Real estate has historically been considered a low-risk investment. And with so many investment strategies, it can be a great addition to any investment portfolio.
Luxury properties are particularly attractive. They're the stuff of dreams, and the catalyst for 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 available?
What is luxury real estate?
It may seem like a simple answer, since in some areas, luxury properties are defined as anything that costs over a million dollars. But that’s an overly simplistic look at it.
Home prices vary significantly from one area to another, and what may seem expensive in one county 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 requirements:
- The property must be unique - The property must have a uniquely desirable set of features. It can be located in a uniquely beautiful setting, such as on a river or near an ocean, have magnificent mountain views, be on the highest point in the city, etc. Historical significance, impressive architecture, opulent features, or a world-renowned architect can all elevate a home to luxury status.
- The property needs to be exclusive - For a property to be considered exclusive, it must not be easily attainable by the average home buyer. Usually, this exclusivity comes down 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.
Is luxury real estate a good investment?
Do you have an in-depth, and in-person understanding of the needs and wants of high-network individuals? Do you want to diversify your portfolio, and/or take advantage of the current luxury bear market?
If you answered yes to any of these questions, then luxury home investing could make sense for you. Real estate as a whole is a historically stable investment vehicle. As with any kind of asset, it does experience its share of ups and downs. But in the long run, property tends to trend up.
The same can be said about high-value properties, with the major exception that it sees 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.
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 complexity involved in large, custom-built homes made to cater to a very specific and demanding client base. Investors have to deal with securing permits, finding the right architects, stagers, sellers, appraisers and marketers.
And, if an investor wished to build in some of the most well-known premier locations, such as Beverly Hills, Hollywood Hills and Bel Air, the process was even more difficult. It required that the investor already lived in the area, and had an extensive circle of contacts, contractors, attorneys, private lenders, and other prominent real estate professionals willing to collaborate in the project. 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.
How much do you need to invest into luxury real estate?
Like all things real estate, it depends on location and timing. In an area where real estate prices are comparatively low, even just half a million could be enough to own a luxury property. However, in large metropolitan areas, such as LA, San Francisco, and New York where space is at a premium, and costs of living and medium incomes are high, a million dollars may barely be enough to get you into the mainstream market.
Luxury buyers usually pay in cash. However, it’s possible to finance a luxury home through jumbo mortgages, and hard money loans. If you approach investing in real estate through the traditional route - hiring a real estate agent and going to a bank for financing - you’re going to need a substantial amount of capital, spotless credit, and proof of income and assets.
Thanks to Gatsby Investment, you no longer need to spend a fortune just to get your foot in the door. Gatsby's sterling track record in prime real estate investment and development, means you can access this market more easily, and with a better likelihood of success.
All you need to do qualify as an accredited investor, and you'll be able to start investing without needing prohibitively high amounts of capital and personal funds. Since Gatsby Investment takes care of every step in the process of developing new, custom luxury builds, you can live anywhere in the country and still invest in Bel Air, Hollywood Hills, Beverly Hills and other key real estate locations.
How to invest in luxury real estate
Two examples of how you can invest into luxury residential real estate include:
- Luxury property flipping
- Developing a custom luxury home
Flipping luxury homes
Purchasing, remodeling and reselling a luxury home can be an excellent investment, especially if you already have experience flipping non-luxury properties, and/or have plenty of experience as a real estate broker or real estate agent.
Flipping luxury homes can be much faster and straightforward than building and reselling a new home from scratch. But unlike mainstream family homes, which can be flipped fairly quickly, it often takes around 12 months to complete a luxury home flip.
The reason is simple, you’re dealing with a smaller pool of properties and buyers. In addition, luxury home buyers expect their new home to be “move-in ready”, and have the right mix of architecture, amenities, furnishings, and location their lifestyle requires.
On the plus side, luxury home flippers face less competition. That’s because they are dealing with much larger price tags, and are required to 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 trickiest to approach.
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 on a flip is faster, it's this bespoke development that can elevate luxury property investment into greater returns.
Best practices for investing in luxury real estate
If investing in premium real estate sounds like the best way to go for you, there are a few things 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? Then 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, seven-figure properties in your area, you need to make sure the market will support your decision.
You must do your due diligence, study the specific needs and wants of your target audience, become a part of the circles they frequent, and become the local go-to expert on all matters of luxury real estate. It will certainly help to establish working relationships with luxury builders, real estate agents, real estate attorneys, hard money lenders, and other professionals related to this real estate niche.
How Gatsby Investment can help
Investing in luxury real estate can be an exciting investing complement to your portfolio. Its tangible and dynamic nature is appealing for hands-on investors, but it can be daunting for first-time, or smaller scale, investors. That's where Gatsby Investment can help.
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 our platform allows accredited investors to pool resources, Gatsby allows investors to access opportunities that would otherwise be prohibitive due to the size and cost of the initial investment. Less 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.
Contact Gatsby Investment today to find out how we can help you break into the market.