Houses: First Homes, Second Homes, and Estates

The Million Dollar Question: What is the typical annual carrying cost of a $10 million estate — maintenance plus property tax plus insurance, before any staffing — as a percentage of the home’s value?

A) ~1% B) ~2% C) 3–5% D) ~8%

Read on for the answer.

A working map of housing across the four wealth tiers — first home, second home, estate, compound — and the operational truth that the cultural picture stops at the purchase price while the actual life of an owner starts there.

What it is

Most readers price housing at the moment of purchase. The cultural picture of “a $10 million estate” stops at the headline number. The operational reality runs much larger and never stops: every year the house is owned, it consumes a meaningful percentage of its own value to stand still. Property tax. Insurance. Maintenance. Grounds. Utilities. The slow capital depreciation of every system inside the structure. At the top end, owning a luxury home is closer to running a small business than owning an asset.

This piece walks the four-tier framework from Wealth Levels as it applies to housing — paid-off primary residence, primary plus second home, multiple properties with estate-scale primary, multi-property trophy portfolio — with a deliberate weight on the fifth section. The cost section is the heart of this post, and the headline number that does most of the work is the annual carrying cost as a percentage of value: roughly 3 to 5 percent at the luxury tiers, every year, indefinitely. A $10M house consumes $300K to $500K a year. A $50M compound, $2 to $4 million. The acquisition cost is one-time. The operational cost is forever.

A second through-line is worth flagging up front. In the highest-end markets — California wildfire zones, Florida hurricane zones — the insurance side of housing is now structurally broken for $5M+ properties. That story lands in §6, but it deserves the warning at the start: the most under-reported wealthy-American housing story of the 2020s is not about who is buying what, it is about whether anyone can still insure it.

Who lives at each tier

The tiers map cleanly onto the Wealth Levels bands.

$1M–$5M. Paid-off primary residence as the largest asset on the balance sheet. The “millionaire next door” pattern from Paths to Millions: a coastal-metro home bought twenty or thirty years earlier and slowly compounded into the household’s wealth. Possibly a modest second home or rental property at the upper end of the band.

$5M–$30M. Trade-up primary residence in a top-tier metro neighborhood — a $3–10 million urban or suburban home, often the result of an equity event (IPO, acquisition, partner-track promotion). First real second home becomes operationally normal at this tier — Hamptons, Aspen, Lake Tahoe, Park City, the right slice of Florida or coastal Carolina. Often a third property as a pied-à-terre in a city the household visits frequently for business.

$30M–$100M. Multiple properties is standard. Most households at this tier own three to five homes — a primary in a top metro, two or three vacation homes spread across climates and seasons, often a foreign property. Estate-scale primary residences (10,000+ square feet on multi-acre grounds) become realistic at the upper end of the band. Property management is a structural concern, not a side issue — a single point of failure becomes a real risk.

$100M–$1B (centi-millionaire). A deliberately assembled portfolio of three to six properties globally. Compound-scale primary residence (50,000+ square feet on substantial acreage) is normal at the top end. The trophy address — the right ZIP code in NYC, LA, London, or the Hamptons — is itself an asset, often appreciating faster than the structure on it. (Forward-link to ZIP Codes for the geography deep dive.)

$1B+. A portfolio of trophy properties globally, often a mega-estate primary, sometimes approaching the buying-an-island tier. The economics here are about scarcity and pure consumption, not return.

The overlay across every tier above $5M: most second homes are occupied fewer than 60 nights per year. The economics of the second-home tier are largely the economics of an unoccupied but fully-staffed asset.

Why they buy

Shelter explains tier 1. Status, privacy, optionality, and family logic explain the rest.

Status and the trophy address. The right ZIP code is itself an asset, and at the higher tiers the address often appreciates faster than the building on it. Forward-link to ZIP Codes for the deeper treatment.

Privacy. Above ~$5M, properties are routinely held in anonymous LLCs (Delaware, Wyoming, or Nevada are the common formation states), keeping the buyer’s name out of public title records. Same theme as Privacy and Asset Protection.

Geographic optionality. Multiple climates, multiple time zones, schooling flexibility, political-risk diversification across jurisdictions. Some buyers explicitly distribute properties to maintain residency optionality across multiple US states (and sometimes countries) for tax and lifestyle reasons.

Family compound logic. A property big enough to host adult children plus grandchildren without anyone needing a hotel is an explicit goal at the $30M+ tier. The “we want everyone here at Christmas” objective drives a lot of the move from large home to compound.

Tax and asset-class diversification. Real estate as a hedge against equity-heavy portfolios; specific tax structures (1031 exchanges, opportunity zones, depreciation on rental properties) at the operational tiers; foreign properties for residency or tax planning at the top tier.

Pure consumption. At the highest tier, simply because they can — the same reason a billionaire builds a 50,000-square-foot primary even though they spend half the year elsewhere.

The five recurring themes that run through this canon — time, access, privacy, risk management, and complexity — all show up in why people buy at scale, but the dominant driver above $30M is something more like control of physical space and time across multiple geographies.

