Luxury residential real estate is one of the few forms of strictly residential property that has the real prospect of significant appreciation. But it is important for those who are looking to purchase luxury property primarily as an investment to carefully investigate and understand the full picture of the property in which they’re interested in.
Let’s take a look at a few areas that everyone who is looking at a perspective piece of luxury property should take into account.
Understand the citywide and regional economic outlook
Some regions throughout the United States have produced incredible returns on a luxury property over the last 10 years and longer. However, it turns out that many of these same areas have poor prospective returns on the same class of luxury property going forward.
It is extremely important to fully understand the socioeconomic picture of any region in which one is interested in purchasing a luxury property. For example, while the city of San Francisco has seen some of the most spectacular returns on luxury real estate that have ever occurred in the history of the United States, that city’s precarious economic picture strongly indicates that purchasing property there today would be a bad mistake.
With an economic base that is built on the quicksand of high-flying tech companies and an exploding underclass that is simultaneously unleashing a homelessness crisis as well as moving the city and state electorate squarely towards a socialist paradigm, luxury real estate around the Bay Area is likely due for a very serious correction.
Find the right property management firm
For those who plan on purchasing investment properties that are located far from their base of operations, hiring the right property management firm will pay for itself many times over. Finding reputable property management Indianapolis investors and those in other cities rely on is paramount.
The most important aspect of operating a luxury investment property is ensuring that it is able to produce income year-round. Keeping a rental property occupied, especially in the luxury market, can be an insurmountable challenge for somebody who is an absentee landlord. In such a case, it is absolutely imperative to hire the right property management company, which can keep properties occupied while also ensuring that the property is being properly maintained and tenants are complying with their obligations.
Always take into account the mandatory fees
All things being equal, lower property taxes and low or no association fees are always desirable when seeking luxury real estate.
People may overlook the effect of the exorbitant homeowners association, condo association or similar mandatory fees. But consider that a luxury property that carries a $1,000 per month association fee well result in over $200,000 of lost investable income within a 20-year time frame. Such a property will also require a much higher monthly rent in order to merely break even.
Avoid high property taxes
Property taxes are another universal negative when it comes to investing in luxury real estate. Not only do property taxes directly affect the rate of return that an investor is likely to gain from a luxury investment property, but they also directly affect the ability of that property to appreciate.
A luxury property that carries a property tax rate of close to 10 percent, as many properties within the city of Chicago, Illinois, currently do, will have a vastly lower resale value than a similar property located in a similar city with even a 5 percent property tax rate.
All things being equal, higher property taxes should be avoided like the plague.