Challenging Luxury Home Marketing Assumptions

I market luxury homes from my office... in a production home, and I struggle to understand the decision to build a custom pedicure room.

It seems helpful to assume my production buying mindsets are all inverted. I care about price, so they don't. I care about resale, so they don't. It's worth my time to monitor the construction process, so it's not worth theirs.

I was reminded how inaccurate those assumptions are by an interview with the owner of a 24,000 square foot custom mansion. When interviewed by Sam Parr of Hampton, "Hank" (anonymous) shared his mindset around building and maintaining this mansion. It was much more nuanced. He cared deeply about the custom features, but he also approached it like an intelligent a business investment.

Many high net worth individuals are very intelligent about running a business, so they are interested in the construction process, and are able to be involved despite busy schedules. I got the feeling that Hank applies a business mindset to many things in his life. Hank says he operated "a business at very low margins". In his distribution company with a $60m exit, he "didn't have room for a lot of error." He also shares "It would be great to be able to be a different person privately than you are in business. It's really hard to separate the two."

This points to the value of having open processes and ample feedback throughout the construction process. Hank is likely exceptional at resource allocation and process management. When talking about his home maintenance, Hank states:

It's very similar to running a business. You know, you can be the head of a company, but it's good that you know what everybody's job description is so you understand what they're doing or not doing. Otherwise you have no idea. And there's no check and balance.

He continues, "I'm the check and balance just as much, if not more, than the person that actually does the fixing."

Hank deliberately approached this home as an investment. He considered the value of his cash, and the resale value.

Ultimately deciding to pay cash for the $10m+ home, he states, "It's just a question of what your money can do if you don't put it into the house. So at the time, I think I just remember making the choice that I was better tying it up in real estate than perhaps keeping it invested. So it wasn't that I just said I didn't care. I actually evaluated the value of the money."

This house has various amenities - a movie theater, tennis court, manicure/pedicure room, eight garages, and a separate two-bedroom guest house. When discussing these, Hank states "I did think of the resale value." For upper-middle market homes, these amenities don't have a very good ROI, but this can be different in larger homes. Hank continues "A house in this neighborhood where the people that are buying now, the money isn't any object to them, it seems, and they do want all the bells and whistles."

This episode was a good reminder to check my assumptions. Is this a lazy heuristic that my brain made up to avoid work? Or is it a nuanced, sophisticated opinion based on the outside world? You can find the episode here: https://joinhampton.com/blog/hank-net-worth-mansion-moneywise-interview