The Logic Behind Million-Dollar Luxury Homes
Why the ultra-rich buy luxury homes they rarely use
1A Look into the Luxury Real Estate Market
I toured a $9 million house in Honolulu to understand the luxury real estate market. Visiting such homes provides free education about the market. The more homes you see, the better sense of value you gain.
2The Family's Verdict
My wife thought the house was too big. She was right. For a family of four, it was unnecessary space. The stairs were challenging for my dad. This showed that we should prefer single-level homes in our future search.
3Empty Nest Math
Our youngest child will go to college in 12 years. Living in a 6,700 sqft house as two adults would cost over $150,000 annually. This means using rooms like visiting museum exhibits.
4Who Buys These Homes?
In my conversation with the listing agent, I learned that most buyers at this price point purchase them as second homes. Japanese nationals and West Coast buyers purchase these homes to use for a few weeks a year.
5Cost Analysis
The annual carrying cost of a $9 million home is $150,000. This amounts to $5,000 per night for 30 days of use annually. Additionally, the risk-free return on $9 million is $380,000 per year. This raises the nightly cost to $20,000.
6A Different Equation for the Rich
The ultra-rich don't need to justify such purchases. They spend only a small portion of their net worth. For example, a $9 million home is only 6% of a $150 million net worth.
7Home as an Investment Tool
For the ultra-rich, vacation properties are not just shelters but also stores of wealth. Supply in Hawaii is limited, and global demand is rising, increasing the value of luxury properties.
8Net Worth Rule
It's recommended that your primary residence should not exceed 30% of your net worth. But for the ultra-rich, this percentage is much lower. Their net worth is so large that this rule doesn't apply to them.
9Risk Perception
For the rich, even if a second home burns down, their lifestyle wouldn't change. Therefore, the question 'Can I afford this?' is no longer asked. Their risk perception is entirely different.
10Investment and Status
Luxury homes are not just investments but also status symbols. For the ultra-rich, such properties are indicators of their wealth and success.
11Future Plans
We plan to move to Honolulu in 2029. This is an opportunity to be closer to our parents and help them. However, buying such a large house is not practical for us.
12Conclusion
For the ultra-rich, luxury homes are not just shelters but also investments and status symbols. Their net worth is so large that they don't need to justify such purchases.
Original article: Financial Samurai — Milyon Dolarlık Lüks Evlerin Ardındaki Mantık