesting. In 2006, Jimmy took out a $120,000 home equity line of credit against his house. Now, at this point, if he's been paying a 30 year fixed mortgage at the normal amortization rate, he's built between $7000 and $10,000 in additional equity, on top of the $9000 he put down. So that home equity line of credit is relying on an increase in value of the house of about $100,000 since he bought it in 2002. This is within the realms of possibility, but what it tells me is that he took the maximum he could when he drew this line of credit. The house subsequently sold for $230,000, which is less than the total indebtedness on the two mortgages if the line of credit were fully extended, but of course Jimmy might not have used the entire line of credit or may have paid it down more than the minimum required. Both banks released their liens so it appears that Jimmy either did not utilize the entire $120,000, or came up with the $50,000 he needed to satisfy the difference from somewhere else. Quite frankly, I don't expect someone who is "comfortably wealthy" to have his house mortgaged to the hilt; that's just not fiscally prudent.
Now, there's the issue of where he and his (soon-to-be-ex) wife are living. There's no record of Jimmy or Christine recording a deed in Pinellas County. That means one of several things: they no longer live in Pinellas County; they're leasing; or they're living in a house that is registered in the name of some other entity (admittedly, I didn't check to see if there's a deed registered in Kira's name). In any case, as I understand tax law that means that Jimmy and Christine cannot roll that capital gain into the basis of their new house (since there is no new house) and instead have to pay capital gains tax. That's at least $50,000 and could be more if they've carried forward capital gains from prior sales; the tax on $50,000 would be nearly $20,000. (Update: It seems I missed an exemption for cap gains that would protect them from having to pay tax. I'm a network administrator, not a tax accountant.) I hope they have that, especially after going $50,000 under water on the sale of their home. I know Jimmy makes a bunch of money every time he speaks, but from the sounds of it he spends it at least as fast as he makes it.
My point is that Jimmy's finances, or at least this bit of the picture, is not entirely consistent, in my mind at least, with Jimmy's portrayed image of "comfortably wealthy former option trader". None of the above proves that he's lying, but it certainly gives me pause. If he's lying about this, one has to wonder what other statements in his supposedly "neutral" biography on Wikipedia are also lies. Oh well. The divorce papers ought to make for a clearer image of this; if nothing else there will be the issue of child support which generally requires evaluating assets and income; Florida law prohibits putting these on the web so someone is going to actually have to go to the courthouse and obtain the actual file to find out what's up here. Maybe they'll turn up on the Smoking Gun....
So I did some digging. Jimmy sold his house last December for $230,000; he had bought it back in 2002 for $180,000 so that's a pretty decent capital gain. We'll get to that in a bit.
The more interesting thing is that when he bought it, he took out a 30 year fixed note for $171,000. Now, I'd expect even someone with substantial wealth to take out a mortgage. But that's a note for 95% of value—the maximum that most lenders will write a plain 30-year fixed note for. Anything less and you end up in creative financing territory. Most lenders require private mortgage insurance on notes for more than 80% of value, and the conventional financial wisdom is to avoid PMI if you can. Either Jimmy has some special pull with IndyMac Bank (thereby avoiding PMI), didn't care about paying PMI, or simply didn't have $27,000 in additional cash to make a 20% down payment.
Here's where it gets more interesting. In 2006, Jimmy took out a $120,000 home equity line of credit against his house. Now, at this point, if he's been paying a 30 year fixed mortgage at the normal amortization rate, he's built between $7000 and $10,000 in additional equity, on top of the $9000 he put down. So that home equity line of credit is relying on an increase in value of the house of about $100,000 since he bought it in 2002. This is within the realms of possibility, but what it tells me is that he took the maximum he could when he drew this line of credit. The house subsequently sold for $230,000, which is less than the total indebtedness on the two mortgages if the line of credit were fully extended, but of course Jimmy might not have used the entire line of credit or may have paid it down more than the minimum required. Both banks released their liens so it appears that Jimmy either did not utilize the entire $120,000, or came up with the $50,000 he needed to satisfy the difference from somewhere else. Quite frankly, I don't expect someone who is "comfortably wealthy" to have his house mortgaged to the hilt; that's just not fiscally prudent.
