The winner of the $2 billion Powerball Prize is breaking every financial planning rule in the book. Since winning a lottery in November, Edwin Castro has been buying up California real estate, which includes a three-story $25.5 million mansion in the Hollywood Hills, the same part of Los Angeles that A-list stars like Leonardo DiCaprio and Ariana Grande call home.
That's the opposite of what financial advisors recommend for lottery winners-or any person who suddenly comes into great wealth. Rather, they suggest waiting until the emotional high of winning the jackpot cools off. One advisor warned against buying high-end homes all together.
I've seen clients purchase large homes in faraway locations that they ultimately realize they will not use frequently and end up being a major ongoing financial burden that took several years to sell, Karger said.
Karger is a cofounder and managing partner at TwinFocus, a wealth advisory firm that manages over $7 billion for extremely-high-net-worth families. He recommends clients, who range from centimillionaires to billionaires, to wait six months to a year before making any big purchases.
The value of second or third homes is decreasing, and luxury real estate is not seen as a valuable investment considering its potential for economic conditions outside the owner's control. Real estate is a unrelenting asset that can become a challenge when the owners don't care about how to manage the rest of their wealth. The annual cost of maintaining a home is roughly 1% to 4% of the home's worth.
The maintenance of Castro's $25.5 million Hollywood Hills home, which includes five bedrooms, six bathrooms, a game room, wine cellar, home theater, wet bar, gym, cold plunge, steam shower, and sauna, will cost 255,000 to over $1 million annually.
And that's not all he bought. A couple weeks after buying the first mansion, he spent $4 million on a Japanese-influenced house in Altadena, Calif., his hometown in the Los Angeles suburbs and near the gas station where he bought the winning ticket.
Castro also bought a vintage Porsche 911, which cost $250,000, the New York Post reported in April.
In February, Castro claimed his prize, which involved immediately receiving nearly $1 billion in cash, which turned out to be roughly $628 million after taxes. The alternative option was to collect the $2 billion prize through an annuity over 29 years, which financial advisors say is usually the better strategy.
t understand that there is a potential for loss. They only focus on the potential for gain, Bunio said in a statement to the Associated Press last November.
Financial advisors heed precautionary precautions to lottery winners and anyone entering a large amount of wealth, whether that be through the Great Wealth Transfer, an estimated $73 trillion that will be passed down from baby boomers to their heirs or by some other windfall. Instead of burning through cash, they recommend consulting a financial adviser, tax attorney, and other experts to create a plan.
Don't quit your job, don't go out and buy a Ferrari, don't buy a mansion,' said Emily Irwin, managing director of advice and planning at Wells Fargo's investment and wealth management division.
Irwin added that the idea of a national security system was not inconceivable, but that it didn't have a negative impact on the nation's economy.
A warning of sudden wealth can be a danger to professional athletes. Nearly four out of five NFL players are facing serious financial stress after having been retired for two years, Sports Illustrated reported in 2009. And that figure has only increased. In 2015, nearly 16% of NFL players filed for bankruptcy within the first 12 years of retirement, according to the National Bureau of Economic Research.
t make any major decisions or big commitments.