The Kardashian/Jenner clan are no strangers to hitting the headlines, but back in April, they did so for an unusual reason: debt. The US Sun reported that the family has accumulated some $132 million in home loans. A large portion of that debt is attributed to Kim Kardashian, who recently took out a $48 million mortgage on her new Malibu ocean-front home.
Debt of this magnitude seems large, but the Kardashians have an accumulated net worth of around $2 billion, which makes the home loans a comparative drop in the ocean. Kim Kardashian, with one of the largest home loans of just shy of $50 million, has a net worth of $1.2 billion, which gives a perspective: her home loan is significant, but it’s not that much compared to her overall wealth and assets, and it’s certainly not irresponsible or overstretched borrowing, as some headlines seemed to suggest.
The Kardashians are notoriously smart with their money, with much of their wealth tied up in various business ventures, projects, enterprises, assets and investments, meaning they’re not ‘liquid millionaires’ (or billionaires, in the case of Kim). Like most high-net-worth individuals, they will have some cash available to them, and they will receive an income of some description to cover their living expenses - but none of them will have billions just sitting in the bank they can use to make big-ticket investments like Malibu trophy properties.
While such significant debt made for sensationalist headlines, the Kardashian’s real estate debt underlines just why mortgages can be so advantageous and why so many high-net-worth individuals opt for a mortgage when they can afford to buy a property outright.
While the world predominately thinks of the Kardashians as entertainers and TV stars, they are actually business owners - and very astute, successful ones at that. Their wealth is tied up in various ventures, many of which make very significant returns. Kim Kardashian owns 35% of the hugely successful Skims body-wear range, for example, which was valued at $3.2 billion in 2021. Skims is a high-growth business, with sales expected to surpass $400 million this year - up from $275 in 2022. Kim Kardashian and Skims CEO, Jens Grede (who is also Kim’s business partner) retain the largest shareholding of Skims, which is currently so successful, they may choose to list it in the future.
It’s here that mortgages come into their own: if Kim Kardashian is going to put cash anywhere, it makes sense to push it into a high-growth business like Skims, rather than a property, which is unlikely to appreciate at the same rate or bring in the same kind of returns in the short, medium or long term. Putting cash into the opportunities that generate the best returns and raising debt for anything else, is often highly advantageous: it’s essentially cheaper to access debt than it is to give up capital you’ll invest in a high-ROI opportunity. We estimate that Kim would have been able to access a rate of between 4.3 to 5% (plus fees) for her Malibu property: a steal compared to what she’d earn from her brands and business investments.
From the top of the mortgage market to the bottom, one thing is generally the same: you don’t get something for nothing. Even celebrities will need to put down deposits for a property (or more likely place assets under management with a lender) to access an ultra-large mortgage. As shown in the Sun’s reporting, Kim Kardashian was required to put just under 70% of the property price (borrowing $48 million against a property purchased at $70 million, plus fees) forward to be able to access the mortgage.
Senator Elisabeth Warren, a 2020 Presidential Candidate and Senator for Massachusetts, is a leading progressive politician in the US, and has proposed an ‘ultra-millionaire tax’, which would be levied on fortunes of over $50 million – which puts Kim Kardashian (and much of the Kardashian/Jenner clan) firmly within its scope.
Warren is proposing a tax rate of 2% on net worth valued at over $50 million and 4% for households worth over $1 billion. While it isn’t certain the tax will be introduced and the timing of its enforcement if it is, is not yet clear, it is a consideration for ultra-high-net-worth individuals in the States – especially for Californians who are also now liable to pay a mansion tax (although this wouldn’t have applied to Kim Kardashian, who brought her Malibu mansion before the introduction of the new rules). Working on the assumption that the tax is eventually brought into force this year, as proposed, Kim Kardashian could effectively offset her mortgage from the net worth of her assets, allowing her to optimise her fiscal position.
It’s impossible to know exactly what Kardashian is paying for her mortgage, and rates will be affected by the term and the type of product she’s taken out. With such a significant net worth and future earning power, she’s an exceptionally high-quality borrower, and lenders will have recognised this from the offset. This means she’ll have had access to competitive rates and terms, as well as a completely tailored deal: she won’t have a packaged product, but she will rather have a one-of-a-kind finance deal structured to meet her financial plans, requirements and it will be optimised in terms of privacy, estate planning, fiscal and cash-flow considerations.
Mortgage rates in the US are high at the moment, with rates at the time of the 2021 completion on Kardashian’s mansion sitting at around 5.5%. However, we believe she will probably have been able to access more competitive rates, given the calibre of her profile. She will also be backed by a team of astute wealth and financial planners, and brokers who will have been able to negotiate for her, ensuring she was able to get the very best deal available on the market. Assuming the loan-to-value ratio on her mortgage was around 69% and that she opted for a 3 or 5-year fixed product (which would make sense considering the current interest rate market), we believe Kardashian is most probably paying between 4.3% and 4.5% for her mortgage, based on the most competitive rates available in the market today. Kardashian would also have needed to pay lender fees – probably in the region of 0.5%.
How long Kim’s mortgage is will also affect what she’s paying: she may have chosen a conventional property financing package of 25 to 30 years, or she may have chosen something shorter. She may also have built-in no early repayment fees in the package, depending on her plans for settling the loan.
It's thought that Kardashian borrowed from BNY Mellon. She may have an existing relationship with them, or this may be a new relationship for the purposes of the home loan - either way, with her star power and financial security, the bank is likely to have offered fair but competitive rates for a mortgage of this size. Kim Kardashian usually grows her wealth by about $80 million a year (an average of around $6.5 million a month), and although she might not take all that home as income, she’ll probably pay herself a monthly ‘salary’ in the millions from which she might pay a mortgage of around $250,000 a month.
Not bad for a little over a day's work.
The views and opinions expressed in this piece are those of the author. They do not constitute advice or a recommendation, do not necessarily reflect the official policy or position of Enness and are not intended to indicate any market or industry viewpoints, or those of other industry professionals.