Now, there's the issue of where he and his (soon-to-be-ex) wife are living. There's no record of Jimmy or Christine recording a deed in Pinellas County. That means one of several things: they no longer live in Pinellas County; they're leasing; or they're living in a house that is registered in the name of some other entity (admittedly, I didn't check to see if there's a deed registered in Kira's name). In any case, as I understand tax law that means that Jimmy and Christine cannot roll that capital gain into the basis of their new house (since there is no new house) and instead have to pay capital gains tax. That's at least $50,000 and could be more if they've carried forward capital gains from prior sales; the tax on $50,000 would be nearly $20,000. (Update: It seems I missed an exemption for cap gains that would protect them from having to pay tax. I'm a network administrator, not a tax accountant.) I hope they have that, especially after going $50,000 under water on the sale of their home. I know Jimmy makes a bunch of money every time he speaks, but from the sounds of it he spends it at least as fast as he makes it.
My point is that Jimmy's finances, or at least this bit of the picture, is not entirely consistent, in my mind at least, with Jimmy's portrayed image of "comfortably wealthy former option trader". None of the above proves that he's lying, but it certainly gives me pause. If he's lying about this, one has to wonder what other statements in his supposedly "neutral" biography on Wikipedia are also lies. Oh well. The divorce papers ought to make for a clearer image of this; if nothing else there will be the issue of child support which generally requires evaluating assets and income; Florida law prohibits putting these on the web so someone is going to actually have to go to the courthouse and obtain the actual file to find out what's up here. Maybe they'll turn up on the Smoking Gun....
Word on the street says Jimbo has his current home not under his own name, to keep his private life private.
ReplyDeleteNot that this does any good, from what we've seen.
Quite frankly, if Jimmy wanted to keep his private life private, he should have adopted a less flamboyant lifestyle.
ReplyDeleteIs Sollog out of jail yet? Maybe he can enlighten us.
ReplyDeleteI agree Kelly, he should've. Doesn't mean he did :-P
ReplyDeleteWhere did you find this information? I was unaware that St. Petersburg, FL (or the county it is in) have their records online.
ReplyDeleteGeoff
All of my information is based on Pinellas County public records published at the county's website. The mortgage and deeds are viewable via the official records section; the amounts Jimmy paid for the house, and sold it for, are reported as part of the property assessor's report.
ReplyDeleteThis may be public information. But if this were wikipedia I'd remove it as original research and a violation of privacy.
ReplyDeleteJimbo's wikipedia doings are fair-game. He's a trustee of a charity and must be accountable to the donners. Whose name his house is in, what he paid for it, and where his daughter is going to live are not.
Doc
Doc: Of course, this isn't Wikipedia, so Wikipedia policies aren't relevant here :-P
ReplyDeleteIt is an interesting read (which I suspect is what Kelly is going for, rather than trying to be an encyclopedia). I'm glad someone took the time to dig through the public information out there.
Doc,
ReplyDeleteOf course it's original research. So what if it is? If nobody does research, it will never get done.
All of what I posted is either public record or reasonable speculation that any reasonably intelligent person could do. And it's relevant because it goes to contradict Jimmy's public claims about himself. I think at this point Jimmy's character is very much in question, and evidence that suggests that he's lied in the past is highly pertinent.
...And it's relevant because it goes to contradict Jimmy's public claims about himself. I think at this point Jimmy's character is very much in question, and evidence that suggests that he's lied in the past is highly pertinent.
ReplyDeletePlus, every time one fucks the wrong person over, they should expect to be repaid in spades.
Keep up the good work, Kelly.
Kelly gave the answer I expected her to provide. Some of her details could be construed as if she infringed illegally on Wales' personal information. Or decided to join Rachel Marsden in stalking Wales.
ReplyDeleteAs for "original research"... sheesh, look at the domain name here. She's posting on blogger.com, not wikipedia.org. She's well within her rights to reprint any data she is legally permitted to her, & draw any conclusions she wants to here.
Geoff
Love it. "Original research". LOFL. You need to get out more, Doc. or at all, actually. Being a wikilord in your basement has gone to your loaf.
ReplyDeleteMarsden "stalking" Wales? lol. He wishes. Girlfriend ran for the hills!
ReplyDeleteWales has publicly said (paraphrased) that reports of him having great wealth are exaggerated. It's conceivable that he has an investment nest-egg that provides an income sufficient for basic necessities, but not the sort of lifestyle involving world travel, top hotels, and $300 bottles of wine for dinner.
