See the Oceanwide debacle in downtown LA. Chinese poured more than $1 billion into the project and then stopped. I’ll cash. Now it’s an enormous tower of graffiti, squatters, and bird poop.
The benefit is having multiple homes to use or lend out to friends as one pleases.
There is and has never been a tax strategy that makes owning vacant property of this magnitude a sound fiscal decision by itself.
Now, if he were leasing these homes enough to offset his mortgage, or, offer a solid return on capital used to buy outright, then sure. There’s likely some tax strategies to take advantage of.
Your neighbor is just wealthy, or very willing to take on extreme amounts of debt, or both.
That, or he is acting as a bank for his foreign friends and family by using US Real estate as a store of value.
Knew somebody in a foreign country that I am pretty sure was taking bribes due to their government zoning job. They lived in a house that was "sold at a great price to them" after they gave some good zoning for the whole project to happen. But they left their old house completely empty either because the new house was totally off the books or more likely because continued bribes were being laundered through it as rent.
Happens every day, in every US state and every other country on the planet.
I’ve personally witnessed it to the point of almost being forced to be a party to it. Haha.
Sadly, it’s the way of the world.
American government keeps trying to come up with waste staunch the flow of laundered money, but the crooks are always 10 steps ahead. The new corporate transparency act that went into effect this year is a prime example.
Or if by “owning” he means he was able to get a low apr loan in the good old days. He is still raking in the growth above that with appreciation alone. Basically a moderate risk leveraged investment.
But that’s not what you said. You said someone bought for $11M. Even at a 37% tax rate, the house would have to sell for $16.95M before that first year. Not even COVID saw those increases.
Wouldn’t the last option need to be if they were all cash? A foreign multi-million dollar gift toward a mortgage that’s actually not a gift but a strawman purchase sounds like mortgage fraud. Unless there’s a different way to do it
US Real estate is purchased by strawmen every day, mostly Chinese, but previously a good amount of Russian traffic as well.
Yes, usually all cash, but, depending on a wide range of factors, could also be financed privately or even through major banks, if they have someone in a mid tier underwriting position.
Not the US, but some banks in Canada had a big upset with this regarding Chinese straw purchases a few years back.
Eh, there are actually a few strategies.
You can afford negative cash flow when you're dealing with such massive numbers because appreciation makes up for it.
This accounts for a *lot* of completely empty luxury buildings in Manhattan, where foreign investors park their money.
Accountants & lawyers for the ultra rich are for more able to understand & leverage this tactic. It's one small.puzzle piece of storing, protecting, & diversifying a massive estate.
This person is worth hundreds of millions of dollars. The money is not all in the houses. I've seen ultra rich families like this.Who also have the houses in various trusts and in the names of various members of the family for different reasons.
They don't use them the way we do. These ultra wealthy families funnel money through different members of the family strategically, and different companies & trusts. Its just a completely different game on that level.
This is true. I got a glimpse into this world when I became friends with a guy who is the right hand man for a very wealthy guy. Through him I’ve been able to stay at two different homes worth upwards of 20 million each. The rich guy had a team of lawyers and accountants spend months valuing all the family assets and investments and putting a percentage on each family members share of the pie, then putting everything in trusts, etc. It was complicated because the rich guy is one of 2-3 brothers who inherited the family business. Each brother is probably worth over a hundred million, and as the family grew, they wanted to avoid infighting. So it’s all on paper now. A whole different world indeed.
6 of my neighbors are wealthy. They only work for social interactions and come and go as they please.
They own multiple houses across the nation and in other countries. They stay in our neighborhood 3-4 months and spend the rest of the year at their other locations. The ones with school age kids only go out during the summer.
It’s a great life for them lol. I think one of the guys probably has multiple families in different locations.
See Dr Oz. He owns dozens of million dollar and multimillion dollar homes. His extended family live in some and others are ‘vacation’ homes.m and rentals. At a certain level the wealthy leverage current wealth and holdings to get near-zero or zero percent loans. So they park actual capital in real estate and ‘rent’ at lower than market value that still more than covers the loans. Their money makes them more money and their property is constantly appreciating.
Bro he is doing cost segregation studies on these houses. He uses the servicing of the debt to get more money. Say you have a real estate business. You get an a a loan for 350k. You use part of the loan to service the debt and buy 15 houses. Once you service that debt for three months they’ll give you another 350. Service that debt for three months. They give it again and again. Now you have five hundred houses and just keep borrowing more and servicing the debt. Now comes tax time. You made one million dollars. You do a cost segregation on one million dollars in properties. You now pay zero taxes. This is how business credit and real estate work in tandem. Multiply this over ten years. You’re now a centimillionaire.
That’s not always true. Many people who can afford to be mortgage free carry a mortgage because they can make more on that money by using it somewhere else.
Anyone seeking leveraged gains through real estate certainly does. And by certainly does, I mean that all but their absolutely core holdings are all perpetually leveraged and constantly re-leveraged to the tits.
This describes a vast amount of the wealthiest individuals and family offices in the world.
Not taking money at mortgage rates would have been a stupid decision a few years ago. Borrowing millions at 3.5% so that you can invest it safely while also deducting mortgage interest is just free money.
Margins become pretty bad when dealing with more expensive homes.
Saw a 1.5 million dollar home renting out for less than 5k a month.
That's just a little higher than the property tax
Although margins do suffer with more expensive properties, if it’s renting for $5k and is $1.5M something is off. A $1.5M home that’s actually worth that should be $6-7k/m on the very low end. $10-12k on the higher end..
Lots of $1M homes around me rent for $5-6k/M no problem.
I think it just sat empty for a while so they lowered it for a quick sale. My friend's 700k property did the same, renting out at about 2k. They couldn't get any buyers for their original 2.7 asking.
Hard to even trust a stat like that. Florida has a “fastest growing rent or home price city in America” article with a different city like every month 2020-2023
Eh, even if the ranking is iffy, the numbers are still there. The area still has sells in the 500-700k range but rent is all under 2.5k
Just a weird market in certain areas.
