You've received a large inheritance. Should you buy a large Luxury home?
"You've received a large inheritance. Should you buy a large Luxury home?" I would say it depends on how much you inherited and your current, pre-inheritance, financial situation. This goes equally well for those who may win a lottery. This assumes an income under $100,000 a year. Assuming an inheritance or lottery win of under $5 million. I would recommend against buying a large home. Just because you're able too, doesn't mean you should. I know you're thinking "Five million is a ton of cash and I could live care free the rest of my life!". While this is true with proper financial planning you can achieve that. But in this day and age, you'd be surprised how fast you can burn through $5 Million! Especially with all those 3rd cousins and long lost friends coming out of the woodwork.
Here's 5 things to consider when thinking of buying a large luxury home with your new found wealth (Under $5 Million):
- Real Estate Taxes: A bigger more expensive home will have a higher tax bill. The amount will vary depending on where you live. Sure you can set up an account to take care of this. But this will eat away at your wealth.
- Increased Utility Bills: With a larger home, you will be faced with what could be a substantial increase to your utility bills. The larger square footage will take more to heat it in the winter and cool it in the summer. Which increases your spending, further reducing your wealth.
- Increased Maintenance: With a larger home, you can face higher repair bills and/or more frequent repairs. Depending on how fancy the home is. Things such as: Maintenance to the outside of the home, landscaping and lawn care, concrete walkway repairs, driveway maintenance and repairs, deck maintenance and repairs, to name a few. All this adds up. Even if you can do most of the work yourself, it could still be costly. Also, do you really want to have to clean a 10,000 square foot home? Sure, you could pay a cleaning service to do it. But that adds another expense!
- Not A Proper Fit To Your Family Size: Sure having a 10 bedroom house sounds great! But the sheer size of the house could turn out to be impractical for your family size. Assuming a family of 4, do you really need 10 bedrooms? Not counting the office, library, bonus rooms and dens the home may also have. Probably not.
- Expense of Furnishing The Home: With a larger home, you will have more rooms to furnish. Your current home my have one living room. The new home could have 3 or more! (Living room, family room, 2nd living room, basement great room, etc). Not to mention all the bed rooms, library, office, dens, theater room. With your new wealth you may be tempted to purchase finer furniture, which will eat away a large sum of your new wealth.
What else could you do with your new found wealth? I'd recommend you pay off all of your debt. House, cars, credit cards, student loans, etc. This way if you end up spending all of it. You'll at least have no major bills (hopefully). But if you do need or want a bigger home. Sure get another one, within reason. Do you really need a 10,000 square foot home? Probably not. You could keep your current home and rent it out, providing an additional income stream. Or you can sell it and use that cash to partially fund the new home.
With this influx of money there will be other things you'll want to spend it on: Cars, clothes & travel to name a few. As well as potential hand outs to close family. You'd want to help out your parents and siblings right? Just be a bit leery of those 2nd and 3rd cousins and old friends you haven't spoken too in years. When you come into money, everyone wants to be your friend and has a brilliant business idea!
Please note: I'm not a financial adviser or accountant. These are just some insights into what I've seen and read about. If you are or end up in a position were you come into a large sum of money, whether it's an inheritance, lottery or stock sales. First thing you should do is consult with a reputable financial planner, accountant and a lawyer.
If you are going to purchase a bigger home or luxury home. Get a reputable, trustworthy Realtor®, such as myself, that's going to lookout for your best interests and treat you with respect.