A luxury property can change the way you live. But to build a secure base in a stable market and protect your wealth over the long run, you have to be thorough when you enter the high-end market. A better place is waiting — so make sure you take the right steps and make smart decisions before you start.
Keep in mind that no home, however luxurious it appears, will be your dream home if it falls short of your expectations. Do your diligence, and remember that if the time comes to sell a luxury home, you may need more time to find a qualified buyer for a high-end property. And if prices fall, you have considerably more to lose.
To help with your research, here are the steps to buy a luxury home — with a few additional strategies for reaching your high-end home without eroding your wealth in the process.
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Step 1: Think the purchase through
A golden rule: supply and demand drive prices. When demand falls — that is, competition among buyers — the price you can negotiate improves.
So if you're after a home that's currently outside your price range, look at the off-season, which in most markets coincides with winter.
People are generally less enthusiastic about touring homes when it's cold and gets dark early. And once the holidays arrive, family attention shifts toward holiday spending.
There's another reason to buy out of season: many luxury homeowners may want to dispose of a property before the new year, to get it off their books ahead of the next tax year.
Step 2: Learn to spot a motivated seller
It's essential to review a property's listing history to understand whether a seller might be motivated. In fact, when a home stays on the market for more than three months without a price reduction, the seller may have mispriced the listing.
Naturally, in a market as competitive as luxury real estate, the best-priced homes tend to disappear in under two weeks.
A good way to find motivated sellers is to set up alerts for price changes on the properties you like most. You can also talk to an experienced real estate advisor for more guidance. With that help you can better understand a seller's situation and get a sense of how quickly they hope to sell and how much room there is in the price.
Step 3: Make a clean offer
Offers with fewer conditions — fewer contingencies — go a long way during negotiation. Sellers and buyers alike want a clean transaction.
When you make a simple, attractive offer, you can open a shorter window before closing. It may also mean fewer contingencies, which signals to the seller that you're serious about closing. Just be mindful of the risks of waiving contingencies.
Another effective strategy: offer a larger deposit when you sign the contract, since that can help you negotiate on the actual price of the home.
And getting pre-approved and arranging financing in advance can help you make a stronger offer and move quickly when you find the property that fits what you need.
Step 4: Consider borrowing from retirement funds — carefully
Many buyers tap retirement accounts to finance a home that elevates their lifestyle. Many experts caution that this strategy should be approached with care — don't overspend on a luxurious home and come up short in your retirement years.
For those weighing it, participants in some 401(k) plans can withdraw 50% of their vested balance, up to a $50,000 limit, as a tax-free loan — but the loan must be repaid over a set period, generally five years. Check with your plan administrators.
You'll also want to remember that because a 401(k) is tied to your employer, you'll have to return those funds if you leave the company. If that balance isn't repaid within the required window, it could be treated as an early withdrawal, triggering taxes and a penalty.
You may also have the option to access a traditional IRA for up to $10,000 and avoid the 10% penalty. The catch? You'll owe tax on the amount withdrawn. On the other hand, a withdrawal of up to $10,000 could be tax-free if it comes from a Roth IRA that's been open for at least five years.
Step 5: Look at foreclosure listings
The last of our five steps to buy a luxury home is to consider the potential of foreclosure listings. If you want to buy a luxury home or apartment at a meaningful discount to its real value, foreclosed properties are worth a look.
Although there's a common belief that foreclosed homes can only be bought with cash, a large share — roughly 70% — can be financed. Remember that buying a home in foreclosure generally means buying it as-is, so it's important to have a home inspector review the property thoroughly and provide a repair estimate. Factor that figure in before you bid to avoid overspending.
With these guidelines, you can move to buy a luxury home with more confidence and speed. As the saying goes: a happy home is one you can live in comfortably and within your means.