What can we learn from wealthy buyers? Well, a lot, says luxury home broker
The world of multimillion-dollar condo sales and mansions is an alien planet to most of us.
Apologies to anyone reading this as they scan the Hub skyline from their Ritz-Carlton penthouse.
But we can all learn from how the rich go about buying real estate, contends Jack Cotton, a Sotehby's International broker on the Cape who has penned a couple of books on the subject.
In fact, his conclusions are likely to come as a surprise given all the stereotypes out there about the wealthy.
I mean, after reading about $25 million penthouse deals in Manhattan it is hard not to imagine money drunk billionaires madly pursuing ever more lavish homes and other luxury items.
Just recall convicted Tyco looter Jack Kozlowski and the window his court case opened on an unsavory corner of the elite world. That $6,000 shower curtain sure had lots of resale value.
But Cotton, who has spent three decades selling fancy homes to millionaires, paints a far different picture of the wealthy, mainly as sober minded and hard-working individuals determined to wrangle the best deal possible.
In fact, Cotton contends the wealthy buyers he has dealt with have amassed their fortunes not through prodigious spending, but rather by hanging onto their money with both hands.
Cotton contends there are lessons here for the average buyer, and I tend to agree, though with some caveats. After all, money brings power and power provides bargaining leverage that poor schleps like me who could barely afford to buy in Natick - yes, I've made it into the coveted 01760 zip code - simply do not have.
Cotton is hardly saying every wealthy buyer he has worked with is magically endowed with great financial management skills - he offers a cautionary story of an entrepreneur who turned his palace into an ATM machine and wound up drowning in debt. I suspect there is more where that came from.
But lets just say he focuses on the smart rich, my term, not his.
The smart rich understand clearly what their own net worth is, the true value of the mansion or waterfront getaway they want to buy, and then drive a hard bargain, Cotton contends.
The smart rich have an aversion to stretching to buy - their focus is on taking out as little debt as possible when buying a new mansion or other luxury abode and then paying it off as quickly as possible.
This is not just hot air - all cash deals or mostly cash deals are common in the Back Bay when dealing with multimillion-dollar condos.
"They don't maximize their ability to purchase real estate - they don't as a rule over leverage," Cotton contends. "They have a plan to pay it off as quickly as possible when the bonus comes through or stock options mature."
Cotton is an interesting guy himself. He grew up in tony Osterville, but far from the town's sprawling waterfront mansions - his father ran a plumbing supply business.
Cotton launched his brokerage business out of his Babson dorm room back in the 1970s. After watching veteran competitors shoot off big meaningless numbers when asked about a home's value, Cotton soon determined he would become an expert in determining the real value of real estate.
He picked up appraisal courses here and there, read a lot and slowly developed a reputation as a straight shooter - as an expert on whom wealthy buyers could rely.
"I would give people really well documented price opinions," he notes. "People on the high end ... are compulsive about the value of their assets. They are big planners, they want to minimize taxes."
So what's useful here for the rest of us struggling just to get or maintain a foothold in one of the nation's most expensive housing markets?
If nothing else, beware of debt - don't stretch to buy.
"I have never seen anyone get into trouble having too little debt,'' Cotton said.
