WHO'S A MILLIONAIRE? BEING WEALTHY MAY LOOK EASY, BUT ...

Byline: Barbara Correa

Craig Costello, 84, doesn't feel like a millionaire. He lives on Social Security and income from four rental units and rides his bike for fun.

But the house in Manhattan Beach that he built 50 years ago for about $15,000 is now worth more than $3 million, making him a millionaire several times over, at least on paper.

"I don't feel I'm deserving of all this," said Costello, a former insurance agent and lifelong surfer. "I just had a very ordinary life."

Costello is part of a growing group of Southern Californians who don't think of themselves as rich, but are worth $1 million or more because of the run-up in home prices or the increased value of a family business. While some of these closet millionaires opt to liquidate their assets, a lot of them would rather not cash in their homes or businesses, no matter how much they are worth.

Judy Nelson, a retired CEO of a nonprofit organization in Hollywood, could sell her $1.3 million house. Instead, she went back to work recently as a life coach to supplement her husband's income as a physician so the couple can continue to travel, go to the theater and dress well. "We should be selling and downsizing, but we don't want to," she said.

Spreading the wealth

Counting people whose residences are worth $1 million plus, about 8 percent of Los Angeles County residents qualify as millionaires, according to sales figures compiled by DataQuick.

But the ranks of the truly wealthy -- high-net-worth folks with $1 million or more excluding primary residence -- are also growing. According to market research firm TNS Financial Services, Los Angeles County had 268,000 "real" millionaires in 2006, up from 263,000 the previous year, making it home to more millionaires than any other county in the nation. In fact, 23 percent of California's millionaires live in L.A. County.

Nationwide, the mean net worth (not including the primary residence) for these households is $2,167,167; the mean investable assets are $1,442,841. The median age for the head of the millionaire household is 58 years old, and almost 45 percent are retired, the TNS report says.

Part of the reason why the rich are indeed getting richer is simply population growth overall. But there's more to it than that.

A lot of recent wealth creation has come from the sale of family businesses as baby boomers begin to retire -- or at least sell out.

"Right now ... there's like three (family business sales) a week," said David Emmes, regional president for Mellon Financial Corp.'s private wealth management unit.

He said Mellon opened new offices in Century City in January specifically to cater to what it sees as a growing client base in the area. "The principals (of the businesses) are between 50 and 70.

"They were driving from places like Newport Beach to Corona and the City of Industry. They own auto-repair shops, manufacturing companies. None of them think they have enough. When they liquidate, they're still getting used to how to use that money."

Get rich slowly

Most millionaires, or multimillionaires, however, have made their money the old-fashioned way -- by saving and investing and living within their means, said Jeanette Luhr, who heads the affluent market research program at TNS. Of course, the historic run-up in real estate hasn't hurt.

But the theory first popularized by the 1996 book "The Millionaire Next Door: The Surprising Secrets of America's Wealthy" has proven true: that most rich people make their money by living relatively frugally and making conservative spending decisions. "When interest rates first dropped, we saw debt drop," said Luhr. "The affluent weren't taking out new loans and going out and buying boats.

"They were getting rid of their debt. ... They're not the ones out there driving the Lexuses. They're driving the Toyotas."

These days, it takes an increasing amount of scrimping and saving to call yourself seriously rich, especially in Los Angeles.

"A millionaire can't buy a lifestyle that is considered as high as they could 10 years ago," said Michael Rosenberg, a vice president of wealth management at Comerica Bank in Los Angeles. "There are more (multi)millionaires now, and you see them more. You hear how much an actor is being paid for a movie before you see the movie. You hear about how a Microsoft (developer Charles Simonyi) paid $25 million to go into space. The scale is different now."

Down and out in Brentwood

Indeed, the cost of living in the tonier areas of L.A. has created a true subclass of struggling millionaires.

Software consultant Laurel Nicholson and her husband, a firefighter, own about $1.4 million in rental properties. They also own a $1.2 million, one-bedroom, one-bath house in Brentwood Glen, a neighborhood right off the 405 just south of Sunset, and bring in about $200,000 a year.

"We're actually in the red most months," she said. "This is what I find so frustrating about L.A."

Sure, the couple could sell all the rental properties, but that wouldn't solve the long-term problem of how to finance a Brentwood lifestyle.

"We could just sell out, but then we're going to be on a month-to-month kind of salary. We're never going to make it on our salaries on the Westside of L.A."

In addition to her $5,800 monthly mortgage, Nicholson pays $3,000 a month for child care, an additional $1,000 for preschool, and then there are the car payments. Nicholson isn't crazy about the idea of living in a cheaper neighborhood.

"We don't want to go to those other areas, like Mar Vista, but this is another thing we contemplate every day."

"A lot of people overspend to try to match lifestyles," said Nick Krsnich, a certified financial planner in Woodland Hills. "The problem is, it's not very exciting to save money for the future; there's no instant gratification in that, but if you can do it for five to seven years, you'll have an investment portfolio."

Most professional wealth managers agree that nothing beats saving over time for building wealth, even if your home is worth a chunk.

"If you think you are worth a million, that's a pretty big accomplishment. But if that's your house, it's just an asset on your balance sheet," said Tom McFarland, founder of The Darrow Company Inc., a wealth management firm with offices in Century City and Concord, Mass.

"The question is how much you spend. That's the key. If our house was worth a million, plus another million in liquid assets, then you can start thinking about retiring."

barbara.correa(at)dailynews.com

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CAPTION(S):

2 photos, box

Photo:

(1 -- color) Craig Costello outside his Manhattan Beach home on Second Street. Costello lives quietly on Social Security and rental income.

(2) From his balcony in Manhattan Beach, Craig Costello takes sextant readings. The 84-year-old surfer paid about $15,000 for the home he built 50 years ago. Now it's worth some $3 million.

Brad Graverson/Staff Photographer

Box:

the numbers

Source: TNS Financial Services