By Josefin Gatsby on 02/14/2021.
Updated 10/02/2024.
Reviewed by Dan Gatsby.
Luxury homes are unique and lucrative real estate investments. They're the stuff of dreams and the subject of dozens of real estate reality TV shows. But beyond all the glitz and glamour, is it a good idea to invest in luxury real estate? And if so, what options do you have?
What is Luxury Real Estate?
In some areas, luxury properties are defined as property worth over a million dollars. But that’s an overly simplistic look at it, particularly in high-value markets like Los Angeles, in which the median home price is around $1 million.
What seems expensive in one market may be the norm in another. So instead of just going by a specific dollar figure, let’s define luxury homes as properties that meet the following three requirements:
The property needs to be exclusive. Luxury properties are not easily attainable by the average home buyer. Usually, this exclusivity relates to price, but it may be that the property is only offered to members of an exclusive circle.
It allows its owners to enjoy a luxurious lifestyle. Luxury properties aren’t built just to cover the basic need of shelter. They are an indulgence and a status symbol. They allow their owners to live a luxurious lifestyle that most people can only dream of.
The property must be unique. Luxury homes are one of a kind. They’re often positioned in a prime location, near an ocean or lake, or at the highest point in the city, for example. Historical significance, impressive architecture, opulent features, or a world-renowned architect can all elevate a home to luxury status.
Is Luxury Real Estate a Good Investment?
Luxury real estate can be a good investment for the right investor. It can also be an overly risky investment for the wrong investor (just look at our list of luxury real estate investment fails!).
To invest in luxury real estate, you need an in-depth, first-person understanding of the needs and wants of high-network individuals. You also need specialized knowledge of the construction of large, custom-built homes and a deep understanding of ever-evolving market conditions. Investors also have to deal with securing permits and finding the right architects, stagers, sellers, appraisers, and marketers, not to mention contractors, attorneys, private lenders, and other prominent real estate professionals willing to collaborate on the project.
Luxury markets are also more volatile than the traditionally low-risk real estate investments. Luxury homes see much steeper ups during bull markets and sharper downs in bear markets. These large swings in value can give investors who enter the luxury market at the right time extremely high profit margins. They can also make things difficult for investors when prices are falling.
How Much Do You Need to Invest in Luxury Real Estate?
Like all things real estate, it depends on location and timing. In low-value markets, as little as $500K could be enough to own a luxury property. However, in high-value markets, such as Los Angeles, San Francisco, and New York, you’ll likely need several million dollars to access the luxury market.
Luxury buyers often pay in all cash. However, it’s possible to finance a luxury home through jumbo mortgages and hard money loans. If you approach investing in luxury real estate through the traditional route (hiring a real estate agent and going to a bank for financing), you’re going to need considerable upfront capital, spotless credit, and proof of substantial income and assets.
However, with Gatsby Investment, you can buy into a luxury real estate investment with as little as $25K. Gatsby specializes in real estate syndication, which is when multiple investors pool funds to finance a specific project. Gatsby pre-vets all deals before presenting them to investors. This means we only offer luxury investments when the market is optimal for this type of investing. This market-based strategy reduces your risk while maximizing your profitability potential.
How to Invest in Luxury Real Estate
There are two popular ways to invest in luxury residential real estate:
Luxury property flips
Custom luxury home development
Flipping Luxury Homes
Purchasing, remodeling, and reselling a luxury home can be a profitable investment, especially for experienced flippers and real estate professionals.
Flipping luxury homes can be much faster and easier than building from the ground up. But, unlike mainstream family homes which can be flipped fairly quickly, it often takes 12 months or more to complete a luxury home flip.
Luxury flips require more resources and attention to detail than mainstream flips. They also take longer to sell due to the smaller pool of potential buyers.
On the plus side, luxury home flippers face less competition. That’s because many investors are priced out of the market or don’t have the know-how and resources needed to serve their clients and their unique needs.
Developing a Custom Luxury Home
When approached correctly, custom builds can offer some of the highest profit margins, but this style of development is also one of the most difficult.
As we mentioned at the beginning of this article, luxury real estate needs to be unique, exclusive, and facilitate a luxurious lifestyle. It can be tricky to make a custom home that is both unique and exclusive, yet has a broad appeal for buyers.
But at the same time, the property must not come across as just a “product”. The more unique and harder to find, the more worthy of investment it becomes. While the ROI (return on investment) on a flip is faster, it's this development that can elevate luxury property investment into greater returns.
Invest in Luxury Flips or Developments with Gatsby
To invest in luxury homes with Gatsby, you just need to qualify as an accredited investor. Then you'll have access to the luxury market without needing prohibitively high amounts of capital and personal funds.
And, since Gatsby Investment takes care of every detail of the investment, you can live anywhere in the country and still invest in key Southern California luxury markets like Bel Air, Beverly Hills, and the Hollywood Hills.
Best Practices for Investing in Luxury Real Estate
If investing in premium real estate sounds like an option for you, there are a few best practices to keep in mind.
Identify your goals: The goal of any investment is to make a return on your investment. Before you make your decision, consider your desired outcome. Do you want to turn a quick profit? If so, you may want to focus on flipping. Do you want to dive right in, but need guidance? Then you should work with an experienced developer that already has plenty of experience in luxury real estate.
Figure out financing and capital: Even if you DO have all the cash to finance your investment out of pocket, it’s not always the best option. This is especially true if you're financing several projects at the same time. If you’re dealing with a property flip that you can complete in just a few months, your best option might be a private loan rather than a bank or similar financial institution.
Have a deep understanding of your market: If you want to invest in luxury properties in your area, you need to make sure market conditions support this decision. You must do your due diligence, study the current supply and demand, as well as market trends, and become the local expert on all matters of luxury real estate.
How Gatsby Can Help YOU Invest in Luxury Real Estate
Getting into the luxury market has been literally impossible for most investors in the past. Not just because of the high price tags involved in the process, but also due to the specialized skill, knowledge, and experience required. Gatsby Investment is making those investment opportunities accessible to a larger number of investors, giving you access to markets that were previously closed off to most.
Gatsby Investment's team of real estate professionals not only have extensive experience in luxury real estate investment, but also manage every single step of the process.
From purchasing, design, securing permits, and building - all the way to the sale of the property. Because the platform allows accredited investors to pool resources, Gatsby empowers investors to access opportunities that would otherwise be prohibitive due to the size and cost of the initial investment. Lower upfront investment also means less risk.
Gatsby Investment has a long and successful history investing in the luxury home market. We have the right people and contacts to make sure our investments generate the highest possible returns. And we only work in luxury investments when the real estate market supports the decision to do so.
To learn more about luxury home investing (and alternative options when luxury homes are not performing well) contact the investment experts at Gatsby Investment. We can help you break into the luxury homes market when it makes financial sense to do so.
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