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There is a shadow hospitality infrastructure outside of the traditional hospitality sector that powers luxury consumers’ third or even fourth homes. It includes personal staffing agencies, smart home devices, private transportation providers, developers investing in spec homes, and, of course, the economies where these home are located.
Although U.S. homeownership rates in 2016 dropped to the lowest — 62.9 percent — since 1965, many of these homeowners own more than one home.
Nearly one in five homeowners, or 18 percent, own an additional property beyond their primary residence, according to research from digital real estate database Zillow. This is comprised of investment properties and vacation homes, and nearly half of those with a second home rent them out.
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“Most of these homes are an investment as well as a form of pleasure,” explains Leonard Steinberg, president of Compass, a technology-driven real estate platform.
Personal enjoyment and potential to increase capital are the two driving factors for purchasing additional homes, echoes Knight Frank and Douglas Elliman’s 2017 Wealth Report.
“Ultra-high-net worth individuals are investing in safe markets such as the United States and purchasing multiple homes that offer a different climate and environment. This includes the beach in markets like the Hamptons, Malibu, Miami, and Palm Beach; ski resort towns such as Aspen and Snowmass; pied-a-terres in Manhattan for non-residents who are constantly traveling,” explains Scott Durkin, COO of Douglas Elliman.
The median home purchased today in the U.S. is a three-bedroom, 2.2-bathroom, single-family home for a median price of $222,000, according to Zillow. But fourth-home owners are not the median and their expenses go far beyond.
For example, the average price for purchases throughout the Hamptons was $2.38 million for the fourth quarter of 2016, up 16 percent from a year earlier, according to Knight Frank and Douglas Elliman. Of the 613 total sales, 62 were for properties priced at $5 million or more.
“Buying a home is one thing, but maintaining a home is a whole other thing. Real estate taxes, lawns, repairs, staffing. It becomes a much bigger commitment,” says Steinberg, highlighting the many costs that come along with multiple homeownership.
When Home Is a Business
Staff consist of one of the biggest costs of a owning multiple homes, with many homeowners turning to agencies or individuals to manage their staff and coordinate everything from freshly cut lawns to stocked fridges.
“There are wealthier clients of mine that pay an estate manager to coordinate the multiple homes and that involves staffing. If you have eight on staff, that requires management. They’ll contract that to a company or they have a full-time house manager who makes arrangements. It’s a pretty massive infrastructure,” says Steinberg.
There are dozens of local personal staffing agencies in every city and other agencies such as Quintessentially People, which has six offices across Europe and the U.S. Staff can be paid upwards of $100,000 annually for taking care of often vacant homes.
“Personal staff will be hired to coordinate the individual, the family, the estates, the grounds of the estates, automobile maintenance, yacht maintenance, equestrian facilities, and more,” explains Durkin.
Tech’s New Tools
Technology, however, is in some cases being used to replace full-time staff members.
Home automation and security are the fastest growing segments.
“High-technology security is necessary in each home to protect luxury goods and assets while the home is vacant,” says Durkin.
There are indoor and outdoor security cameras from Nest, smart thermostats that control the temperature of a home remotely from Ecobee3, robot vacuums from Neato that can be turned on with an app, and remote sprinkler controls from Rachio. Although this technology does not come cheaply, it does cut costs on personal staff and gives multiple homeowners more control over their properties no matter where they are.
“Technology is very meaningful as it helps you remotely control the home, especially in place of a full-time staff,” says Steinberg.
Technology has also played a role in creating a more global workforce in which people are working no matter where they are or traveling more often for work. Executives living between multiple cities find it a better investment to buy a home rather than rent when traveling for work, or if traveling often with their family between destinations.
“If you look at the price of six bedrooms at hotel, then the price of owning a home is less in comparison. The wealthy know that the home ownership over the long run is a wise place to park capital,” says Steinberg.
Who Is Buying Where
Overall urban areas are the most popular for multiple homeownership with the most growth occurring in the usual suspects of Los Angeles, Miami, New York, and Paris. Urban destinations are popular because they offer both business and culture, but they are also the safest investment in terms of value.
“The greatest growth markets for multiple homeowners in the United States includes South Florida and New York,” according to Dunkin.
Knight Frank and Douglas Elliman’s 2017 Wealth Report predicts that U.S. cities will benefit from increased property investment on the back strong economic growth. Investors and the new wealthy increasingly want to move money to safe markets such as the U.S., leading to the purchase of multiple homes.
The value of a city-based luxury home increased by 2.4 percent on average last year while a ski home by comparison saw 1.9-percent growth and a beach or coastal property slipped marginally by 0.5 percent, according to the report.
Steinberg notes that the Chinese are particularly bullish on urban homeownership.
Almost a third, or 32 percent, of China’s ultra-high-net-worth individuals will invest in offshore real estate in the next two years, reports Knight Frank and Douglas Elliman. Chinese investment in U.S. residential property has risen from barely $300 million in 2006 to over $30 billion in 2015 and now accounts for nearly one in every five foreign purchases.
“The world’s wealthy are a footloose group, and the place they call home is only a starting point when trying to unravel the locations that most resonate with them,” summarizes the report, but it’s not just the Chinese who are buying overseas.
Ultra-high-net-worth individuals from Saudi Arabia, Taiwan, and Malaysia own an average of four homes and individuals from UAE, India, Russia, and Italy own an average of three.
On average, 30 percent of Douglas Elliman’s ultra-high-net-worth individuals expect to buy a third or fourth property, all which suggests that the market for third and fourth home ownership will continue to grow as the wealthy demographics in these countries grow.