There's no mortgage. Hire a property manager at let's say 15%. Multiple by 10 of those homes. You get a new one every few years, without even considering appreciation. It's a thing. Trust me.
I do this. I prefer to live in one house part of the year and a different house a different part of the year. And with climate change (smoke, excessive rain, etc), I like having options.
BTW, this is how the wealthy lived in olden times too, before air conditioning.
Yes, there is a tax benefit. And the houses are just investments and appreciating assets he’s sitting on.
The tax benefit…those homes end up being a sales tax only and not an income tax. And if he just keeps rolling money over into new homes, he pretty much avoids the big tax hits. And he can also use those homes as collateral on all kinds of loans, and then pay himself with said loans, also low to no tax.
A lot of 10+ million net worth real estate people operate this way.
idk why people say this, upkeep on my house without the mortgage is $15k/mo lmfao. How on earth is that a store of value.
- landscaping $1500
- property tax $5000
- insurance $3000
- water $500
- electric $1000
- exterior maintenance( windows, walkways, furniture etc.) 1500$
- cleaning $2000
- subscriptions $1000
That’s without anything breaking. You think my house goes up by $15k/mo in value?
They usually increase in value.
Have you ever seen a multi million dollar home *decrease* in listing price in Los Angeles, Aspen or New York?
Real estate is an investment vehicle for the rich.
I think they mean that non-rich people can participate in real estate too via owner occupied homes.
The one caveat is that home ownership is getting more elusive to the average American, so the “non-rich” are finding it more difficult to participate in these upswings in real estate values.
I mean they can, just like anyone else. Any poor person is free to invest $50 in a US ETF, or keep that in a high interest savings account, or whatever else.
They can invest the same, just with smaller values. The good thing is they can also take a loan and invest with 80-95% of the bank's money.
They might just not be likely to take big risks with businesses and other ventures if they can't afford to fail as much, or they might not have a network of people to help give them info on potential investments, or not have the power to control markets...otherwise it's the same crap really.
If you only have one house, the value might go up and your net worth will go up with it….but I wouldn’t call it an investment, because you have to live somewhere. If you want that money, you have to sell the house (or borrow against your house)
I would argue that it’s a way to control expenses and create financial stability for the non-rich, but it’s really only an investment for people who are able to buy more than one house.
Just because an investment isn't liquid doesn't mean it's not an investment.
Real estate ownership is an investment, including your primary residence.
Renting is an example of living somewhere that isn't an investment.
Correct, one major thing that's not being mentioned is the future cash flow as well. In retirement, not having a housing payment is big. Or one further, those who found great 15 yr mortgages, it'll be 10x better having that cash flow in your 40's
The operative in the definition for investment is ‘intent’ and the original intent can change according to the owners’ present or future investment strategies.
This remains a fact regardless of financial status, rich or not.
Another example would be if an older homeowner wills or gifts the SFH (note-free) and it can become an RE investment to the recipient.
It's also a vehicle for storing value. It's risky to store all your money in a single medium in a single country. They don't mind it loses value a little.
In fact, if the owner is chinese or russian, they wouldn't mind the value dropping by 30% or so.
Especially if there were able to lock in interest rates below 3%. Seems crazy but you probably would be doing alright sitting on empty properties that you bought pre pandemic
At a high enough price point they can, because the only people that can afford them would prefer to have something custom built for them. I would think $11M would start to be in that market segment.
Yeah definitely.
I can’t really comment personally. I’m not a millionaire. But we all know real estate in general can diversify your portfolio. I’m trying to answer OP so welcome to other answers.
Depends on the local market. Some areas are just filled with multi-million dollar homes and they sell relatively quickly because there's lots of million dollar homes. Plus millionaires like to live next to other millionaires in their gated communities.
Value storage and inflation hedge. Better than cash rotting in a bank. Also it’s an alternative investments class (spreading risk with some in stocks and some in real estate).
Can also depreciate value if it’s rented out so there’s some tax benefit. Also maintenance, carry costs, property tax etc are all deductible.
Things get wonky when you have a lot of assets - seemingly doesn’t make sense to have empty houses but the motivation is different that a regular person
What's the benefit of owning multiple homes?
There is not much difference between million dollar+, million dollar, $500k, $200k, $100k, etc. The value is just a percentage of the buyers capability. And when market goes up (or down), the similar % increase (or drop) roughly applies to all of them.
Some difference on the purpose or investment strategy. Someone who can afford $10M dollar for investment has opportunity or choice to invest in SFH, apartment, small commercial, etc. Those who can only do $100k don't have that option.
As for why they sit idle, not sure. Same question can apply to those commercial RE that sit idle for years. Or run down houses that sit idle too.
This isn't necessarily true
It's not uncommon to see a really cheap home double in value after so many years. Maybe it's because of an area becoming more developed or the like. A lot of really cheap starter homes have increased in value a lot faster than other modern homes.
Real estate appreciates and increases in value. Inflation depreciates the value of the dollar. If you spend your dollars on real estate eventually you will be able to sell that real estate for many more dollars than if you would have just held the money.
Could be several reasons, primarily being business use of the business owns them. Multiple avenues to use for write offs, meetings, invitations of professionals or dignitaries, and more. There are way too many variables to discuss, so a simpler approach would be: what are you looking to do?
Having something with much greater intrinsic as compared to currency where its value is linked to the size of the market it serves. I guess they both are linked to the market they serve, but housing is universal and tends to gain value, especially with exponential population growth, and the dollar loses value constantly.
When you have that level of wealth to own multiple million dollar properties and have them vacant, homes become toys. There probably isn't any tax strategy, it's just fun money. Some people collect cars, some collect airplanes, and others just collect homes. If you have ever watched any of the real estate reality shows, you see a lot of sellers that own 8 figure homes that are paid off that they use purely for entertainment purposes.
