Real estate has, over the years, proven itself to be a low-risk investment. Despite the looming inflation, real estate has been indicated to remain in a strong position as most financial and real estate experts still affirm it to be a good investment.
The S&P 500 Index estimated the annual return on investment for real estate to be between 9.5 and 10.6 percent. The average cost of a home in the third quarter of 2022 was estimated at $392,000 and is predicted to decrease to $380,000 by the end of 2023.
However, if you have more money to invest, consider checking out Luxury homes for sale. That a specific market segment is bearish does not indicate others are not bullish.
Many investors looking at diversifying their portfolio usually consider investing in luxury homes. That is why the market is easily affected by the volatility of the financial market. If the stock market is booming, many investors would have enough to invest in a luxury property.
Meanwhile, a report by CNBC noted that the lack of supply in the luxury real estate market in 2023 pushed the prices higher.
What is considered a luxury home?
On average, a luxury home cost about $1.31 million, but the price tag alone does not qualify a building as a luxury home. In addition to the price, it is expected to be unique and exclusive to persuade any individual to expend such a whopping sum of money to acquire it.
Why is a luxury home a good investment?
With the current decline in luxury home sales – a ripple effect of the financial market – there is no better time to take advantage of the bear market. However, the sales of luxury homes in New York continued to increase.
For instance, luxury home prices grew by over 30 percent in three of the 50 most populous metros in the US between November 2020 and November 2021.
Hence, a luxury home is a long-term investment best taken advantage of during a bearish market.
Also, any profit you make when you sell a luxury home held for a year or more is taxed at a capital gains rate, usually lower than short-term capital gains.
Before investing in luxury homes, it is vital to understand your targeted audience. Luxury home buyers want locations with access to luxury activities and other luxury homes.
Things to consider before buying a luxury home
For every real estate investment, location is essential. But for luxury homes, location is non-negotiable. Wealthy buyers want their luxury property located in areas with access to high-end shopping, dining, arts, and reputable addresses like Park Avenue in New York City.
Buyers who prefer astonishing views of nature will like a luxury home with a beach or ocean view. Some may prefer mountain views.
Despite the interest in accessibility to all these places, buyers will still prioritize their privacy and security.
That is why it is vital to first research your targeted audience before investing. If you decide to live in the property for some time, go for what you like, there is always a buyer for luxury homes in a good location.
Features and sizes
The type of architect used, and the social status of previous luxury homeowners may significantly influence its price. They will be considered to have a unique history.
So, features matter. High-end buyers want basic home features on a grander scale and prefer them to be unique and timeless.
People prefer a larger home as it offers more space and allows further customization. That is why it is not unusual for buyers to consider the total square footage when evaluating the home’s worth.
The maintenance cost should be considered, especially if you plan to keep the property for a while before flipping it.
Oftentimes, luxury homes have features like a clubhouse, resort-style swimming pool, golf course, and spa, among others. All of these require maintenance to keep them in good shape, plus you might need to hire someone to handle most of the maintenance tasks.
The average price of maintaining a luxury home annually is about five percent of the value. A luxury home that costs $1 million will require between $50,000 and $70,000 to maintain.
Most luxury home buyers pay cash, but there are loan options. If you are considering financing your luxury home with a loan, read the contract thoroughly before accepting.
Shop around for different lenders to select the one with the best interest rate and most favorable terms for your purpose.