Would Winning the Dream Home Become a Nightmare?
January 07, 2014Updated June 14, 2017
HGTV’s Dream Home Giveaway continues to fascinate people like my mom, who love watching each year’s winners tour their incredible new homes. Whenever a new contest kicks off, my mom always asks me to help her enter, since her eyesight isn’t good enough for her to fill out the form anymore. Like the good daughter I am, I dutifully set a reminder to complete the entry form each morning that the contest is open, which makes my mom happy.
What if she wins?
But what if she did win? Would my elderly parents move across the country if necessary, leaving their home state of Maryland behind? If the home they won was in a state like California, that would mean higher state taxes, not to mention the cost of maintaining their new state-of-the-art home. And first, the IRS would want their share of taxes on the value of the home she hopes to win.
When a dream turns into a nightmare
Just like many lottery winners, the stories of the prior Dream Home winners sometimes end up being more nightmare than dream. Several of the winners ultimately lost their Dream Homes to foreclosure or ended up selling the home, after not being able to keep up the carrying costs and real estate taxes of a luxury home. They often would have been better off taking the cash instead.
Ski resort dreams dashed
The 2011 Stowe, VT ski lodge winner had the idea of turning the Dream Home into a vacation home and figured they could rent it out the rest of the time. But with real estate taxes of over $27,000 and all the other expenses associated with rental real estate (including probably a local management company since the winner lived in IL) the house was put up for sale after the family only stayed there 5 times.
The property certainly met the first rule in real estate: location, location, location. But when considering the rental real estate rule of thumb that a property should be able to provide gross monthly income equal to 1% of the property value, this WAS only a dream – since the property had a supposed retail value of $3.8 million but may never have been able to yield $38,000 every month of the year.
Bed & breakfast special rules
What about a bed & breakfast business? These Dream Homes are so beautiful, with typical square footage at around several thousand feet, and of course, the setting is usually in a resort area as was the Texas Dream Home at Lake Tyler. That was the idea of the 2005 TX Dream Home winner, but town regulations wouldn’t allow him to open a business on the property.
The moral of the story
The lesson here: do your homework before considering a home-based business. Whether it’s a B&B for guests or a doggy day care for 4-legged friends, make sure local rules don’t prohibit running a business out of your house BEFORE you open the business. With the B&B idea a bust, the winner eventually couldn’t keep up with the monthly carrying costs and after a few years, lost his Dream Home but even after the foreclosure – said he had no regrets, and he’d do it all over again.
So if my mother gets an unexpected knock on the door one of these springs, it could be HGTV informing her she is the winner. I’ll pack my bags to go with her on the “winner weekend” to visit the Dream Home. Then after she’s had a few hours to admire her new home, I’ll tell her to take the cash prize of $1 million+, say goodbye to the shiny new home and leave behind all the hidden pitfalls of her probably-not Dream Home.
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