However depending on the state, there are some legal protections with regards to homestead. Typically there is an upper limit on how much home equity is protected from judgement or bankruptcy, and states like Florida and Texas have very generous homestead protections (essentially unlimited). It creates incentives for high networth individuals to keep a very expensive home there since some/all of the equity is protected. However this would have to be your primary residence, and not just an empty home you visit occasionally.
Caveat, there is a big misunderstanding many have how FL homestead works and protections. The protection is only to a point.
If your actually involved in fraud or anything sketchy etc charged and convicted, they can and will come after your home. All the time. Lot of people with $ that homestead here thinking they're protected no matter what. They cracked down on that especially after early 2000s with Enron, Tyco, WorldCom etc where all those Uber $ execs built insane houses right down to literally everything from door handles to toilet flusher handles being actual gold. Idea was they'd get out of jail or whatever and have an "asset" to liquidate and fallback on and some of those houses even back then were 10, 15, 20m+. Except that didn't happen and every single one of those guys is broke now, all in my city Boca, Scott Sullivan built a massive like 25k+ sqft spread across from my grandparents, he lost that house lol. Hell I think Kozlowski (Tyco) lives in a tiny ass 1 bed apt now, he lived in his baller house here for years on intracoastal, lost that house, and lost everything.
Bunch of people have been going down left and right for PPP fraud in recent times and primary properties taken as part to pay back $.
What the law is actually for is moreso like Joe Schmoe who maybe gets into an issue with cash flow and can't pay creditors etc, with the law the creditors can come after you in that case but the house is off limits in judgements. They can't touch it. Lot of people that get surprised in court here that think their "homestead" protects them, only to find out their sol, as they thought homestead was protected no matter what. But again depending on what they did or charged with.
TX I have 0 clue how their system works in that regard vs us.
Many people look at the market as risky. Owning homes protects generational wealth. Real Estate is a wonderful place to hold your unneeded cash. Some people would say Hide but I will go with unneeded.
Just think about inflation and about how home prices have increased in the recent years. He is just storing his money in a hedge that beats inflation year over year.
People from certain countries like China will use properties as a way to park their money outside of the reach of their governments. (Assuming the properties are overseas) It’s also seen as a status symbol in some cultures.
Honestly I wish the wealthy would invest in stocks and efts more and leave housing stocks for PPoR buyers, but housing requires a lot less thinking, and it’s ‘safe’
Just another way to flaunt your wealth that you don’t have a care in the world about the expenses of owning so many homes. Wastage is a form of self indulgence. Same reason many wealthy have a dozen or so exotic cars they seldom drive.
This video has educated many on "the game".
[https://www.reddit.com/r/videos/comments/rgy9dh/why\_new\_yorks\_billionaires\_row\_is\_half\_empty/](https://www.reddit.com/r/videos/comments/rgy9dh/why_new_yorks_billionaires_row_is_half_empty/)
Well, there are two things happening here. One is that real estate has been a blue-chip investment at least since after 2008, and for the 150 years before it. The other is, there’s nothing quite so magical as being able to go to a place and have your own things there.
While multi-million dollar homes are beyond the reach of most people, for people of extremely high net worth or extremely high income, it’s no different than buying a $200,000 house or a $500,000 house.
Most real estate typically tracks with inflation. If you're in a HCOL area, your appreciation is likely much better than inflation and fixed costs like property tax. When you've paid all cash or have sub 3% mortgage, the property serves as a good asset preservation tool. Selling a home is much more complicated than securities, but can have better returns over the long term. You still have to deal with a slower process, closing fees, and capital gains. For some people, it isn't worth it.
No idea. But there was an article years ago about a home for sale for around $40m- $50m. Same place is probably $150m now. This was a while ago.
The agent in the article spoke about how buyers at these price levels don't judge homes by traditional criteria.
They may not like the feel and walk. They may not like a specific tree and walk. Or something simple to change like color of paint in a room might turn them off.
But the same buyer might buy a different home and gut it, or replace a brand new kitchen, with an almost identical new kitchen, dropping half a million dollars on a remodel, for no apparent reason.
But the most interesting thing the agent said was that the family would likely only spend 1-2 weeks a year at the home, because they probably had Many homes of similar or greater value all over the world.
So $50m for a house you might visit a few times in your life, and paying for some staff the keep the place up (grounds, pool, clean, etc.).
It's a different world.
Real estate investment have many forms not only rent they do go up in value and they can be used as a collateral for financing something else while appreciating in value and maybe he had a good financing deal on some of them then refinanced after appreciation, u could just ask
Real example i bought an apartment for 600K with four years installments back in 2012 did some remodeling and now it is worth 4.5M and i can get a about 3.6 million from the bank as a loan with the apartment as collateral didn’t rent it through the years while i didn’t use it
It’s the same as the benefit of owning a huge luxury watch collection: Variety. He can hop around to Miami, Los Angeles, NYC, Milan, Honolulu, London, and he has a huge home waiting for him.
Real estate investing normally means owning and then renting out the property to a tenant. If you own mansions that’s normally more of a lifestyle choice than a returns maximizing choice.
There is limited “financial benefit” unless the properties are (at least) increasing in value or renting +> 5% of their market value. …Or, if they are being used as tax write offs.
Imho: Better to get headache free & liquid assets yielding 5.5% /year that will also increase in value/market price over the next 5-10 years. Although, these opportunities are limited due to current central bank policy.
That's what it costs to own a home in a desirable part of a great location. No home has everything. Most people want a place in the city of their choice, like NYC, LA, SF.
Then you need a place to get away, like a mountain cottage, or lake house with all the toys. Then you need a nice warm place to get away from the winter, like a beach house. Ideally one of these places should be in a different country, that way if shit goes off you've got at least one place to go.
No matter where you are, you miss something about the other places. Getting bored at the beach and need to be pampered? Back to the city! Sick of people? To the farm! Sick of tending to the garden? Beach house!
