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.
