Once the initial shock of winning the lottery wears off, it’s time to start thinking about how you are going to spend your money. A new car would be nice, and so would a trip to an exotic location, but for most lottery winners, the first big purchase is a new home.
Real estate is an area of great danger for lottery winners. The allure of their dream home compels lottery winners to make poor decisions that hurt them, not just in the short term, but can erode their fortune completely.
It seems as though everyone offers tips for what to do if you win the lottery, but it’s just as important to understand what not to do. Avoid these five real estate traps with your lottery winnings, and you will secure a more stable financial future for your family.
Rushing Into a Purchase
If you’ve been living in a tiny flat in the middle of the city, your gut instinct may be to go out and buy the first home that you see with a yard. It’s a reasonable urge, but one that must be avoided.
People who rush into a home purchase soon find themselves saddled with a host of unexpected problems. Without adequate time to inspect the home for damage and ensure that all of the major systems are in working order, you may discover thousands of pounds of additional repairs are needed before you can ever move in.
Additionally, there is a natural instinct to overestimate the size of the home that you need. Buyers short-sightedly overlook children who will grow up and move out, place too much emphasis on extra living spaces and bathrooms, or overvalue the need for a huge kitchen. When you take the time to think through your purchase, you can rationally assess not just your home needs now, but those in the future as well.
Buying Multiple Properties
When your lottery winnings reach into the tens or hundreds of millions of pounds, it’s easy to believe that the money will last forever. That puts you in a mindset where you feel as though you can purchase whatever you want, and never have to worry about negative consequences.
While that attitude may hold true for your favorite shoes or electronic gadgets, it is not true for real estate. Many a lottery winner has gone bankrupt after purchasing multiple properties. The reason: failure to understand the ongoing maintenance and upkeep costs of the property.
Even if you don’t live in a home, there are monthly costs, such as utilities and repairs that must be done. Lottery winners who buy lavish vacation homes are stunned to see how much the ongoing costs can be. If they try to skimp on the maintenance, the property falls into disrepair; a state that costs even more money to rectify. For most situations, it is better for lottery winners to buy their primary residence, and rent property when they want to go on vacation.
Failure to Plan For Property Taxes
Besides the regular maintenance and upkeep of the property, you must also consider the annual property taxes. If you owned a home before you won the lottery, it is likely that your tax bill was manageable. If you indulged yourself when you won the lottery you’ll find your tax bill is higher than you ever dreamed.
As property values increase, so do the property tax payments, often at a pace faster than people are prepared to handle. There is no way to avoid the taxes, and failure to pay them will lead to government confiscation of the property.
Leaving the Home in Your Name
So, you’ve won the lottery and want to pay it forward and buy your parents a nice home to retire in. You take the time to find the right place, plan for the property taxes and think that the future is set.
A common mistake that lottery winners make is buying a gift or rental property and leaving that property in their own name. When you leave your name on the title, you expose yourself as the property owner, making you the person responsible for damages and injuries incurred at the property. Even if you are not at the property every day, you are still liable for the upkeep and safety conditions of the property.
In a lawsuit, attorneys come for the person with the deepest pockets. In the case of a lottery winner, that will undoubtedly be you. Fortunately, you can protect yourself by transferring gift properties and owning rental properties through a corporation, but both solutions require preplanning.
Owning real estate is a common dream for lottery winners; however, if you make the wrong mistake, you could lose everything. Avoid these pitfalls to protect your winnings, your property, and your family.