ReplyDeleteSee, Seth, the interesting thing about that is that Jimmy himself has fostered rumors that he's wealthy (e.g. his comments to Wired a few years back), plus his behavior is that of a wealthy jetsetting socialite.
ReplyDeleteIs this another example of Jimmy "constantly trying to rewrite the past", to borrow a phrase from Florence?
Kelly,
ReplyDeleteYou are wrong on the capital gains tax for sure. Gain on sales of primary residences are subject to an exclusion limit - $250K for an individual, $500K for a married couple filing jointly. See http://www.irs.gov/publications/p523/ar02.html#d0e2017. The gain is well below the excludable amount. Yes, the federal tax laws really favor homeowners.
As for the mortgage amount; the really wealthy do usually mortgage - they've learned the lesson of letting other people's money work for them, and can invest at better rates of return than the interest on mortgages. That he went to 95% is interesting and leans toward not having the cash lying around, but not determinitive.
GRBerry
I wouldn't be surprised if he's wanted at times to backtrack from previous puffery. He has a consistency problem where he'd want to present himself to wealthy people as being on on their social level, as of the same class. But that creates difficulty when he can't back it up (i.e. tried to push the expenses off to the Wikimedia Foundation).
ReplyDeleteOne class-marker is the notion that you have enough money not to need to work, that you just do it because it's fulfilling.
Note Wales would not be the first person to want an ultra-rich lifestyle even if he can't afford it, and even if he had enough money for a modest lifestyle.
Any clue what his Wikia salary is?
ReplyDeleteI wouldn't read too much into his maxing out his home equity credit: it's a very good way to raise funds, given that it usually has a low interest rate and that the interest is tax deductible. What you might look at for extra credit, Kelly, is what the interest rate on his line of credit was, and how it compared with rates available on margin loans at brokerage houses at the same time. If he arranged to be able to borrow $120,000 on his house at 6% when he could have borrowed the same amount at 5 1/2% on a brokerage account, chances are, he didn't have enough funds in any brokerage account to be able to borrow that much (you'd only need a couple hundred thousand; a nice nest egg for a working stiff, but hardly enough to be financially independent). It could also be that Jimbo has continued to play with options after ending his professional investment career, and his accounts blew up on him. I strongly suspect that if Jimbo really did make a lot of money on options in a short time, it was either because he was doing very stupid things and he got lucky, or because -- like many Rand-ians -- he was unconcerned with ethical considerations that cause the rest of us to leave a lot of money on the table.
ReplyDeleteWhat this doesn't contemplate is "locking in" the interest rate; brokerage house margin loans are not fixed, and so you are always paying the prevailing interest rate, or at least a rate based upon such. A home equity credit line would generally have a fixed rate for its lifetime.
Basho,
ReplyDeleteUnfortunately, the recorded public record mortgage notes do not recite the interest rate, or if they do I missed it despite reading through the documents three times.
But your point is valid. The mortgage interest deduction does give a substantial effective discount on real property mortgages. Still, carrying PMI is a significant tack-on on the entire amount of the note, and I find it hard to believe that someone with a security reserve would not be able to find some means of financing that avoids PMI. If the primary note is at 6% and the typical PMI premium of 0.78% per annum of the original note applies, a "piggyback" is less expensive to carry even if the piggyback loan carries an 11.6% rate, a rate which is likely not out of reach for someone with good credit even without pledged collateral security. Factoring in a marginal tax rate of 30% pulls the breakeven down to 9.85%, which is a bit tougher. But many lenders will do a piggyback second mortgage, which allows the interest on the piggyback to also be deducted.
Admittedly, this is qualifies as creative financing, but hell, we looked into such options when we bought our house; I would expect an experienced options trader to do the same. Even Wikipedia has an article that discusses how to structure real estate transactions to avoid PMI; this is not "rocket science".
Kelly, you don't know for sure Jimbo pays PMI, do you? Suncoast Schools Federal Credit Union, which writes mortgages in St. Pete, has a No PMI Program which allows LTVs up to 95%. So it's not unheard of. I don't know if Indymac has such a product or not.
ReplyDeleteAnyway, I thought Jimbo was pretty consistent in claiming that he wasn't particularly rich. I looked up how much he paid for a house years ago and it confirmed what he had been saying all along.
Of course, this (and the house purchase) was before the big honorariums started rolling in.