Investing in Luxury Real Estate

Investment in real estate is considered safe. It can be your primary residence, vacation home, or investment property. You might consider expanding your portfolio to include luxury real estate if you have the capital. These are just a few of the options available for luxury real estate investment.

KEY TAKEAWAYS

• It’s not luxury to own real estate because it is expensive. It must also be exclusive and unique.
• High-end buyers desire access to luxury shopping, dining and the arts as well as proximity of similar homes.
• Luxurious real estate investors have the option to flip a house, invest abroad, buy luxury condos, build from scratch, or buy high-end vacation properties.

What is Luxury Real Estate?

The luxury category is not defined by a high price tag. Randy Char, the president and broker at Char Luxury Real Estate Las Vegas, says that a property must be exclusive and unique. People who are wealthy will pay more for something they perceive as superior.

Locations that offer luxury amenities such as fine dining and shopping as well as proximity to other luxury properties are desirable for wealthy buyers. An exclusive address like Park Avenue in New York City adds value. It doesn’t hurt to have a rich history. Luxury buyers want to be surrounded by nature, with views of the ocean, river, or lake. Others prefer mountain or countryside views.

The most desirable features for high-end buyers are many of the same as all buyers, but on a larger scale. They desire privacy and security, sometimes even to the point where they are almost seclusion. They seek beauty, both inside and outside, so they can afford custom architecture, custom design and extravagant attention to detail.

They also want amenities on top of amenities: chef’s kitchen, luxury pool, expansive owner’s suite, and outdoor living space, not to mention the latest home automation, car lifts, and temperature-controlled wine cellars. You don’t necessarily need to have a huge home to enjoy luxury living.

Mark Fitzpatrick (CEO), chief executive officer (CEO), of RUHM Luxury Marketing is a marketing agency for luxury properties for sale in Delray Beach. You can’t alter the course of the sun or the location of the ocean. Or the fact that large planes fly over your head. He says that bathroom wallpaper is less important than weather.

What is the Average Luxury Real Estate Price?

A piece of luxury real property can be purchased for as low as half a million dollars in markets with lower prices. You’ll need to spend well over $1million to purchase a luxury property within most major metropolitan areas. The entry price points go up from there. You’ll need to spend well over $1 million to buy a luxury property in most metropolitan areas. The entry price point goes up from there. 2

A jumbo loan or cash payment is an option for luxury buyers. You will need to have a large downpayment, good credit, evidence of income, assets and sufficient cash reserves if you are financing the purchase.

How to Invest In Luxury Real Estate

There are many options available to you if you’re looking to invest in luxury real property. These are the options available to you, whether you want to buy a house to live in or flip it for a profit.

• Flip a house
• International Investing
• Purchase a luxury condo
• Rent a luxury vacation home
• Complete a custom build

Let’s take a closer look at each one.

Flip a Mansion

A luxury property remodel can offer a better return on investment than house flipping. Luxury homes are more well-maintained than average homes, which can lead to lower rehabilitation costs. You are limited to properties with the right combination of architecture, condition, style, and design.

Although there is a lot of competition for these properties, the upside to this market is that many more flippers are focused on it. It takes special knowledge to secure financing, negotiate a profit margin, and successfully execute a luxury property rehabilitation project.

Invest Internationally

You may find benefits abroad investing in luxury real property that you don’t have access to domestically. In the Turks and Caicos Islands (a tiny British territory located in the tropical Atlantic Ocean), there is no annual property tax and no capital gains tax on the transferred property. The official currency is the U.S. Dollar, which protects property ownership. Exchange rates don’t play a role in the sale or in the future value of your property.

You can make additional income by renting out a property you don’t plan to live in for part of the year. Blair MacPherson is co-owner and broker at RE/MAX Real estate Groups Turks and Caicos.

But, abroad investing can present unique challenges. Fitzpatrick from RUHM says, “We must remember that the rest the world doesn’t operate the same way as we do in the States.” You don’t want to buy a property in another nation only to discover that the government can seize it.

Fitzpatrick recommends that potential buyers use an international realty attorney and other qualified professionals.

