If we take into consideration various types of investments, the safest one is real estate. Such real estate investment can take the form of owning, renting, or flipping a property. If you possess enough money, you can even broaden your experience to market luxury real estate.
Prices for luxury real estate are constantly growing. For instance, last year, the most expensive luxury real estate was in Manhattan. Statistics from Miller Samuel Inc. show that that penthouse was sold for 240 billion dollars. In comparison, in 2018, the biggest given price for luxury real estate was only 74 million dollars in New York City.
In general, the 2020 forecasts for wealthy people and luxury properties were positive until the COVID-19 has hit the market like a ton of bricks. Now the future for the real estate market and prices seem more and more clouded than it was at the beginning of the year.
Now, there is a situation when with uncertainty on the market, deals on real estate are done more in cash. However, the number of potential buyers is much lower than it is needed in reality.
If the current situation does not scare you, you can afford high prices for real estate, and you are looking forward to entering this market, remember to learn the basic principles. Without them, your future investment in luxury properties will be less stable during the outbreak of COVID-19.
What Is Luxury Property?
The high price tag is not the only characteristic of luxury real estate that describes it completely. Other crucial characteristics are exclusiveness and uniqueness. Nowadays, rich investors are more interested in buying properties that look not only opulently but also distinct and superb.
It is understood that top-tier investors need only top-tier dining, shopping, sits, entertainment, and, most importantly, access to luxury property. For instance, if you have property on Park Avenue in New York City, it adds you more presentability and value. Moreover, if a said property has even a rich history, it will be only more expensive. Another variant is when buyers look real estate with nature not far away. It can be an ocean, sea, river, lake, countryside, mountainside, etc.
Of course, top-tier buyers wish to have properties with the same features as regular buyers have, however, on a much bigger scale. These extra features may be security and privacy that sometimes turn into retreat. Their property should also have customized design, architecture, and extra attention to every detail.
Among the most popular amenities usually are luxury pool, personal chef, outdoor space, grand chambers, and high-fi technologies like motion detectors, home automation, wine cellars with temperature control, and car elevators. Many wealthy buyers look for space in their future luxury properties. However, this notion does not always mean having a huge mansion.
Mark Fitzpatrick, CEO of RUHM Destination Marketing, gives a simple piece of advice. If you look for a luxury property, always things about nuances of your future home that can not be changed by you. For instance, you can not alter the location of the river, the angle the way the sun shines, or the flight direction of all airplanes over your home. However, you can always change the color of tiles on your bathroom or even the ugly toilet to a new one that suits you.
Prices for luxury real estate
If you are looking for your future luxury home in lower markets, you will need at least half a million dollars to buy one. However, if your target is in major big cities, you will need at least 1 million dollars for one property. This price is not a limit. The higher costs for living in a target city, the higher go prices. For example, similar luxury properties cost about 3 million dollars in San Francisco, 4,5 million dollars in New York and Los Angeles, and 7 million dollars in London.
There is a peculiarity about luxury purchasers. They opt for two options when they buy property: cash and jumbo mortgage. For the second option, you will need excellent credit, big first call, proof of your assets and income, and big cash reserves.
6 ways to invest in luxury real estate
Investing in luxury property has several checked ways. You may rent it, buy it for yourself or even flip, however, our recommendations will work anyway.
1.Flip a luxury property
If your assets allow you, you can reconstruct or upgrade your property and then sell it for a higher price. Of course, this option is easier than building a new luxury property, however, you should remember that there are not many mansions for flipping in the list.
As for a negative moment, many luxury properties are ready for moving. Thus, you likely will have to take on with other buyers who put higher bids. This sounds dramatic, however, in reality, this rivalry is not as intense as different markets of real estate. The reason is quite simple. There are not many buyers who can afford themselves to purchase up-market projects. There are even fewer buyers who know how to work with such projects.
2. Invest abroad
In comparison with domestic investments, the international variant has more benefits that you can expect. For instance, there are no yearly property taxes and no capital gain taxes on any transferred property in the Caicos and Turks islands, remote British territories in the Atlantic Ocean. Moreover, your ownership of a property is secured by the land registry, the American dollar is the main official currency. Thus, the value of your future house and success of purchase do not depend on exchange rates.
For now, experts can form any forecasts, how the outbreak of coronavirus might impact on conditions on islands. However, these islands are good for investments, mainly because prices for land have grown in a sustained way over the last decade. Amid the rising number of tourism and country development, the prices were expected to proceed to rise. However, the situation with pandemic ceased any traveling and all connected actions at all. Until the situation is not clear enough, you can still earn extra income from your abroad property. You may rent out your property while you are in a different country. The whole process is going to be controlled by a management company.
Except for the temporary pandemic, there are also slight problems that may come in the way. Many countries do not work the way the United States does. Then always double-check the country policies and regulations of government. Otherwise, you risk losing your luxury property to another country. Always opt for services of international real estate attorney who can support you through all processes and issues that might come your way.
