8 Things to Look for When Investing in Luxury Real Estate

8 Things to Look for When Investing in Luxury Real Estate

  • McDowell Homes Group
  • 12/4/22

The rate of luxury homes has increased more than ever before. A few years ago, in 2019, one of the most expensive luxury estates was sold within a residential sector. With that said, the demand continues to increase in areas that may not have always been hot, and it is luring investors.

Investing in real estate is not always a glamorous business, but luxury homes can create some elevated returns on your investment. Below are helpful things to look for when making the grand purchase.

The luxury market is a global market

The competition for luxury real estate may appear to be local; however, this is not the case. The luxury market is a global market, where the buyer pool is international. As a result, it appeals to a larger audience and can reveal higher prices. People fly all across the world to experience the art of luxury homes. This is good news for investors as it can translate to higher returns on investments. Buyers from all over the world are looking for luxury real estate in the U.S., and that will not disappear.

Focus on the property location and market value

Location continues to be an important factor for profitability in real estate investments. Studying market trends is crucial when choosing where to invest in luxury properties. Factors such as amenities, green space, and neighborhood status all factor into luxury real estate valuations. Additionally, some neighborhoods are on an upward trend for luxury real estate. For example, if there is a supply saturation, you may want to look elsewhere. Investing in assets typically pays off in the long run over stock market investments because there is less volatility; however, investors still need to do their market research on the area.

When doing market research, you will want to look into some key metrics. For instance, new prices and home sales, mortgage rates, and property inventory. Additionally, any new construction in the neighborhood or foreclosures. Staying up to date with these key trends will keep you informed so you can make a strong investment decision.

Determine your end goal for investing

Setting goals for anything in life will pay off for your future. A good first step in determining your goal is to ask yourself why you want to invest. Is it to build your portfolio? Are you looking to save up for a down payment on your dream home soon? Whatever it may be, get realistic about your reason for investing in the first place. If you have found success with prior investments, you may feel more confident jumping into luxury real estate for the first time. Or maybe you are well-versed in luxury investing, and you want to set a bigger monetary goal for yourself.

Determine expected cash flow and profits

Cash flow refers to how much money is left after investment. Understanding ROI (return on investment) and ensuring there is enough demand when you purchase are great ways to lower risk. Some important things to consider include an increase in intrinsic value based on long-term appreciation. Additionally, cash flow for rental income and inflation rates may benefit you. When you are investing in property in the seven-figure range, it is crucial to be sure your new luxury home in Pleasanton, California, has a great ROI. Do not forget to stay within your means and set a budget; you want a good return based on your particular financial situation, which is unique to you!

New construction vs. existing property

New construction typically offers attractive pricing and the option to customize amenities but with an added risk factor. The risk factors include delays and some of the unknowns of a newly developed building. Sometimes this risk factor and the potential to invest in something that is brand new are enticing to investors; other times, not so much. On the other hand, existing properties offer convenience and faster access along with established improvements. Deciding between new or existing real estate is a decision that should not be taken lightly. Weigh the pros and cons before you take the risk on a property.

What are you using the property for

Whether you are looking for new homes for sale in Livermore, California, or a short-term vacation rental in Aspen, Colorado – your property search may be slightly different. For a luxury short-term rental, you will need a location that appeals to vacationers. Think exclusive ski areas or private beach-front property. If you seek an existing luxury property, you may want to look into a suburban area. Other types of real estate investors get good returns on luxury condominiums or high-rise properties. Regardless of the option you go with, luxury properties tend to have a high initial investment, but the appreciation rate is also high in return.

Be specific

Having enough patience to not settle for something just because of its allure is a strong quality. It is a huge mistake to make a decision impulsively when buying luxury properties. You must carefully consider all factors before choosing a luxury investment property. This can mean patiently looking at other properties on the market and comparing them to your own personal values. Finding one that wholeheartedly aligns with your goals is going to be difficult. However, you should never settle for anything less than you desire. This is a huge investment that is going to affect your life in some way or another!

Find a great partner

Navigating the nuances of real estate investments can be difficult, so finding the right real estate expert to help you through the process is essential. Featured in Million Dollar Listing San Francisco, Peter McDowell and his team focus on putting the client first. With their experience in luxury real estate, they can offer professional advice that will help you immensely.

Work With Us

Helping home buyers find just the right home and helping home sellers find just the right buyers for their homes. We help people in the Pleasanton, Dublin, Livermore, San Ramon and Danville area with property of all kinds.

Follow McDowell Homes Group on Instagram