Owning multiple luxury homes is a common trend among high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs). A primary residence, a couple of vacation homes, and perhaps an office or investment property—this real estate portfolio often feels like a sign of success. However, over-investing in personal-use real estate can lead to unexpected cash flow problems, excessive tax burdens, and estate planning complications. This article explores the hidden costs of owning multiple properties and provides actionable strategies to strike the right balance between real estate and liquid, income-producing investments. While the rationale applies broadly, the ratios and strategies discussed here are tailored specifically for HNWIs and UHNWIs. Mass affluent individuals may require different benchmarks and allocation strategies.
The Liquidity Trap: Why Too Much Real Estate Can Hurt Your Financial Flexibility
Real estate is an inherently illiquid asset. Unlike stocks or bonds, which can be sold quickly, selling luxury homes can take months, if not years, especially in a slow market. If wealth is heavily tied up in real estate, financial flexibility may be compromised, limiting the ability to seize investment opportunities, cover unexpected expenses, or transition into a new phase of life without selling assets under pressure.
Actionable Strategy
Maintain at least 2–5 years of living expenses in liquid assets like cash, stocks, or bonds.
Keep personal real estate under 30% of net worth to ensure a diversified and flexible portfolio.
Tax Burdens: Capital Gains, Estate Taxes, and State-Level Pitfalls
Capital Gains Taxes on Sale
If a personal residence is sold, the capital gains tax exemption allows for the exclusion of up to $250,000 (single) or $500,000 (married) of profit from taxation—but only for a primary residence occupied for at least two of the last five years.
For a vacation home or second property, the entire capital gain is subject to long-term capital gains tax (15–20% federal, plus state taxes where applicable).
Actionable Strategy
Plan sales strategically, using the primary residence exemption when applicable.
Consider 1031 exchanges for investment properties to defer taxes, though these do not apply to personal-use homes.
Estate Tax Pitfalls
Real estate can create estate planning challenges, particularly in high-tax states. The federal estate tax exemption is $13.06M per person in 2025, but it is set to drop by half in 2026, meaning more estates will be taxed at 40%.
New York estate tax “cliff”: If an estate exceeds $6.94M, the exemption is lost entirely, and the full estate is taxed at 16%.
Florida advantage: No state estate tax, making it a tax-friendly domicile for real estate wealth.
Actionable Strategy
Use Qualified Personal Residence Trusts (QPRTs) to remove real estate from a taxable estate.
Consider shifting primary residency to a no-estate-tax state.
Carrying Costs: The Silent Drain on Wealth
Even if properties appreciate in value, the annual carrying costs can be significant, including:
Property taxes: Luxury homes in high-tax states can incur substantial property taxes annually.
Insurance: Homes in high-risk areas face rising insurance premiums.
Maintenance and staffing: Annual upkeep, landscaping, staff, and repairs can add considerable costs.
Actionable Strategy
Regularly review carrying costs and evaluate whether owning is worth the ongoing expenses.
If a property is underutilized, consider selling it or renting it out part-time.
Portfolio Balance: How Much Real Estate is Too Much?
A well-balanced portfolio should include a mix of:
Liquid assets (stocks, bonds, alternative investments)
Income-generating real estate (rental properties, commercial assets)
Personal-use real estate
Guideline: Keep Personal Real Estate Under 30% of Net Worth
10–20% = Optimal (Allows flexibility and liquidity)
30%+ = Risky (Illiquidity issues, cash flow strain in downturns). When you are younger and accumulating wealth at a faster pace, that ratio may be higher, closer to 50%. As you enter your distribution phase, the ratio should be lower to ensure stability and liquidity.
Actionable Strategy
If personal real estate exceeds 30%, prioritize growing liquid assets through equities, bonds, and income properties.
Consider selling underutilized properties and reallocating to investments with better liquidity and growth potential.
Smart Strategies for Managing Multiple Homes
Use Rental Income: If keeping a vacation home, consider part-time rentals to offset costs.
Leverage Trusts & LLCs: Holding properties in LLCs or trusts can provide estate tax advantages and liability protection.
Domicile Planning: If owning homes in multiple states, ensure that the primary residence is in a low-tax state to avoid unnecessary estate or income tax burdens.
Re-evaluate Real Estate in Your Portfolio Annually: Real estate markets fluctuate—what made sense five years ago may no longer align with financial goals.
Own Wisely, Invest Strategically
Personal real estate is an important part of many wealthy individuals’ financial lives, but too much of it can create liquidity constraints, excessive tax liabilities, and ongoing cash flow burdens. By keeping personal real estate under 30% of net worth, optimizing for tax efficiency, and maintaining liquidity, properties can be enjoyed while ensuring they enhance—not hinder—financial success.
Consult with a financial advisor, estate planner, and tax professional to create a strategy that aligns with wealth goals. The key to long-term financial health isn’t just accumulating assets—it’s ensuring that they work in harmony to support a balanced and resilient portfolio.
Note: The wealth classifications used in this article are as follows: Mass affluent individuals typically have $100,000 to $1 million in liquid net worth, high-net-worth individuals (HNWIs) have $1 million to $30 million, and ultra-high-net-worth individuals (UHNWIs) have over $30 million.
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