The global real estate market is valued at around USD 7 trillion (according to 2024 data) and is expected to continue its steady growth in the future. Among the various segments that make up this huge market, the luxury real estate niche was worth about USD 276 billion in the same year, and is expected to have a compound annual growth rate of around 6% until 2034.
In short, real estate is booming. This is both good and bad news when you own luxury real estate. The good news is obvious (your assets are appreciating), but you also face increased risks in case of damage or liability.
Higher property values mean higher replacement costs, greater exposure to lawsuits, and more complex insurance needs that standard policies often fail to cover.
In this article, we’ll discuss five common (and costly) missteps that even seasoned property owners make and how to make sure you don’t make them. Consider this your blueprint for avoiding expensive surprises, optimizing asset performance, and keeping your real estate empire standing tall.
Sure, you’ve insured the property, but is it the right kind of coverage? Many luxury property owners unknowingly underinsured their homes, assuming standard homeowners insurance is enough.
High-value homes often come with high-stakes risks, such as custom finishes, imported materials, fine art collections, and architectural features that require expert appraisers and rebuild estimates.
According to a recent survey, underinsurance is a widespread issue among affluent homeowners. Data shows that up to 60% of homes are insured for less than their replacement cost.
To make sure you don’t make the same mistake, here’s what you can do:
Work with an insurance broker who specializes in luxury real estate.
Request regular appraisals and policy reviews, especially after renovations or acquisitions.
Consider policies that cover extended replacement cost, high-end valuables, and loss of use during long-term repairs.
Pro tip: For estate planning and added liquidity, understanding no-lapse policies and making full use of their power can be a strategic move. This way, you ensure that your legacy isn't liquidated to cover liabilities and that the coverage doesn’t depreciate with age.
Luxury real estate can be a powerful investment, but overplaying your hand with leverage is a risky move. During bullish markets, it’s tempting to finance multiple properties, banking on appreciation and rental income. But downturns don’t discriminate.
A 2023 Federal Reserve report showed that highly leveraged property owners were significantly more vulnerable to default and asset loss during the last two economic contractions. Those losses are amplified in high-end markets.
To play it smart, it’s best to keep your loan-to-value (LTV) ratio conservative, especially for non-primary residences. Also, back debt obligations using diversified income streams and always have a liquidity buffer for unexpected expenses (or interest rate spikes).
You’ve acquired your dream property. But what happens to it when you’re gone, or even just unavailable? Too often, luxury real estate is left out of comprehensive estate planning, leading to probate delays, family disputes, and a tax bill that would make even your accountant sweat.
To fully protect your legacy, start by consulting a real estate-savvy estate attorney to create or update your plan. Talk to them about issues like succession, tax strategy, and multi-jurisdictional ownership.
One of the most consequential yet overlooked aspects of luxury real estate protection is how properties are titled. Too often, high-value properties remain in personal names long after the owner's wealth has grown to levels requiring more sophisticated protection.
If any issues arise, holding luxury properties in your personal name creates a direct line to your other assets. If you follow the rules of private wealth management (which you should), high-end properties should be held in appropriate legal structures to reduce litigation exposure.
Specialists recommend creating separate Limited Liability Companies (LLCs) for each significant property to establish legal separation between assets. If the property is not in the US, implement country-specific ownership structures that maximize both local and US protections.
Proper structuring isn't just about asset protection; it also creates opportunities for more efficient wealth transfer, privacy protection, and tax planning. Work with advisors who understand both real estate and wealth preservation strategies to create an integrated approach.
Luxury real estate goes beyond property ownership; it’s more of a statement, and for many, a legacy in the making. But without strategic protection, even the most breathtaking portfolio can become a liability rather than an asset.
So safeguard your square footage like the treasure it is. Your future self (and your heirs) will thank you.