How it works (the mechanics)

Acquisition. The luxury market is overwhelmingly cash. Per Sotheby’s 2025 Mid-Year Luxury Outlook, roughly 50% of $2–5M sales, 65% of $5–10M sales, and about 88 to 90 percent of $10M+ sales are all-cash. Even when the buyer can secure a jumbo mortgage, the asset-allocation math at elevated interest rates often favors paying cash and keeping leverage on liquid assets instead. Closing tends to be faster (no lender contingency), and at the very top of the market — single-family compounds at $50M+, ultra-luxury condos in Manhattan or Miami — cash is effectively the only way to compete.

Million Dollar Question — sidebar: What share of US home purchases above $10 million are all-cash? About 88–90 percent. Cash dominance scales sharply with price; below $2M, mortgage is still the norm.

LLC ownership. Standard practice above ~$5M. Title held in an anonymous limited-liability company, formed in a state with strong privacy protections (Delaware, Wyoming, Nevada most common). Public records show the LLC, not the human buyer. Same mechanism as the privacy and asset-protection structures elsewhere in the canon.

High-value home insurance. The threshold for high-value home insurance is generally $750,000 in rebuild cost, not market value. Above that line, owners switch from standard carriers to specialty insurers — Chubb (Masterpiece), AIG Private Client Group, Pure Insurance, Cincinnati Insurance, Vault. Specialty policies offer extended replacement cost (rebuilds the house even if it costs more than the stated coverage), no upper coverage cap, cash-settlement options that let owners take the money instead of rebuilding, and concierge claims handling. The pricing and availability story is changing fast — see §6.

Property and estate management. At ~$10M+, hiring a property manager (or estate manager) becomes operationally rational. At $30M+, it is mandatory — the operational complexity of multi-property ownership with estate-scale grounds and full staff is not a part-time job. The deeper treatment lives in Estate Managers.

Renovation and capex. A house at the luxury tier is never finished. Major renovations every 7 to 12 years are typical. A full kitchen / bathrooms / HVAC refresh on a $10M house can run $1–3M; a complete reimagining of a compound, $5–20M. These do not show up in the annual carrying-cost number; they sit on top of it.

What it costs

The unromantic carrying-cost picture, at the tier most readers want to understand: a $10 million estate. Three big buckets — property tax, insurance, maintenance — make up the structural cost; staff, utilities, and capex sit on top.

Property tax varies more than any other component, by a factor of nearly 10 across US states. Per the Tax Foundation’s 2026 data:
– Highest effective rates: New Jersey, Illinois, Connecticut, New Hampshire, Vermont — roughly 1.7 to 2.2 percent of value depending on methodology.
– Texas: ~1.25%, no state income tax to offset.
– Mid-range: Pennsylvania, Michigan, Iowa.
– California: ~0.7 to 0.8%, with Proposition 13 capping reassessment for long-held properties — a $10M house held by the original buyer for thirty years can have a property tax base far below market value.
– Low: South Carolina, Alabama.
– Lowest: Hawaii at ~0.27%.

A $10M estate in New Jersey: roughly $170,000 to $220,000 per year in property tax alone. The same estate in California, with a long-held Prop 13 protected base: as low as $30,000 to $80,000. The same estate in Hawaii: about $27,000. The choice of state is more financially consequential than the choice of any single feature in the house itself.

Insurance runs 0.3 to 1 percent of value at most tiers in low-risk areas — a $10M house in a low-risk geography costs $30,000 to $60,000 a year to insure on a Chubb Masterpiece or AIG Private Client policy. In wildfire or hurricane zones, the same house can run $80,000 to $200,000+ — when private coverage is available at all. (More on the broken insurance market in §6.)

Maintenance runs higher on luxury properties than on typical homes. The standard 1% rule for ordinary residential maintenance does not hold; luxury homes typically run 2 to 3 percent of value per year, and the highest-end estates can run 5%+. Maintenance includes routine repairs, system replacement (HVAC, roof, pool equipment, generators) on roughly seven-to-twelve-year cycles, exterior treatment (paint, masonry, woodwork), and grounds.

Staffing at $10M+ is a meaningful line item. Typical staffing for an actively-used $10M estate:
– Estate manager (deferred to Estate Managers): $100,000 to $300,000 per year base.
– Housekeeper(s): $50,000 to $80,000 each.
– Groundskeeper or landscape crew: $40,000 to $120,000.
– Driver, where applicable: $60,000 to $100,000.
– Security, where applicable: $80,000 to $200,000+.
– Total annual staff cost for a fully-operating $10M estate: $200,000 to $500,000.

The all-in carrying cost picture:
– A $10M estate in a low-tax state, mild climate, with modest staff: roughly $300,000 per year (3% of value).
– The same value of estate in a high-tax state, in a wildfire zone, with full staff: $700,000 or more per year (7%+).
– A $50M compound in a high-tax state with extensive staff: $2 to $4 million per year.
– A $100M+ trophy compound: $3 to $8 million per year is normal; the largest run higher.