3. Purchase a luxury condo
Location always matters regardless of reasons you decide to purchase a luxury property. Whether it is for personal use or renting it to other people. No matter how your property can be unique if it has great transportation and amenity options, this property will always be on-demand. Thus, if you buy a luxury real estate with bad transportation options, you are likely managing your investment in a bad way.
Other crucial reasons for investing in luxury property are extra features and services. It can be anything. Among these services or features can be a big terrace, picturesque views, high ceilings, and even a friendly doorman. They help your property to be more distinguishable, among other standard apartments. As a result, your apartment will have a higher rate of selling after you are going to move out.
All in all, when you purchase a luxury property, you also purchase what comes with it and, especially lifestyle. Luxury real estate is here to offer you swimming pools, custom roof decks, premium fitness centers, and maid service regularly. There are many regular condos around your property, however, luxury real estate rarely loses its face and value.
4. Finish a custom build
Although building and customizing a new house from the ground takes more time, it also brings more profit. Thus, always opt for the most popular styles and amenities to have a bigger income.
Whether you are building property for yourself or someone else, always be attentive to how you are going to customize it. Double-check all amenities, layout, and finishes that are popular on the market. This way, you are going to have more chances to sell off this property quickly and for a higher price. Check the smallest details, its functionality, level of security, and privacy buyers are looking for. However, you will have to stop at some point. There is a fine line between the uniqueness of the luxury property and the broad appeal of expensive property.
When something is not available to broad masses, it becomes more attractive, and as a result, the demand for it will go up. For instance, we have a unique bottle of ‘82 Lafitte Rothschild. Over the years, prices for it only rises only because of its vintage and quite rare to find one. The same situation goes on in the luxury real estate market. The more your apartment unique and harder to find, the more value it holds for you.
5. Opt for top-tier vacation rental property
The biggest advantages of a luxury vacation rental are tax cuts, asset appreciation, opportunities for your business networking, and even your personal enjoyment. Good income is just a cherry on top. If you are interested to start with looking for an optimal location with a strong market. For instance, it can become a town with a ski resort, Hawaii, or any other popular tropical island. These options are good for seasonal profit. However, when the situation on the financial markets is unstable, your profit may face a recession during these periods. The outbreak of coronavirus is a great example of the current situation.
Since 2008 it is the first time when the luxury real estate market suffers the most. At first, it has started from big cities, however, we also follow the same pattern in the resort areas. For now, all forecasts and reports of certain outcomes are uncertain. The situation with COVID-19 touches all markets and all vacation areas.
However, if you forget the situation with a pandemic for a moment, another important point for choosing a luxury vacation rental, take into consideration properties for families in those areas. Your rate of occupancy and return on investments are going to increase immensely.
According to Bruce Tobias, a professional real estate agent from RE/MAX Sedona, top-tier resort places for wealthy tourists are always a good option for a large profit. Thus, do not lose the potential to enhance your assets in the future.
6. Choose jumbo mortgages for luxury property
Of course, many investors opt for buying their luxury property with cash, however, there is still an option for jumbo mortgages for you. These types of loans are used for the situation when you need to cross the limit that FHA or Federal Housing Finance Agency puts.
As a rule, this amount should be more than about 510 hundred dollars. However, outside of the United States, the limit can be much higher than you expect. According to Bankrate.com, on April 15, 2020, the 30-year fixed jumbo mortgage interest rate was about 3.77%, while the annual percentage rate was 3.82%. As a rule, the average rate of the fixed jumbo mortgage for 30 years is 3.63%, with an annual percentage rate of about 3.84%.
Extra recommendations for Investing in luxury property
After going through all these ways to invest in luxury properties, we have prepared some helpful pieces of advice that will support you on your journey.
- Define your goals: As the main goal for investing in any type of real estate should be making more profit for yourself. While looking for a luxury real estate, think twice what result you need. For instance, if you wish to gain quick profit, opt for flipping a property. However, if you want sustained income, opt for building a luxury house.
- Calculate and plan your financing: Paying for a luxury property is not always the best option for you. If you are planning on doing flipping within several months, then choose a hard money loan.
- Look for the right market: The market should always support your decision to invest in an expensive luxury property. Thus, you have to look through various markets, comps, economic outlook of the region, cost of living, and a median value of household income. Moreover, try to calculate annual and peak season traffic.
If we compare investment into luxury real estate and securities, the first option sounds more interesting than the second one. Earlier, we have described various ways to invest in your luxury property. It can be building a custom house from the grounds, flipping a huge mansion, or even purchasing a vacation real estate. When you buy luxury property, you can toy with it any way you want. However, it still needs to bring you profit.
Thus, before diving into this sphere, study all trends and basics that will help you gain profit from your investment for a long time. If you are not buying luxury property for yourself, always be attentive to the situation on the market and among the buyers.
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