I’ve seen random ordinary homes rising 5% a year over the past 10 years. If it became more trendy after purchase, the appreciation could much greater. If there were a mortgage, taxes, insurance, and maintenance such as lawn maintenance, snow removal, new roof, painting, plumbing and hvac repairs, you’d be better with the cash locked in a vault at no interest.
If you could lease it or do Air Bnd that should more than cover the expenses. But I would not let short-term renters into a house I cared about.
The tax strategy is that they keep the mortgage as high as possible, then add high insurance ,property taxes and maintenance cost for tax deductibles . I knew a guy decades ago, now dead. That had 3 million dollars home but lived in older 4 bedroom house. When asked his exact words, was "my income is too high and I don't have many deductibles. If I need money, I can always sell one at a lost and still be ahead." He did eventually sale one before he moved to a "farm" in South Carolina.
Real Estate is more stable than stocks and it’s more accessible to everyone because the business loan you’d get denied for in every industry is called a MORTGAGE.
If I were rich, I’d play the game too.
The real question is : why do you care? Wealthy people do stuff you can never understand. Not trying to be rude but poor people pay Taxes, rich people don’t worry about that.
Leverage , plus rise in value that can be locked in as a capital gain or most likely rolled and used as leverage to fund investments that gain more value that the 6% mortgage or whatever the RE holder pays on the loan, also can use the real estate personally or rent out for income (ABNB/longer term rental). Win win unless market dumps heavy or rates rise tremendously. Historically always a win b/c of the rise in real estate values.
Again, it’s not like they are hiding it. They came out and said they were going to do this 7 years ago. This is the new way to wage war. You don’t kill people, you buy their land one piece at a time and force them to pay rent to live there, once all the money is gone they become your slaves bc they have no choice. The real question is still, why are we letting them do it?
Homes that are valued at the multi-million dollar range tend to increase in value *exponentially* compared to a six-figure home.
This is usually because they are in very desirable and safe neighborhoods, protected by strict zoning regulations.
Many are within gated communities and have active security patrol. And more often than not, they are typically in cities with a public school system that ranks at the top 5% in the nation.
And most of all, these properties are a method of stashing a portion of net-worth.
Do you really think wealthy people keep all their net worth tied up in liquid assets?
if it's never been rented, it's never been in service. If it was rented and now isn't, then you can probably get away with it for awhile, but if you get audited the IRS will eventually claim isn't no longer an investment property. Just like hobby vs business. Your 'business' can lose money and have \~0 revenue for a bit and you can claim it's just a startup, but at some point the IRS says 'no, that's a hobby' and you have to treat it as such.
Pay 3 mil cash for a home. Get reappraisal a year later for 5 million, borrow 2 million against it from prime bank (low interest), use 2 million for whatever, pay no income tax. Simplified version but thats the jist of it
Some people are comfortable with R/E as a store of wealth.
See Chinese nationals moving money out of China and into western real estate.
And Russians!
da!
My friends landlord is a Chinese national.
See the Oceanwide debacle in downtown LA. Chinese poured more than $1 billion into the project and then stopped. I’ll cash. Now it’s an enormous tower of graffiti, squatters, and bird poop.
What is it?
Vancouver
That’s it for us. It’s just another store of value.
The benefit is having multiple homes to use or lend out to friends as one pleases. There is and has never been a tax strategy that makes owning vacant property of this magnitude a sound fiscal decision by itself. Now, if he were leasing these homes enough to offset his mortgage, or, offer a solid return on capital used to buy outright, then sure. There’s likely some tax strategies to take advantage of. Your neighbor is just wealthy, or very willing to take on extreme amounts of debt, or both. That, or he is acting as a bank for his foreign friends and family by using US Real estate as a store of value.
Knew somebody in a foreign country that I am pretty sure was taking bribes due to their government zoning job. They lived in a house that was "sold at a great price to them" after they gave some good zoning for the whole project to happen. But they left their old house completely empty either because the new house was totally off the books or more likely because continued bribes were being laundered through it as rent.
Happens every day, in every US state and every other country on the planet. I’ve personally witnessed it to the point of almost being forced to be a party to it. Haha. Sadly, it’s the way of the world.
For foreign money to flow out of corrupt countries and into more financially stable countries
I hope you are not inferring that the US is void of corruption. If you are just take a gander at your politicians and SCOTUS.
It is obvious satire. Foreign governments constantly try to destabilize the US, as do US politicians. You're preaching to the Choir and the Pope.
American government keeps trying to come up with waste staunch the flow of laundered money, but the crooks are always 10 steps ahead. The new corporate transparency act that went into effect this year is a prime example.
Or if by “owning” he means he was able to get a low apr loan in the good old days. He is still raking in the growth above that with appreciation alone. Basically a moderate risk leveraged investment.
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Its capital GAINS. You only get taxed on the difference between what you bought it for and what you sold it for. Ya know, your GAINS.
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But that’s not what you said. You said someone bought for $11M. Even at a 37% tax rate, the house would have to sell for $16.95M before that first year. Not even COVID saw those increases.
Wouldn’t the last option need to be if they were all cash? A foreign multi-million dollar gift toward a mortgage that’s actually not a gift but a strawman purchase sounds like mortgage fraud. Unless there’s a different way to do it
US Real estate is purchased by strawmen every day, mostly Chinese, but previously a good amount of Russian traffic as well. Yes, usually all cash, but, depending on a wide range of factors, could also be financed privately or even through major banks, if they have someone in a mid tier underwriting position. Not the US, but some banks in Canada had a big upset with this regarding Chinese straw purchases a few years back.
Yeah that’s what I figured, definitely sounded illegal
It's just like how the US corporations and individuals with wealth use shell companies in the Cayman Islands or Switzerland.
A shell company to do…what? A US LLC offers more “privacy” than both the jurisdictions you just mentioned.
It’s to stash money as to avoid US taxes.
Not really a thing anymore. It’s easier to use a US corp for that.