Purchase a Luxury Condo

No matter if you are looking to buy a condo to live in, or rent it out, Lydia Sussek from Douglas Elliman Real Estate in New York City says that “spending money in a great luxury building close to amenities and transportation options is the best option.” Location is everything. She adds that “buying in a luxurious-looking building with limited transportation options is a poor investment.”

Sussek states that the services and features offered by a building can make or break an investment. Do you not have a doorman full-time? But what other features does your home have? Views, high ceilings and terraces are all features that can help you differentiate your home from other apartments. This will result in a higher sale rate when you move on.

You are buying a lifestyle when you purchase luxury real estate. Luxury real estate is distinguished by private roof decks, swimming pools and common areas with fitness centers. Maid service or hotel-style services are also available. Sussek states that these types of properties are worth more than any new condos around the property you purchase.

Rent a high-end vacation rental property

Fitzpatrick states that a luxury vacation rental can offer a wealth benefits such as asset appreciation, tax deductions and business networking opportunities. But most importantly, it can also provide personal enjoyment. It is important to choose a location that has a strong market, such as a golf resort, tropical island, or town near a major ski resort.

Fitzpatrick says, “They are great to earn seasonal income and perform well in good financial markets.” They may be more affected by a recession than homes in major cities.

If you have the cash, bear markets could be the best time for you to buy.

Fitzpatrick suggests that investors look at properties that are attractive to families vacationing in the area. He says that it will increase the occupancy rate and improve your ROI.

Do a custom build

A custom-built home is a good investment, even if it takes longer to sell. If you sell, it is a smart investment to buy a home that has all the latest styles and amenities.

You should be cautious about how you personalize the home if you don’t plan on building it. To maximize your chances of selling quickly, you will want to choose a layout, amenities and finishes that appeal to a wide range of luxury buyers. You should ensure that your home is comfortable, functional, and offers privacy and security features that are desirable to high-end buyers. There is a fine line between creating a broad appeal and creating that uniqueness luxury buyers are looking for.

Char states that prices can really rise when something isn’t commoditized and is desired. A bottle of Lafite Rothschild 82 is worth more than a wine that is inferior due to supply and demand. The same applies to luxury real estate. The more rare and difficult to find a home, the more worthwhile it is for investment.

Tips for Investing In Luxury Real Estate

Before you invest in luxury real estate, here are some things you should keep in mind.

• Determine your goals. Investment in real estate has the goal of generating a return. Consider the outcome you desire when you are choosing luxury properties. If you are looking to make a quick profit, flipping might be the best option. You might also consider renting a vacation home or luxury apartment to make long-term income.
• Financing is an option. It’s not always the best choice, even if you have enough cash. A hard money loan may be an option to finance a project you are planning to finish in a few months.
• Select the right market. Make sure the market supports your investment before you make an expensive purchase. Consider the local economy, the cost of living and median household incomes. Consider the peak-season and year-round traffic if it’s a rental.

What is a Jumbo Loan?

A jumbo mortgage is a mortgage which exceeds the conforming loan limits established by Fannie Mae or Freddie Mac. These limits will be $647,200 in 2022 for a single-family home anywhere in the United States. Higher limits are available in certain high-cost areas like Hawaii and Alaska. 3

What tax is imposed on income from vacation homes?

Taxes on rental income from a vacation house and the expenses you can deduct depend on how long you lived there. If you let the house for less than 15 days, you can deduct rental expenses but not rental income. These rules are explained by the Internal Revenue Service in Publication 527: Residential Rental Property

What tax is imposed on real estate profits when they are sold?

Capital gains are any profit you make from the sale of an investment property. Capital gains rates will apply if the property was held for more than one year. It will be subject to capital gains rates if it was held for more than one year.

The bottom line

Because of its tangible nature, luxury real estate can be more exciting than securities investing for some investors. You can also live there if you wish. There are many options for getting into luxury real estate. You can build a custom home, buy a prime vacation home or renovate a high-end fixer upper. Before you decide to invest, ensure you are familiar with the features luxury buyers desire and what they are willing to pay for.