The $2 Billion Powerball Winner Is Making The Worst Mistakes Financial Planners Warn People Of After They Come Into A Ton Of Money
The $2 Billion Powerball Winner Is Making The Worst Mistakes Financial Planners Warn People Of After They Come Into A Ton Of Money
Paige Hagy Tue, September 19, 2023
The winner of the record-breaking $2 billion Powerball prize is breaking every financial planning rule in the book. Edwin Castro is buying up California real estate since winning the lottery in November, including 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 exact 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 counseled against buying up expensive homes altogether.
“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,” Paul Karger previously told Fortune.
Karger is a cofounder and managing partner at TwinFocus, a wealth advisory firm that manages over $7 billion for ultra-high-net-worth families. He recommends to clients, who range from centimillionaires to billionaires, to wait six months to a year before making any big buys.
The value of second or third homes (or mansions) is shrinking post-pandemic, and luxury real estate is not known for being a great investment considering its vulnerability to economic conditions outside the owner’s control. Plus, real estate is an illiquid asset, which can become a burden if the owners are careless about managing the rest of their wealth. The annual cost to maintain a home is roughly 1% to 4% of the home’s worth.
By this estimate, the upkeep for Castro’s $25.5 million Hollywood Hills home—which has 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.
More mansions and a vintage Porsche
And that’s not all he bought. A couple weeks after buying the first mansion, he spent $4 million on a Japanese-inspired house in Altadena, Calif., his hometown in the Los Angeles suburbs and near the gas station where he bought the winning ticket.
Earlier this month, he also bought a $47 million mega-mansion in Los Angeles, with seven bedrooms, 11 bathrooms, an infinity pool, koi pond, champagne room, wine cellar, home theater, and a view of the city skyline. Castro also purchased a vintage Porsche 911 costing $250,000, the New York Post reported in April.
Castro claimed his prize in February, choosing to immediately receive nearly $1 billion in cash, which came out to be roughly $628 million after taxes. The alternative option was to collect the full $2 billion prize through an annuity over 29 years, which financial advisors say is usually the better strategy.
“People don’t understand there is a potential for loss. They only focus on the potential for gain,” Nicholas Bunio, a financial planner told the Associated Press last November.
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