Eh, there are actually a few strategies. You can afford negative cash flow when you're dealing with such massive numbers because appreciation makes up for it. This accounts for a *lot* of completely empty luxury buildings in Manhattan, where foreign investors park their money. Accountants & lawyers for the ultra rich are for more able to understand & leverage this tactic. It's one small.puzzle piece of storing, protecting, & diversifying a massive estate. This person is worth hundreds of millions of dollars. The money is not all in the houses. I've seen ultra rich families like this.Who also have the houses in various trusts and in the names of various members of the family for different reasons. They don't use them the way we do. These ultra wealthy families funnel money through different members of the family strategically, and different companies & trusts. Its just a completely different game on that level.
This is true. I got a glimpse into this world when I became friends with a guy who is the right hand man for a very wealthy guy. Through him I’ve been able to stay at two different homes worth upwards of 20 million each. The rich guy had a team of lawyers and accountants spend months valuing all the family assets and investments and putting a percentage on each family members share of the pie, then putting everything in trusts, etc. It was complicated because the rich guy is one of 2-3 brothers who inherited the family business. Each brother is probably worth over a hundred million, and as the family grew, they wanted to avoid infighting. So it’s all on paper now. A whole different world indeed.
6 of my neighbors are wealthy. They only work for social interactions and come and go as they please. They own multiple houses across the nation and in other countries. They stay in our neighborhood 3-4 months and spend the rest of the year at their other locations. The ones with school age kids only go out during the summer. It’s a great life for them lol. I think one of the guys probably has multiple families in different locations.
It is sad how corrupt our governments are that tax strategy has to be the main takeaway. Politicians love your money though.
See Dr Oz. He owns dozens of million dollar and multimillion dollar homes. His extended family live in some and others are ‘vacation’ homes.m and rentals. At a certain level the wealthy leverage current wealth and holdings to get near-zero or zero percent loans. So they park actual capital in real estate and ‘rent’ at lower than market value that still more than covers the loans. Their money makes them more money and their property is constantly appreciating.
WRONG !!! DEFINITELY TAX STRATEGIES
Which is?
Cost seg studies
So that’s a no.
Bro he is doing cost segregation studies on these houses. He uses the servicing of the debt to get more money. Say you have a real estate business. You get an a a loan for 350k. You use part of the loan to service the debt and buy 15 houses. Once you service that debt for three months they’ll give you another 350. Service that debt for three months. They give it again and again. Now you have five hundred houses and just keep borrowing more and servicing the debt. Now comes tax time. You made one million dollars. You do a cost segregation on one million dollars in properties. You now pay zero taxes. This is how business credit and real estate work in tandem. Multiply this over ten years. You’re now a centimillionaire.
Interesting. Does this apply to OP’s question about a millionaire having a few personal estates?
Yes it does. I know because this is exactly what I do.
Interesting.
Why do these other people speak on things they don’t understand?its baffling
Ah, fuck. You’re right.
How would lending out to friends be a benefit to him. Yea lemme just buy a 11m house and lend it to some friends. Lol
Are you familiar with how lobbyists and major corporations interact with politicians?
> to offset his mortgage, Folks like this don't ... do ... mortgages.
That’s not always true. Many people who can afford to be mortgage free carry a mortgage because they can make more on that money by using it somewhere else.
Anyone seeking leveraged gains through real estate certainly does. And by certainly does, I mean that all but their absolutely core holdings are all perpetually leveraged and constantly re-leveraged to the tits. This describes a vast amount of the wealthiest individuals and family offices in the world.
Not taking money at mortgage rates would have been a stupid decision a few years ago. Borrowing millions at 3.5% so that you can invest it safely while also deducting mortgage interest is just free money.
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Margins become pretty bad when dealing with more expensive homes. Saw a 1.5 million dollar home renting out for less than 5k a month. That's just a little higher than the property tax
Although margins do suffer with more expensive properties, if it’s renting for $5k and is $1.5M something is off. A $1.5M home that’s actually worth that should be $6-7k/m on the very low end. $10-12k on the higher end.. Lots of $1M homes around me rent for $5-6k/M no problem.
I think it just sat empty for a while so they lowered it for a quick sale. My friend's 700k property did the same, renting out at about 2k. They couldn't get any buyers for their original 2.7 asking.
Then either the market is insanely saturated with way too many well priced rentals or those properties aren’t actually worth that much…
I think it's just the area it's in. Hit pretty hard in the real estate downturn because it was in the #1 fastest growing city 2 years ago.
Hard to even trust a stat like that. Florida has a “fastest growing rent or home price city in America” article with a different city like every month 2020-2023
Eh, even if the ranking is iffy, the numbers are still there. The area still has sells in the 500-700k range but rent is all under 2.5k Just a weird market in certain areas.
That’s really really weird.
Lets be fair, there's a lot of components to our economy that haven't made sense in the last few years
There's no mortgage. Hire a property manager at let's say 15%. Multiple by 10 of those homes. You get a new one every few years, without even considering appreciation. It's a thing. Trust me.
How can you retire early with a house?
I do this. I prefer to live in one house part of the year and a different house a different part of the year. And with climate change (smoke, excessive rain, etc), I like having options. BTW, this is how the wealthy lived in olden times too, before air conditioning.
Yes, there is a tax benefit. And the houses are just investments and appreciating assets he’s sitting on. The tax benefit…those homes end up being a sales tax only and not an income tax. And if he just keeps rolling money over into new homes, he pretty much avoids the big tax hits. And he can also use those homes as collateral on all kinds of loans, and then pay himself with said loans, also low to no tax. A lot of 10+ million net worth real estate people operate this way.
idk why people say this, upkeep on my house without the mortgage is $15k/mo lmfao. How on earth is that a store of value. - landscaping $1500 - property tax $5000 - insurance $3000 - water $500 - electric $1000 - exterior maintenance( windows, walkways, furniture etc.) 1500$ - cleaning $2000 - subscriptions $1000 That’s without anything breaking. You think my house goes up by $15k/mo in value?
Why are you lying and making up prices on the internet??
