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Luxury Real Estate Investing – The Next “Golden Nugget”
Luxury real estate is defined as the most expensive 5 percent of homes sold in a given quarter; a niche targeted to high net worth individuals.
Properties marked as luxury real estate are usually those with an appraised value of over 1 million dollars, though the distinction can vary from country to country, and usually takes into account things like: views, absence of crime rate, amenities and historical or architectural significance. And though many people who think of luxury real estate think of size and grandeur – though still definitely plays a huge factor. In Malibu, California, for example, the average luxury home has more than 4,000 square feet – location and convenience is most often considered more important than anything else.
High end buyers want easy access to luxury activities like high end shopping, dining and the arts, and having a famous address adds value and homeowner satisfaction. Ultimately however, what each high end buyer is looking for varies across the board.
There are also differences between the selling of luxury properties as opposed to ordinary real estate – luxury homes tend to be marketed to a bigger audience, both national and international, to try to widen the scope of a relatively tiny market – while ordinary real estate generally relies on local exposure and media.
Agents who specialize in luxury homes can also have more legal responsibilities, often dealing with trusts and attorneys.
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Luxury Real Estate
So how do you go about investing in luxury real estate?
In most major cities, luxury real estate is 1 million dollar and up, but in cities where the cost of living is higher, the price goes up. For San Francisco you’ll need $3 million, LA and New York it’s $5 million, and in London it’s a whopping $7 million.
For those of you who like a challenge, flipping high end properties can be a source of huge profit. In flipping luxury real estate, it’s important to remember how vital location is to high end buyers, so paying more attention to aspects of the property you cannot change is far more crucial than what you can change. Ripping out ugly carpet or redoing the paint job is a much easier fix than the surrounding neighborhood or an unsatisfactory view. Of course, this means that the properties available to you are greatly limited, and there is always the risk of being outbid by local buyers.
However, the upside is that competition within the luxury market is much lower, as few people can afford to fund these types of projects. It’s also important to keep a close eye on the luxury market while looking for a home to flip, investing in a down market means there is a high risk of losing money on your project.
Another way to invest in luxury real estate is to invest internationally. Of course this option has both its ups and downs, but setting your eye abroad can have surprising perks you can’t find in the U.S. In some territories, like in the Turks and Caicos Islands, the U.S. dollar is the official currency and there are no annual property taxes, so there’s no risk in your property losing value in the future. If you’re looking just for a holiday getaway, looking in places where tourism is high is a great way to earn an even greater profit. Choose a property and location that will attract vacationing families who can rent your property when you’re away. There’s risk in this too however, as luxury real estate can profit well during good financial markets, but run the risk of suffering far more than homes near major cities during a recession.