5 Most Important Things to Know About Luxury Home Investing

5 Most Important Things to Know About Luxury Home Investing

  • Semple Hettrich Team
  • 08/7/22

Real estate has long been a favored avenue for investment. It's suitable for public or private investment and equally rewards independent and institutional investors.

But why real estate? What makes the buying and selling of residential property so attractive?

For starters, real estate, as a general rule, is a constantly appreciating asset. Even in down-economic times, real estate presents viable financial opportunities. It's often the first sector to bounce back and regularly serves as a leading force and pacesetter for the economic growth that follows. It's also one of the few areas of investing that allows you to build equity, enhance a diverse portfolio, hedge against inflation, produce cash flow, and take advantage of tax breaks. Plus, it's one of the most reliable ways to build generational wealth.

In other words, if you're not already investing in real estate, it’s a good idea to consider it for the future.

One area, in particular, where opportunity exists for those wishing to establish and grow a portfolio is within the luxury housing market. While it does require sizable resources to get in the game, the payoff can prove considerable. That is if you know how to navigate a competitive market and steer clear of a few common mistakes.

With that in mind, below are the five most important things to know about luxury home investing.

Identify your goals

As you would a standard home purchase for a primary residence, it's critical to establish a set of goals for your investments. More than stating you want to see a return on your investment, it's helpful to lay out exactly what success will look like and how you hope to achieve it. To get started, ask yourself a few basic questions:
  • Are you seeking short-term gains?
  • Would you prefer a long-term investment that generates regular rental income?
  • Do you plan on personally utilizing any of your assets or one day hope to permanently occupy a property?
  • Can you access large amounts of capital easily?
  • Would you prefer to create something from scratch, transform an existing property with your own personal touches, or strictly invest in turnkey properties?
Additionally, if there are specific requirements to your investing, such as targeting investment in specific locations or how much or how little you hope to involve yourself beyond the purchase, define those as well. It never hurts to establish a plan B where possible or necessary.

You don't have to possess all of the answers at the outset, but the more detailed your goals, the sooner you can start investing.

Determine your strategy

There are five primary options for luxury home investment. Each comes with its own level of risk and reward, but if managed correctly, all can prove highly lucrative. Your specific investment goals should help narrow your chosen path. But you may find that every option has merit, with the ability to fulfill your investment needs.

Below is a quick summary of the five luxury investment options:

Custom home build

Building and selling a custom home from the ground up is arguably the most time-consuming of the five investment options. From market research to design and site selection to the actual building process to the marketing and sale, the entire project can take upwards of a year or more before seeing any return. That said, a custom home can also prove extremely lucrative, with the highest potential return.

There are two primary paths for the process: build and occupy the home yourself before listing, or build and list for an immediate sale. Regardless of your choice, you'll want to ensure the house is well built with high-end finishes and upscale amenities in a secure, exclusive location where deep-pocketed buyers want to live.

Purchase a luxury condo

The first of two turnkey investment options, buying and renting out a luxury condo, is an excellent entry point into investment for newcomers. Overall, the initial financial outlay and time commitment are lower with a luxury condo than any other piece of residential real estate.

Typically aimed at attracting long-term enters, location plays a vital role in the success of a condo investment. Condominiums in centrally located urban destinations near major transportation hubs will yield the greatest return, as long as the unit is also located in an equally luxurious building or development. Though lifestyle is central to every type of luxury housing, it's perhaps most vital with condo investments.

Purchase a luxury vacation home

Our second turnkey investment, purchasing and renting a high-end vacation property, mirrors the condo investment in many respects. Location is critical, as are the home's features and amenities and the upscale lifestyle it conveys.

Though, instead of urban centers, you'll want to explore homes in universally popular destinations that cater to an upscale, recreational lifestyle—year-round if you hope to maximize your investment. Think coastal towns and mountain enclaves that cater to visitors across multiple seasons. If your plans include personal use or eventually occupying the property as a permanent residence, ensure you'll enjoy it as much as your renters.

Renovate and flip a luxury residence

Flipping is one of the most popular forms of real estate investment across all sectors. Renovating luxury homes has the potential to produce sizable returns as the initial investment isn't always as high as one would think.

Generally, luxury flips start in a better condition than their lower-priced counterparts. The finish-outs are of higher quality, and bringing a mansion to market may require fewer capital improvements than homes with far greater renovation needs (those few upgrades, though, can be pricey). The luxury flip is also an underserved market and can be highly rewarding for a motivated individual willing to commit resources and establish high-level expertise with the niche investment.

International investment

Finally, if you want to stretch your investments internationally, there's plenty of opportunity across the globe to build a diverse portfolio. Numerous financial incentives and tax breaks are afforded to those who hold assets in different countries, not to mention utilizing the property yourself when your travels take you overseas.

The tradeoff, however, is that international ownership comes with a steep learning curve. And, even after learning the ins and outs of ownership in another country, be prepared to employ numerous professionals abroad and domestically to help you manage your portfolio.

Location, location, location

Yes, we know, it's the oldest adage in real estate. But it remains absolutely essential to your luxury investment success. As we already covered to some degree, luxury renters and buyers won't just live or vacation anywhere. For single-family homes, ultra-luxe resort towns or private, secluded neighborhoods with 24-hour security close to established commercial centers with upscale shopping, dining, and entertainment, are sound investments.

For condos and international investment, the more popular the city, the more robust its transportation network, and the more to do, the more income your ultimately generate. Build and sell or buy and rent, don't shortchange your due diligence period when deciding on an investment location. Before committing any funds to the endeavor, many factors should be considered, including the strength of the job market and employment rates, income, services and amenities, and the market's long-term viability.

Understand the financial implications

If you've purchased luxury properties for yourself in the past, then you already understand they can feature greater complexities than standard real estate transactions. Luxury investment takes that a step further when factoring in the higher initial investment as well as the higher capital requirements, land, material and operating costs, and taxes. The upside, of course, is you stand to make a significant return if you manage your portfolio with care.

Before making any significant financial commitment, perform a deep dive on your finances to ensure you can meet the requirements of a lender and carry the burdens that come with potentially millions of dollars tied up in assets you can't immediately liquidate. Research the tax implications and advantages of investment in your location of choice.

Last, realize that as safe as real estate investment is, luxury properties have greater financial risk. There's a narrower pool of renters and buyers available, and market unpredictability could prove punishing with more money tied up in an investment. Planning, employing the services of a seasoned financial advisor and a trusted real estate agent, and committing to markets with a sustained track record of positive high-end investment will buoy you against any potential pitfalls.

In fact, building a network of trusted professionals, beginning with an experienced real estate agent well-versed in identifying ROI-producing properties, will ensure long-term success for your luxury investments.

Is the time right for you to invest in high-end luxury real estate? Perhaps you're a seasoned investor ready to add another deal to your upscale portfolio. Wherever you find yourself in the home investment cycle, contact the Semple & Hettrich Team today and add a trusted partner to your home investment journey.

From Sudbury, MA, real estate to Wayland, MA, homes for sale and homes for sale in Maynard, allow our team's extensive experience and expertise to be your guide as you navigate the MetroWest luxury real estate market.

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