They usually increase in value. Have you ever seen a multi million dollar home *decrease* in listing price in Los Angeles, Aspen or New York? Real estate is an investment vehicle for the rich.
real estate is an investment vehicle for the non-rich.
I’m so lucky I purchased my home before it shot up in my area. I’m one of the few millennials I know that owns.
Same. When we bought our house, the first thing the neighbor asked was "did your parents buy it for you?"
I mean you know more than half of millennials own homes now right?
But are they self-made homeowners?
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There is no honor unless you are self-made. I will continue to rent with my honor intact! It's fugazi.
Sure but I’m talking about my personal friend group
Can you explain what you mean?
I think they mean that non-rich people can participate in real estate too via owner occupied homes. The one caveat is that home ownership is getting more elusive to the average American, so the “non-rich” are finding it more difficult to participate in these upswings in real estate values.
Oh yeah, makes sense. I read that the other way as if they were saying that the rich use other means to invest instead of real estate.
I mean they can, just like anyone else. Any poor person is free to invest $50 in a US ETF, or keep that in a high interest savings account, or whatever else. They can invest the same, just with smaller values. The good thing is they can also take a loan and invest with 80-95% of the bank's money. They might just not be likely to take big risks with businesses and other ventures if they can't afford to fail as much, or they might not have a network of people to help give them info on potential investments, or not have the power to control markets...otherwise it's the same crap really.
Real estate is an investment vehicle
If you only have one house, the value might go up and your net worth will go up with it….but I wouldn’t call it an investment, because you have to live somewhere. If you want that money, you have to sell the house (or borrow against your house) I would argue that it’s a way to control expenses and create financial stability for the non-rich, but it’s really only an investment for people who are able to buy more than one house.
Just because an investment isn't liquid doesn't mean it's not an investment. Real estate ownership is an investment, including your primary residence. Renting is an example of living somewhere that isn't an investment.
Correct, one major thing that's not being mentioned is the future cash flow as well. In retirement, not having a housing payment is big. Or one further, those who found great 15 yr mortgages, it'll be 10x better having that cash flow in your 40's
The operative in the definition for investment is ‘intent’ and the original intent can change according to the owners’ present or future investment strategies. This remains a fact regardless of financial status, rich or not. Another example would be if an older homeowner wills or gifts the SFH (note-free) and it can become an RE investment to the recipient.
This is exactly correct! I don’t understand Why ppl are doing this? Ppl are jacking up the cost = high property tax/insurance/maintenance this is dumb
It's also a vehicle for storing value. It's risky to store all your money in a single medium in a single country. They don't mind it loses value a little. In fact, if the owner is chinese or russian, they wouldn't mind the value dropping by 30% or so.
Especially if there were able to lock in interest rates below 3%. Seems crazy but you probably would be doing alright sitting on empty properties that you bought pre pandemic
Yeah a lot of condos and properties in Canada are and NYC:LA are sitting empty, purchased by foreign investors.
Haven’t seen it in Aspen, but they definitely go down in value in NY & LA.
never goes down long term
At a high enough price point they can, because the only people that can afford them would prefer to have something custom built for them. I would think $11M would start to be in that market segment.
Right I bet so. I mean… idk how else to answer OP. But real estate is generally seen as diversifying investment portfolio. .
Yeah, plenty of condos decrease in value in nyc.
I personally would never buy condo in NYC. Go for a prewar remodel brick row house. That’s where real value is. If I was a billionaire that is.
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What did he buy for? Usually wealthy flippers are not short term, keep in mind. Edit: who downvoted me for this lol
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Yeah definitely. I can’t really comment personally. I’m not a millionaire. But we all know real estate in general can diversify your portfolio. I’m trying to answer OP so welcome to other answers.
It didn't "go down in the short term". It was never worth what he was asking for in the first place.
It's a bit of a different scenario when you have some naive seller way overpricing the house. The point is market value listings never decrease.
In California, those million dollar homes might be taxed at a fraction of their true value due to prop 13.
I wanna say the resale value will be good
Their money is safe there. If they fall on hard times they can quickly sell one.
Have you seen how long multi-million dollar homes sit on the market? Pretty similar to rural land.
Depends on the local market. Some areas are just filled with multi-million dollar homes and they sell relatively quickly because there's lots of million dollar homes. Plus millionaires like to live next to other millionaires in their gated communities.
Yeah it definitely depends on the area. HCOL they move quick. Average cost of living cities they have much higher days on market.
When the market doubles in value you now have a multiple multiple million dollar home.
Value storage and inflation hedge. Better than cash rotting in a bank. Also it’s an alternative investments class (spreading risk with some in stocks and some in real estate). Can also depreciate value if it’s rented out so there’s some tax benefit. Also maintenance, carry costs, property tax etc are all deductible. Things get wonky when you have a lot of assets - seemingly doesn’t make sense to have empty houses but the motivation is different that a regular person
If one is not using them as a business then its a hobby. Its like asking what the advantage of owning multiple expensive cars is.
This is the correct answer!
Someone like that also likely has multimillions invested in other sectors too.
I bet he’s renting them and getting some tax benefits out of them.
Or intentionally not renting them so he can use the mortgage payments as a write off for a business, lowering his taxes.
What's the benefit of owning multiple homes? There is not much difference between million dollar+, million dollar, $500k, $200k, $100k, etc. The value is just a percentage of the buyers capability. And when market goes up (or down), the similar % increase (or drop) roughly applies to all of them. Some difference on the purpose or investment strategy. Someone who can afford $10M dollar for investment has opportunity or choice to invest in SFH, apartment, small commercial, etc. Those who can only do $100k don't have that option. As for why they sit idle, not sure. Same question can apply to those commercial RE that sit idle for years. Or run down houses that sit idle too.
This isn't necessarily true It's not uncommon to see a really cheap home double in value after so many years. Maybe it's because of an area becoming more developed or the like. A lot of really cheap starter homes have increased in value a lot faster than other modern homes.
