What You Need to Know
- Many affluent clients purchase real estate to create experiences for their families and to build a legacy.
- As their advisor, you need to take into account any additional costs and optimize tax strategies for their additional property.
- A personalized approach is essential to help clients realize their goals for multiple home ownership.
Many wealthy clients make the decision to purchase an additional home. While increasing property values can certainly be an outcome, most often that’s not their primary motivator. In fact, none of my clients have done so purely as an investment. Instead, they aspire to create experiences and tobuild a legacy — which is an important distinction to make when guiding them through the financial side of multiple-home ownership.
As an advisor, it’s my job to understand what my clients want to accomplish with their wealth. Family is usually their highest priority. They are focused on creating a legacy — and doing so through shared experiences. They imagine convening their family and friends in idyllic places to share memorable experiences. They are also considering how to financially care for their children and grandchildren, and the values they want to impart.
Account for Additional Costs
Ifa client is wealthy, they prefer their additional home to be turnkey —when they leave one residence, they simply lock the door and they, or their visitors, can return any time. In some cases, that may require a groundskeeper or property manager who lives on the property full time to maintain it.
This brings up additional costs to account for, beyond just the purchase price. We advise our clients about other costs to prepare for, in addition to property management, such as property taxes, home insurance, security, landscaper fees and maintenance costs.
Also consider the cost of how the client intends to use the home. For example, one client plans for a family trip to their second home each year, which has grown to include 14 grandchildren. As the family grows in number, it becomes a greater expense. They rent an adjacent property to accommodate everyone and cover the cost of transportation, food and entertainment. It may take some financial foresight, but they’re happy to do it since it’s always the highlight of their year.
Optimize Their Tax Strategy
We are focused on being the financial quarterback for our clients andtheir families’ trusted advisor. That requires working with our clients’ accountants and estate attorneys regarding tax planning and the various ways to tax-optimize the property both at purchase and when it’s passed on.
In the case of a client who has a special property they want to keep in the family, one idea is to put it into a residential qualified personal residence trust. This enables the client to gift the home and freeze its value for tax purposes while retaining the right to live in it for a specified number of years, after which the next generation owns the property. We may also help the client establish an endowment to fund all the expenses for the future of the property.
FAQs
One of the common financial reasons for purchasing a second home among high-net-worth individuals is that they plan to eventually move into the home full-time during retirement — the survey found that 33% of wealthy clients who owned second homes planned to make them their primary residences in the future.
How many homes do wealthy people own? ›
Average number of homes owned by UHNWIs in different regions worldwide 2022. The world's richest people owned on average about four homes in 2022. Ultra High Net Worth Individuals (UHNWIs) owned the most homes in the Middle East - 5.3 residential properties.
How do rich people manage multiple properties? ›
If a client is wealthy, they prefer their additional home to be turnkey — when they leave one residence, they simply lock the door and they, or their visitors, can return any time. In some cases, that may require a groundskeeper or property manager who lives on the property full time to maintain it.
Is it smart to own multiple homes? ›
Owning multiple homes gives you the opportunity to create a sustainable and passive cash flow stream. Each additional property adds to the total rental income, which can help cover mortgage payments, property taxes, maintenance costs and other expenses associated with owning multiple rental properties.
How many homes does the average billionaire own? ›
There's a new bar for wealth in America: Nine homes and 19 cars.
What percent of Americans own multiple homes? ›
Second home ownership statistics show that 6.02% of individuals aged 30–49 own a second home. This age group has a higher second home ownership percentage than those aged 18–29 and 50–64, whose rates are 4.68% and 4.13%, respectively.
Why do millionaires buy so many houses? ›
Because of the many tax benefits, real estate investors often end up paying less taxes overall even as they are bringing in more income. This is why many millionaires invest in real estate. Not only does it make you money, but it allows you to keep a lot more of the money you make.
What household net worth is considered wealthy? ›
According to Schwab's 2023 Modern Wealth Survey, Americans perceive an average net worth of $2.2 million as wealthy. Knight Frank's research indicates that a net worth of $4.4 million is required to be in the top 1% in America, a figure much higher than in countries like Japan, the U.K. and Australia.
What is considered a rich household? ›
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.
How many people own 2 homes? ›
According to NAHB estimates, the total count of second homes was 7.15 million in 2020, accounting for 5.11% of the total housing stock. This represents the most recent data available. As of 2020, the state with the largest stock of second homes was Florida (1.04 million), accounting for 10.8% of all second homes.
Investors own multiple rental properties to increase rental income, net cash flow, and tax benefits, such as depreciation. Owning multiple rental properties can help investors reduce risk through portfolio diversification.
Do the rich pay off their mortgage? ›
Most have paid off their mortgages. In 2020, 58% of the state's equity millionaires owned their homes free and clear. Statewide, there has been a dramatic rise in the number of Californians who have paid off their mortgages, from 1.6 million households in 2000 to 2.4 million in 2020.
How many properties to make 100k a year? ›
The amount of capital needed to generate $100,000 in annual income from rental properties depends on factors like cash flow, financing, and property types. For example, if you have an average cash flow of $1,000 per month per property, you would need approximately 8-10 properties to achieve $100,000 in annual income.
What is the downside of a second home? ›
The downside of buying a vacation home is that you will have two of everything – mortgages, property tax bills, water bills, fuel bills, etc. It also means additional responsibility for repairs and general upkeep.
What is the 2% rule in real estate? ›
The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% of the purchase price.
Why do rich people buy houses? ›
The simple answer is, it's profitable to do so. To explain why, imagine you decide to buy a home worth 10 million. You've got 20 million in the bank, and so if you wanted you could pay for it outright. But you decide you're going to take out a mortgage, and so you go to the bank and ask for one.
Why do people buy second homes? ›
When buyers purchase a home in one of their favorite locations, they can use the property for their own pleasure or even as an additional income source. When they are ready to retire, they have the option to relocate to their second home or even sell it and buy another home if their retirement plans change.
