The different types of real estate investment niches that real estate investing provides widen your horizon and options. Luxury investment properties are one pillar of the countless investment strategies.
However, investing in luxury investment properties can be intimidating and not every real estate investor can invest in luxury properties.
Some people have a very clear plan for what they want to accomplish, while others jump in on a whim. It actually can be very seductive to see the amount of wealth that can be created in real estate. With many avenues available to beginners as well as seasoned investors, is luxury investment properties the right niche for you?
Keep reading this blog to get a better understanding of luxury investment properties and what you need to know in order to break into this investment niche.
Is Luxury Investment Property the Right Choice for Me?
In order to answer this question, you need to take into consideration and study the following questions to determine whether luxury investment properties are the best choice for you or not.
Am I Financially Able to Invest in Luxury Investment Properties?
Finding your niche in real estate investing is not easy and requires an entire process of research and knowledge about the different types and investment niches provided by a real estate investment. Unlike investing in Airbnb short-term rentals which can be as simple as renting out a room in your house and creating an account on the Airbnb website to start marketing and advertising your property, luxury investment properties are a bit more complicated. The first thing you need to know is your financial ability to invest in luxury investment properties. It is a no-brainer that investing in luxury properties is expensive at the beginning as you need to have enough money to get the best furniture and services available.
This can be done by creating a detailed financial plan that shows your financing strategies whether by getting a mortgage or partnering up with someone. You also have to study the expected return on investment and rental income to get a closer assumption on whether investing in luxury investment properties is a good idea for you and will enable you to generate positive cash flow or not. Although a financial plan will never get you accurate results or numbers on your rental income and costs, it will, however, give you a general idea of what to expect. That can be reached by examining the costs and expenses that these properties require vs the expected rental income.
Are you a bit intimidated by the idea of preparing a financial plan? Read “Financial Planning for Real Estate Investing 101.”
Where to Invest in Luxury Investment Properties and When?
After you examine your financial ability to invest in luxury properties, the next step you need to take is examining the best location for such an investment. This can be done by studying the real estate market in order to know where to invest in luxury investment properties and when.
Luxury investment properties are usually located in attractive neighborhoods as tenants tend to be cautious regarding the location of their luxury rentals. Therefore, you have to be careful when considering the location of luxury properties as it can make or break your business and investment. The location also plays a major role in determining the value of the property when utilizing comparative market analysis if you decide to sell your luxury properties. Moreover, the location is so important that it highly affects the real estate appreciation aspect of the property in the long run. In other words, any property in a good and attractive location, whether it is a luxury property or not, will always have interested buyers. On the other hand, a good location enhances the marketing and advertising process as an attractive location makes the property more appealing to tenants.
Still wondering if investing in luxury properties makes sense or not? Read “Investing in Luxury Rentals: Does It Make Sense?“
Pros of Luxury Investment Properties
More Income
As a response to the high quality of furniture, amenities, and facilities associated with luxury properties, tenants axiomatically pay extra money for renting out luxury properties. The rental income depends on the facilities, amenities and also services associated with luxury properties.
Do you want to know how to make the most money by investing in rental properties? Read “How to Make the Most Money When Investing in Rental Property.”
Less Following Up
Unlike other short-term properties like Airbnb that require constant follow-up with guests prior and during their short stay, investing in luxury properties requires less follow-up for the most part. This is due to the fact that this type of properties attracts certain types of tenants that usually stay for one to several months; therefore, the possibility of leaving damages in the property will be reduced. This actually saves you time and unnecessary hustle and bustle which makes you focus on growing your business and making money.
Certain Type of Tenants
Frankly speaking, dealing with tenants is the least favorite part of rental properties for any real estate investor. In many cases, dealing with individual tenants who have different backgrounds can be exhausting and causes a headache. This challenge is minimized in luxury rentals because investors or owners mostly deal with a specific type of tenants who are able to pay extra money to get certain services and many of them can be business travelers who have a specific mission to accomplish in a specific time.
Cons of Luxury Investment Properties
Luxury Investment Properties Are Expensive
Although luxury rentals produce higher rental income for real estate investors, this comes at the expense of investing a good amount of money in preparing high-quality, fully-furnished apartments with essential services, amenities, and facilities. Unlike investing in Airbnb, luxury rentals need a good amount of capital to prepare them based on specific standards. This can be the most challenging part for real estate investors who are interested in this type of investment niche. However, once they get a hold of it, things become gradually easier.
Luxury Properties Are Not for Everyone
Although luxury investment properties get you high rental income, do not expect a high occupancy rate as this type of properties is directed to people who are financially comfortable to afford such expensive rental properties. Therefore, you have to put extra attention on advertising for the property and choose the best place for it with a rental price that is suitable for the market prices in the targeted location.
Bottom Line
The luxury investment niche can be challenging and intimidating if you, as a real estate investor, do not take into account all the above-mentioned points starting from financial planning to advertising for the luxury properties. Regardless of the real estate investment niche that you decide to invest in, always put all your efforts in planning for the investment, executing it, and most importantly, securing the sustainability of your real estate investment business.
Do not forget to sign up for Mashvisor to master your real estate investment business.