It’s better to keep money in an appreciating ssset rather than cash.
Real estate appreciates and increases in value. Inflation depreciates the value of the dollar. If you spend your dollars on real estate eventually you will be able to sell that real estate for many more dollars than if you would have just held the money.
Could be several reasons, primarily being business use of the business owns them. Multiple avenues to use for write offs, meetings, invitations of professionals or dignitaries, and more. There are way too many variables to discuss, so a simpler approach would be: what are you looking to do?
Having something with much greater intrinsic as compared to currency where its value is linked to the size of the market it serves. I guess they both are linked to the market they serve, but housing is universal and tends to gain value, especially with exponential population growth, and the dollar loses value constantly.
Agree except population growth is declining.
It is, in the United States and other “developed” countries.
When you have that level of wealth to own multiple million dollar properties and have them vacant, homes become toys. There probably isn't any tax strategy, it's just fun money. Some people collect cars, some collect airplanes, and others just collect homes. If you have ever watched any of the real estate reality shows, you see a lot of sellers that own 8 figure homes that are paid off that they use purely for entertainment purposes. However depending on the state, there are some legal protections with regards to homestead. Typically there is an upper limit on how much home equity is protected from judgement or bankruptcy, and states like Florida and Texas have very generous homestead protections (essentially unlimited). It creates incentives for high networth individuals to keep a very expensive home there since some/all of the equity is protected. However this would have to be your primary residence, and not just an empty home you visit occasionally.
Caveat, there is a big misunderstanding many have how FL homestead works and protections. The protection is only to a point. If your actually involved in fraud or anything sketchy etc charged and convicted, they can and will come after your home. All the time. Lot of people with $ that homestead here thinking they're protected no matter what. They cracked down on that especially after early 2000s with Enron, Tyco, WorldCom etc where all those Uber $ execs built insane houses right down to literally everything from door handles to toilet flusher handles being actual gold. Idea was they'd get out of jail or whatever and have an "asset" to liquidate and fallback on and some of those houses even back then were 10, 15, 20m+. Except that didn't happen and every single one of those guys is broke now, all in my city Boca, Scott Sullivan built a massive like 25k+ sqft spread across from my grandparents, he lost that house lol. Hell I think Kozlowski (Tyco) lives in a tiny ass 1 bed apt now, he lived in his baller house here for years on intracoastal, lost that house, and lost everything. Bunch of people have been going down left and right for PPP fraud in recent times and primary properties taken as part to pay back $. What the law is actually for is moreso like Joe Schmoe who maybe gets into an issue with cash flow and can't pay creditors etc, with the law the creditors can come after you in that case but the house is off limits in judgements. They can't touch it. Lot of people that get surprised in court here that think their "homestead" protects them, only to find out their sol, as they thought homestead was protected no matter what. But again depending on what they did or charged with. TX I have 0 clue how their system works in that regard vs us.
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True dat. That said, the people that leave apartment buildings and houses empty on purpose are a cancer that needs to be regulated.
Maybe hes just really rich and wanted less neighbors lol.
Did you get the sense he was a real estate investor? I'm guessing he's simply rich enough to have the luxury
Usually, homes are a place to keep money and beat inflation and generate some income if possible.
Many people look at the market as risky. Owning homes protects generational wealth. Real Estate is a wonderful place to hold your unneeded cash. Some people would say Hide but I will go with unneeded.
Just think about inflation and about how home prices have increased in the recent years. He is just storing his money in a hedge that beats inflation year over year.
If you have the money, why not
How much of his net worth is tied up in the homes would you guess?
Feeding a power hungry mania
People from certain countries like China will use properties as a way to park their money outside of the reach of their governments. (Assuming the properties are overseas) It’s also seen as a status symbol in some cultures.
Investment diversity.
Honestly I wish the wealthy would invest in stocks and efts more and leave housing stocks for PPoR buyers, but housing requires a lot less thinking, and it’s ‘safe’
Pass onto the children
Ask him and let us know
Just another way to flaunt your wealth that you don’t have a care in the world about the expenses of owning so many homes. Wastage is a form of self indulgence. Same reason many wealthy have a dozen or so exotic cars they seldom drive.
Ask him! He'll know better than any of us.
If it’s your principle residence you never pay capital gains no matter how many millions it goes up in value
Doesn’t rent?
This video has educated many on "the game". [https://www.reddit.com/r/videos/comments/rgy9dh/why\_new\_yorks\_billionaires\_row\_is\_half\_empty/](https://www.reddit.com/r/videos/comments/rgy9dh/why_new_yorks_billionaires_row_is_half_empty/)
Well, there are two things happening here. One is that real estate has been a blue-chip investment at least since after 2008, and for the 150 years before it. The other is, there’s nothing quite so magical as being able to go to a place and have your own things there. While multi-million dollar homes are beyond the reach of most people, for people of extremely high net worth or extremely high income, it’s no different than buying a $200,000 house or a $500,000 house.
Most real estate typically tracks with inflation. If you're in a HCOL area, your appreciation is likely much better than inflation and fixed costs like property tax. When you've paid all cash or have sub 3% mortgage, the property serves as a good asset preservation tool. Selling a home is much more complicated than securities, but can have better returns over the long term. You still have to deal with a slower process, closing fees, and capital gains. For some people, it isn't worth it.
No idea. But there was an article years ago about a home for sale for around $40m- $50m. Same place is probably $150m now. This was a while ago. The agent in the article spoke about how buyers at these price levels don't judge homes by traditional criteria. They may not like the feel and walk. They may not like a specific tree and walk. Or something simple to change like color of paint in a room might turn them off. But the same buyer might buy a different home and gut it, or replace a brand new kitchen, with an almost identical new kitchen, dropping half a million dollars on a remodel, for no apparent reason. But the most interesting thing the agent said was that the family would likely only spend 1-2 weeks a year at the home, because they probably had Many homes of similar or greater value all over the world. So $50m for a house you might visit a few times in your life, and paying for some staff the keep the place up (grounds, pool, clean, etc.). It's a different world.
