The global financial crisis of 2008 was devastating for the real estate market in the US. The unfortunate series of events that led to the housing crisis left house prices at an all time low in the 21st century. The recovery of the housing market only began to show after 2012, when property prices started to increase gradually showing recovery of the real estate market. However, due to the nature of the real estate business, some sectors of the industry actually recovered faster than others. This includes luxury rentals which were among the investment properties that were affected the least. So does it make sense to invest in luxury rentals in today’s market?
To understand more if luxury rentals are profitable or not for investment purposes, it’s important to define what they are exactly. Price, location, features, and facilities can define luxury rentals in the real estate market. However, in today’s market the criteria of what makes a home luxurious or not are being altered. Various landlords and tenants have different understandings of what a luxury rental property is. However, there is a certain set of widely recognized criteria that define a luxury property compared to others:
- Higher Price: A luxury rental property will most probably have a higher price and charge more rent than most of the other properties present in the same location.
- Prime Location: It doesn’t matter where exactly the luxury property is in terms of a city or a state. If the location of the property is as a coveted location by many people, then the property on that location can qualify as a luxury rental property.
- Best Quality: The material used for the constructing and finishing of the property has to be above the average standard of other properties.
- Amenities and Appliances: Luxury rentals will most likely have the highest quality and availability of amenities and appliances for tenants. Amenities like swimming pools, cinemas, and arcade rooms make a property qualify as a luxury home.
- Privacy and Security: People interested in luxury rentals are usually ones who can afford them comfortably. Many of them require the security of their property to be of the highest standard. Luxury rentals provide that in the form of high walls, big yards, and gated entrances to keep the privacy of tenants.
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These criteria are the basic ones that define luxury rentals. Judging by the specifications of these properties, it is inevitable that they will cost real estate investors a lot of money to purchase and renovate them. What must investors look for before purchasing a luxury rental property?
Reasons for Investing in Luxury Rentals
1. Investment Goals
This is the most important aspect of luxury rentals investing. A potential owner who has enough money or a good credit score to be able to purchase a luxury property has two options: renting out the property or fix-and-flip. Both depend on the goals of the investor. If the aim is short-term profit making then, the owner of the property might have to go for the fix and flip strategy. Fix and flip basically means that the real estate investor buys a relatively cheap luxury property for the purpose of making it better in terms of quality – i.e., making it even more luxurious – and then resells it for a higher price.
The second option is luxury rentals, which is the better option for real estate investors who have set their investment goals for the long-term. A luxury rental can be a great source of income because of the rental income that can be generated monthly. The rental of a luxury property is not only a source of income for an investor’s long-term plans, but it also serves well in case of appreciation for the property. Having the property rented for years before deciding to sell it will prevent from premature selling that could cost so much in appreciation income that could be earned later.
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2. Attractive Locations
Luxury rentals are usually built in the most attractive neighborhoods or areas in a certain location. The ability to advertise that location with that type of luxury property makes it way easier to market the property and be positive about avoiding vacancies. Tenants who are interested in luxury rentals are always very picky about the location of their new home; this is why finding a luxury rental with a location appeal is extremely important. The location is also another factor that helps in the real estate appreciation aspect of the property. A property with an amazing location will almost surely have high appreciation rates.
Related: 6 Reasons Why Income Property Location Is So Important in Real Estate Investing
3. MakIng Serious Money
Luxury rentals make serious money for their owners because they’re unique to find and above standard properties. An investment of this type usually takes time to pay off its dues, but in the long term the property can give massive profit in return on investment. For example, buying a 300-square-meter apartment that needs renovations would cost $400,000. If the renovations cost an additional $80,000, this makes the initial investment in the property equivalent to $480,000. Pricing that property after all renovations at $800,000 means that the investor will surely make money off this property sooner rather than later. Factoring in rental income and appreciation for years to come means that the investor could be in for a recipe to become wealthy.
Luxury Rentals: Yes or No
The idea behind investing in a luxury rental is appealing to anyone who has the means to invest in such properties. The fact that this type of market hasn’t been affected massively by the global financial crisis and its ability to recover in such swift manner make it a safer bet for real estate investors. Luxury rentals can be a source of great income if the investor is prepared to turn a property into a luxury rental. This needs the best of the best in all aspects of the business. Luxury properties can be defined as the hardest investment to have because they require a long-term vision and patience in the real estate market for them to pay off eventually.
Once you have decided on the type of investment property that is best for you – either a luxury rental or a more common one – don’t forget to check out Mashvisor for numerous properties available in the US.