As the saying goes, "The rich always get richer.." But how?
Well in the case of real estate, there are quite a few little-known secrets the wealthy use to get a slight advantage.
For high net-worth individuals (HNWIs), luxury real estate is more than just a purchase - it's a vessel in which to enhance their abundant lifestyle.
It’s not only size and location that these buyers are looking for; they also want to find luxury homes that include other amenities like high-tech features, lots of land or adjacent lots to purchase, private entrances, panic rooms, maid staff (included), etc.
So how do they beat out the competition and seal the deal on these one-of-a-kind luxury homes?
Let's break it down....
1) Getting The Deal
So what is the point of finding what you want, only to have someone with more money come in and outbid you? Well, getting the "deal" is the somewhat of an art form - and the wealthy know how to play the game.
Playing this game correctly means mastering the following:
- Patience. The wealthy understand that if they wait long enough, the deal will sometimes come to them. This happens when a home has been sitting on the market for a while, or has been through multiple agents. This type of deal is ripe for the picking - as the wealthy will usually make a very aggressive (low) offer to scoop up these properties at a record discount.
- Finding a "Situation". Along the same lines as having patience, a wealthy individual will often gather enough intel on the property to understand if the seller is in some sort of situation; whether it be financial, a pending divorce, a family estate in which the family is in disagreement, etc. These types of environments give the buyer an advantage over the competition, especially if the news on the seller is not publicly known
- Timing. Wealthy individuals understand market cycles and take full advantage of natural disasters, pandemics, financial hardships, etc. in order to buy up properties at massive discounts. Most major luxury markets saw this behavior when COVID first emerged; the global pandemic did not stop wealthy individuals from buying massive amounts of real estate.
Everyone says, "Cash is King", right?
Well, not necessarily in the world of real estate taxes. High net worth individuals are masters at tax law - or they hire someone who is a seasoned expert.
Here's just one example of how offering "cash", but getting a loan later can work in their favor..
A not-so-well known secrets is that you can actually make an offer on a property, as cash with "the right to get a loan".
Yep. It's a sneaky little trick put into a purchase agreement which states that the actual offer is "cash", yet the buyer has the right to get a loan during the transaction.
Why would someone do this?
Well, it often goes unnoticed as the seller is excited about a cash offer and usually the buyer's agent presents it as such. Wealthy real estate buyers aren't strangers to putting up cash for what they want; but in this case, it's actually in their favor to use the loan payment as a tax write-off.
So that huge mortgage is actually accomplishing two things:
- They are writing off the payment as an expense
- They are keeping their capitol (cash) free and liquid to use on other investments.
3) Who Do You Know?
In the world of high-stakes real estate, who you know could actually be more important that what you know.
Back in 2020, Jeff Bezos purchased the Warner Estate from media mogul David Geffen for $165 million. This deal was a record for the Los Angeles area. The real estate market was shocked at how quickly this deal went down.
So how did this deal go down?
Sources say that "No broker was involved in the deal" and that it most likely was negotiated on David Geffin's yacht when Bezos was a guest during the summer.
So not only did Mr. Geffin and Mr. Bezos save some serious money by NOT paying commissions to an agent, but the entire deal was an example of being around the right people at the right time.
4) Got Lending?
As a general rule, the more money you have, the more other people will find crafty ways to spend it for you.
Case in point: Private Banking
Private bankers love to handle the wealthy's money to reinvest it in other capitol appreciating endeavors. This means that they need to entice the wealthy into parking their money with them.
So how do they do this?
By offering the wealthy insanely low interest rates on loans. Basically, the more money they have in their accounts, the lower the interest rate on borrowing money for real estate.
This creates a compounding effect of hoarding cash with the private bank, then borrowing money at a lower interest rate, paying less in taxes because you are using the mortgage payment as a write-off, etc.
5) The Personal Touch
The wealthy are used to getting what they want, when they want it; and luxury real estate is no exception.
A popular technique is to buy a home which is under construction, to negotiate adding special amenities and upgrades which are specific to the individual.
This method of locking down a property during construction for a set price, then harassing the developer to install specific upgrades has somewhat fallen to the wayside during this extreme bull market in real estate; nonetheless, we have seen a few deals like this happen in the Los Angeles area.
The pandemic has brought an influx of deal making to the real estate markets. Competition is fierce and I'm most certain that we'll be seeing more creative ways to acquire property than the ways I've mentioned above.
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