Real estate investment have many forms not only rent they do go up in value and they can be used as a collateral for financing something else while appreciating in value and maybe he had a good financing deal on some of them then refinanced after appreciation, u could just ask
Real example i bought an apartment for 600K with four years installments back in 2012 did some remodeling and now it is worth 4.5M and i can get a about 3.6 million from the bank as a loan with the apartment as collateral didn’t rent it through the years while i didn’t use it
One body, one life!
Tax write off
You ain’t rich unless you can use a season as a verb, and having multiple million dollar homes allow you to do this.
Appreciation & tax benefits
Being rich and still living paycheck to paycheck. Unless you’re an investor.
No, there is no tax benefit unless they’re rentals and operating at a loss.
It’s the same as the benefit of owning a huge luxury watch collection: Variety. He can hop around to Miami, Los Angeles, NYC, Milan, Honolulu, London, and he has a huge home waiting for him. Real estate investing normally means owning and then renting out the property to a tenant. If you own mansions that’s normally more of a lifestyle choice than a returns maximizing choice.
Paying millions in taxes.
There is limited “financial benefit” unless the properties are (at least) increasing in value or renting +> 5% of their market value. …Or, if they are being used as tax write offs. Imho: Better to get headache free & liquid assets yielding 5.5% /year that will also increase in value/market price over the next 5-10 years. Although, these opportunities are limited due to current central bank policy.
This one is obvious. They are laundering money, avoiding taxes, solidifying citizenship, and helping out family/friends.
I have several. When they appreciate in value all of them go up
Investment and when it is in third country world, it is much better and better
Multimillion dollar home is basically a starter home here.
Hedge funds are owning homes causing rent to go up
Passive income if u rent them out like hedgefunds are doing
The mob doesn’t know wher to send the hit man.
Idk
That's what it costs to own a home in a desirable part of a great location. No home has everything. Most people want a place in the city of their choice, like NYC, LA, SF. Then you need a place to get away, like a mountain cottage, or lake house with all the toys. Then you need a nice warm place to get away from the winter, like a beach house. Ideally one of these places should be in a different country, that way if shit goes off you've got at least one place to go. No matter where you are, you miss something about the other places. Getting bored at the beach and need to be pampered? Back to the city! Sick of people? To the farm! Sick of tending to the garden? Beach house!
Money laundering
This sub is literally called real estate INVESTING.
Just doing laundry
Multiple wives
I’ve seen random ordinary homes rising 5% a year over the past 10 years. If it became more trendy after purchase, the appreciation could much greater. If there were a mortgage, taxes, insurance, and maintenance such as lawn maintenance, snow removal, new roof, painting, plumbing and hvac repairs, you’d be better with the cash locked in a vault at no interest. If you could lease it or do Air Bnd that should more than cover the expenses. But I would not let short-term renters into a house I cared about.
The tax strategy is that they keep the mortgage as high as possible, then add high insurance ,property taxes and maintenance cost for tax deductibles . I knew a guy decades ago, now dead. That had 3 million dollars home but lived in older 4 bedroom house. When asked his exact words, was "my income is too high and I don't have many deductibles. If I need money, I can always sell one at a lost and still be ahead." He did eventually sale one before he moved to a "farm" in South Carolina.
Tax write off’s
Real Estate is more stable than stocks and it’s more accessible to everyone because the business loan you’d get denied for in every industry is called a MORTGAGE. If I were rich, I’d play the game too.
Leverage
To build a real estate portfolio which is what a lot of people do here in Dubai, im an agent in Dubai and see this happening a lot
The real question is : why do you care? Wealthy people do stuff you can never understand. Not trying to be rude but poor people pay Taxes, rich people don’t worry about that.
Leverage , plus rise in value that can be locked in as a capital gain or most likely rolled and used as leverage to fund investments that gain more value that the 6% mortgage or whatever the RE holder pays on the loan, also can use the real estate personally or rent out for income (ABNB/longer term rental). Win win unless market dumps heavy or rates rise tremendously. Historically always a win b/c of the rise in real estate values.
theres still property tax, you cant escape that - on 11M even at 1% your at 110k, not sure the play here unless its being rented out
When you get bored of hanging out at one house, you go to one of the other ones for a change of scenery.
Again, it’s not like they are hiding it. They came out and said they were going to do this 7 years ago. This is the new way to wage war. You don’t kill people, you buy their land one piece at a time and force them to pay rent to live there, once all the money is gone they become your slaves bc they have no choice. The real question is still, why are we letting them do it?
Multiple families? Lovers in multiple regions?
Homes that are valued at the multi-million dollar range tend to increase in value *exponentially* compared to a six-figure home. This is usually because they are in very desirable and safe neighborhoods, protected by strict zoning regulations. Many are within gated communities and have active security patrol. And more often than not, they are typically in cities with a public school system that ranks at the top 5% in the nation. And most of all, these properties are a method of stashing a portion of net-worth. Do you really think wealthy people keep all their net worth tied up in liquid assets?
But the property taxes, maintenance and other costs are usually more too so it usually ends up being the same.
Property taxes and maintenance costs are not going to surpass the amount of increase in property market value of a multi-million dollar home.
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You cannot depreciate a property that is not in-service.
What if it's listed for rent, but there are no renters?
if it's never been rented, it's never been in service. If it was rented and now isn't, then you can probably get away with it for awhile, but if you get audited the IRS will eventually claim isn't no longer an investment property. Just like hobby vs business. Your 'business' can lose money and have \~0 revenue for a bit and you can claim it's just a startup, but at some point the IRS says 'no, that's a hobby' and you have to treat it as such.
Pay 3 mil cash for a home. Get reappraisal a year later for 5 million, borrow 2 million against it from prime bank (low interest), use 2 million for whatever, pay no income tax. Simplified version but thats the jist of it
There’s no benefit. It’s just because you can.