Hidden Costs of Luxury Real Estate
Orange County Luxury Real Estate
Luxury real estate in Newport Beach, Laguna Beach, Corona Del Mar, and greater Orange County is impressive, extravagant, and, of course, expensive. That should come as no surprise; it’s right there in the name! Luxury is defined as “conducive to sumptuous living, usually a delicacy, elegance, or refinement of living rather than a necessity.” But even if you’ve got the cash to buy a sprawling, lavish estate, there is more than the listing price to keep in mind. In this article, we’ll cover some of the hidden costs of owning a luxury home.
While you may have the resources to buy a luxury home, it’s important to be aware of externalities. Much like starting a family, it’s only prudent to be prepared before shouldering a new bundle of responsibilities. As your trusted real estate advisers, a crucial part of our job is to ensure that you’re as informed as possible. So let’s explore some examples of the expenses that come with buying a luxury home.
More Than You Can Chew: A Case Study in Luxury Homes
Sixteen years ago, rap artist and former beverage mogul Curtis James Jackson III, aka 50 Cent (Fiddy), purchased a grand Connecticut estate. Nestled 80 miles north of the wealthy town of Greenwich near NYC, the residence at 50 Poplar Hill Drive boasts 52 rooms across 50,000 square feet. Some of the property’s opulent features include a nightclub, two private pools, both indoor and outdoor basketball courts, and a recording studio (naturally). The home is larger than others in the area, which didn’t help when it was later listed for sale.
Fiddy bought the estate in 2003 from another famous face, one Mike Tyson of boxing fame. The sale price then was $4.1 million. After a few years of owning the property, Fiddy listed the home for sale at $18.5 in 2007. At such a dramatically increased price, the listing did not sell and was taken off the market. By 2015, Fiddy again listed the home for sale. This time, the price was $4.995 million, but again the home did not garner the asking price. Finally, he sold the property in 2019 for $2.9 million to Florida businessman, Casey Askar. That’s an 84% price drop from his 2007 asking price of $18.5 million.
Such a drastic decrease begs the question: Why did Fiddy sell? The answer is in the hidden costs. Reportedly upwards of $70,000 each month, the upkeep and maintenance costs of the lavish estate were simply too much for Fiddy to handle. From the 50,000 sq ft of 52 rooms, to the lawns and the pools, the estate at 50 Poplar Hill Drive required constant effort from groundskeepers and staff. Not to mention utility bills to keep the residence warm throughout the winter, or cool in the summer. In just five years, that monthly cost would add up to the total that Fiddy paid for the original sale, and he could no longer justify the expense.
A Luxury Home Takes a Village
If you’ve watched the popular period drama Downton Abbey, then you are one step ahead of ol’ 50 Cent in knowing that running a palatial estate is a team affair. There’s the estate manager, the household manager, the butler, the chef, the cooks, the gardener, the gameskeeper, the stewardess, the chauffeur, the parlormaid, the chambermaid, housemaid, laundrymaid—the list goes on. But while the costs are steep, they do come with perks: keep your house in order and you may even be graced by a visit from the Queen!
In all seriousness, your home need not be a sprawling estate to be considered “luxury.” In the simplest sense, a luxury home is one that is valued well above the average in a given market. In many US cities and metro areas, a price of $1 million is often considered the starting point for luxury homes. In markets like San Francisco and New York, where prices are substantially higher than the national average, luxury is said to start around $4 million.
On the bright side, you do get more for the higher price tag. Luxury homes, whether a charming San Francisco Victorian or a giant midwest mansion, tend to come with more square footage and fancier features than the average home. But of course, there’s a hidden cost there, too. For a large luxury property, simple tasks like cleaning your gutters or mowing the lawn become a considerable expense. Want to upgrade to smart devices and appliances? It’ll cost a pretty penny to do so across your whole home. While you may have the money to cover these additional expenses, it’s important to be aware of them when planning your home purchase.
Luxury Mortgage and Tax and Insurance, Oh My!
Let’s take a look at another famously fancy luxury home with hidden costs. When Yuri Millner, a Russian-born tech investor, bought his Silicon Valley home in 2011, the sale price of $100 million broke records in California and Santa Clara County. The Bay Area estate sits on 11 acres with structures of roughly 25,000 square feet, and includes a ballroom, a theater, a spa and a gym.
Interestingly, the taxable assessed value of the home has marked around $50 million by the Santa Clara County Assessor, just half as much as Milner paid. Yet that still means Yuri is on the hook to pay over $600,000 each year in property taxes. If Yuri has a mortgage, his payments will be whoppers as well. If he financed the home using a standard 30-year fixed conventional loan with 20% down and $80,000,000 in principal, his monthly payments would total nearly $400,000.
Of course, a Russian oligarch or any other billionaire likely is not concerned with middling expenses in the mere hundreds of thousands. But the fact remains that, as a home price grows, so too do its associated costs. Getting insurance for a $100 million home is nigh impossible, but insurance on a $5 or 10 million home is just plain expensive. From the tax man to your loan officer, you’ll be paying the pipers by the truckload.
Your Orange County Luxury Experts
Home ownership always comes with additional costs. But despite the increased expenses, buying a luxury property in Newport Beach, Laguna Beach, or Corona Del Mar can be incredibly rewarding. The stunning views, the lavish spaces, the fixtures and finishes each provide a magnificent setting for your modern lifestyle. We love matching our clients with the perfect home to fit their tastes and their budget. If you’re looking to buy or sell a luxury property, get in touch to start the no-pressure conversation and explore your options.