The carrying cost is forever. The acquisition cost is one-time.

Hidden costs and tradeoffs

The insurance crisis. This is the single most under-reported wealthy-American housing story of the 2020s. In California’s highest-wildfire-risk ZIP codes, premiums have risen approximately 82 percent and non-renewal rates are roughly 80 percent higher than in low-risk areas. Pacific Palisades and similar Malibu hillside ZIPs now have one of the highest concentrations of California FAIR Plan policies in the state — the FAIR Plan being the state-of-last-resort insurer designed to cover homes that no private market will write. The FAIR Plan caps coverage well below replacement cost for $5M+ homes, leaving owners self-insuring the gap.

In Florida, the dynamics are similar: hurricane exposure has driven major specialty carriers to non-renew in coastal Miami-Dade and the Keys. The 2025 market saw Citizens Property Insurance Corporation (Florida’s equivalent of the FAIR Plan) absorb a meaningful share of luxury home coverage that the private market dropped.

The owner response has three modes: pay the elevated premium and accept the non-renewal risk, retrofit aggressively (active wildfire defense systems, sprinkler perimeters, fire-resistant cladding, defensible-space contractors on retainer) to keep private coverage, or sell out of the high-risk zone entirely. A growing share of $10M+ owners in California fire zones are now self-insuring through captive insurance entities — expensive, complex, and increasingly the only option for properties the private market will not write.

Opportunity cost of capital tied up in homes. A $10M house at all-cash represents $10M not invested elsewhere. At a conservative 5% expected real return, that is $500,000 a year of foregone returns — comparable in magnitude to the entire carrying cost of the house. At the top tiers, owning is rarely the optimal financial decision; it is a lifestyle decision being financed by the opportunity cost of the capital tied up.

Second-home occupancy paradox. Most second homes are occupied fewer than 60 nights per year, but the carrying cost runs all 365. The per-night effective cost of a $5M second home occupied 50 nights per year, all-in, is roughly $5,000 to $15,000 per night — well above the cost of staying in a top-tier hotel for the same nights. The math virtually never works on pure economics; the case is privacy, control, continuity of place, and not having to pack.

Illiquidity at the top. $10M+ homes typically take 12 to 24 months to sell at the right price; $50M+ compounds can take three to five years. Selling under time pressure can mean accepting 20 to 40 percent below the asking price. The top of the market is structurally illiquid, which matters enormously in divorce, in estate settlement, and in any forced-sale situation.

A theme that runs through Wealth Levels carries here: the “everyone above me has it figured out” delusion. The estate that looks effortless from outside is consuming half a million dollars a year just to stand still — and someone is up at six in the morning making sure the gardener showed up.

What people get wrong

Five corrections, in roughly the order they cause confusion.

1. The carrying cost is the real cost. The cultural picture stops at purchase price. The operational reality is 3 to 5 percent of value every year, indefinitely. A $10M house consumes $300,000 to $500,000 annually before staff. The single most common mistake first-time luxury buyers make is underwriting a house against the purchase price and being surprised by the operating bill.

2. At the top tiers, owning is rarely the optimal financial decision. A $10M home all-cash represents $500,000 a year of foregone investment returns plus $300,000 to $500,000 a year of carrying cost. The pure financial math favors renting at almost every price point above $5M. The case for owning is privacy, control, continuity, and family compound logic — not return on capital.

3. Second homes are mostly empty. The typical second home is occupied fewer than 60 nights a year. The per-night effective cost is well above what the same nights would cost at a top-tier hotel. The case for ownership at the second-home tier is non-economic; the moment a buyer tries to economically justify a second home is usually the moment they should not be buying it.

4. The insurance market for $5M+ homes is structurally breaking in fire and hurricane zones. This is the most under-reported part of the high-end housing story right now. Owners in Pacific Palisades-style California ZIPs and coastal Florida are increasingly unable to get private-market coverage at any price; the FAIR Plan and Florida Citizens cap below replacement cost; self-insurance via captive entities is becoming standard at the top end. The next decade of US luxury housing will be shaped as much by climate and insurance as by demand.

5. Most $10M+ home purchases are all-cash. Roughly 88 to 90 percent per Sotheby’s 2025 data. Mortgage at the top end is often a strategic choice for lien priority or asset-allocation reasons, not because the buyer needs the leverage. The cultural picture of “wealthy buyers leveraging up” is mostly wrong; at the top end, leverage down is the norm.

Bottom line

The four-tier framework from Wealth Levels maps cleanly onto housing: paid-off primary, primary plus second home, multiple properties with estate-scale primary, multi-property trophy portfolio. But the operational truth is the same at every tier above $5M: owning a luxury home is not buying an asset; it is committing to an operating cost that runs 3 to 5 percent of value, every year, indefinitely. A $10M house consumes $300,000 to $500,000 a year. A $50M compound, $2 to $4