5 Things Wealthy Savers Avoid Buying at Full Price
One of the ironies of personal finance is that the people who least need discounts (e.g., the rich) often qualify for the most discounts.
The reason is simple: Wealthy people can take advantage of financial leverage and relationships that most others don’t have, according to Cody Schuiteboer, president and CEO of Best Interest Financial.
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Here are five things that most wealthy savers avoid buying at full price.
1. Real Estate
High-net-worth (HNW) clients will often close real estate deals off-market at 10% to 15% below the list price, according to Chad Cummings, an attorney and CPA at Cummings & Cummings Law who previously worked in finance and tax.
That kind of discount could mean savings of hundreds of thousands of dollars on the priciest homes.
The main risk of making private deals is when you waive inspection contingencies, which potentially exposes you to remediation costs that “dwarf the discount,” said Cummings.
His advice is to “never waive inspection or contingencies regardless of the relationship.”
2. Other Big-Ticket Items
In addition to homes and real estate, wealthy people can score discounts on other high-priced items such as cars and luxury goods. Savings can be substantial on items that cost six figures or higher.
The discounts are often offered when sellers are in a “weaker position,” Schuiteboer said. “The discount is not a special offer here, but leverage that allows making a decision when no one pushes you to do something right now. You set your own prices.”
3. Insurance
Insurance discounts for the wealthy typically involve “captive insurance” deals.
Captive.com describes a captive insurer as one that is “wholly owned and controlled” by its insured, and whose primary purpose is to “insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.”
According to Cummings, captive insurance has been a “big trend” over the past decade, particularly among the ultrawealthy. Although captive structures can lead to discounted premiums, they also carry tax penalty risks if not implemented properly.
“The message here is proceed with caution,” Cummings said.
4. Borrowing Costs
As a general rule, the wealthy “do not pay retail price” for loans the way most borrowers do, according to Schuiteboer. Discounts here can lead to years of savings over the life of the loans.
“Excellent credit, tangible assets and established banking relations ensure lower mortgage interest rates, better lines of credit, and terms that regular users would never hear about,” Schuiteboer said. “In addition, borrowing money at low-interest rates from the bank is cheaper than selling the assets and paying taxes for it. This way, the savings can be twice as much because of avoiding taxation.”
5. Investment and Advisory Fees
As Cummings noted, wealthy clients typically can negotiate discounts of “25 to 50 basis points” off investment management fees.
This has two main advantages: It saves money, and it encourages future investments that can build even more wealth. But it’s important to read the fine print to make sure there aren’t any provisions that can cost a lot of money during down quarters.
“This is why we never treat investment advisors’ agreements as ‘boilerplate’ and treat every contract as negotiable,” Cummings said. “This is something the middle class does not do – and even many HNW do not do consistently.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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