Investing in Luxury Real Estate 5.00 / 5 (100.00%) 1 vote

In 2013, the average luxury pad in New York sold for $1,560 per square foot, which translates to more than $1.5 million for a one thousand square foot luxury apartment. Many people consider investing in luxury real estate as an indulgence for high net worth individuals; however, for the smart investor with access to resources, it can be a long-term investment worth making. According to Forbes, the wealth of the richest people in the world is at a record high; therefore, the luxury real estate market is larger than ever. In fact, major cities such as London, New York and San Francisco saw a double-digit growth in luxury residential real estate sales in 2013.

Investing in Luxury Real Estate

Today, luxury real estate is the new world currency that provides shrewd investors with a tangible asset. The value of the U.S. dollar weakened following the global credit crisis, which meant that international investors with other currencies could enjoy large discounts when investing in luxury real estate in U.S. dollars. In addition, the global financial market volatility combined with the ensuing political fallout decreased investor confidence, which consequently spurred a rise in foreign investors. A wave of foreign investors from Asia, South America, and Europe entered the U.S. housing market, helping to revive the luxury markets including Miami, The Hamptons, and New York.

Definition of Luxury Property

Investors should understand what features epitomize a luxury property before investing. Characteristics that define luxury property differ among countries. A steep price tag alone does not put a property into this category. The property has to be exclusive and unique, and situated in an excellent location. The classification also takes into account views, amenities, surrounding homes, waterfronts, commercialization, crime rate, and architectural or historical significance.

Wealthy individuals will pay a premium for property that they perceive to be superior and one of a kind. The surging international demand for luxury property is higher than the limited supply. Therefore, more owners of trophy homes are putting them on the market because of their stratospheric price tags. In fact, the luxury real estate market is fast becoming a new market class that does not abide by the dynamics and rules of the overall marketplace.

High-end property investors want proximity to other luxury real estate as well as access to activities such as high-end dining, shopping and the arts. Such investors want the same features sought by all buyers but on a grander scale. In addition, they want security and privacy, sometimes to the point of near seclusion. They also want outstanding beauty, special amenities, custom architecture, opulent finishes, home automation, and attention to detail.

When investing in luxury real estate, it is important to consider the aspects of the property that are permanent, such as the location of the ocean, path of the sun, weather, or the flight paths. Other issues such as hideous wallpaper are far less important. In certain markets, investors would need as little as $500,000 to own a piece of luxury real estate; however, to own luxury real estate in major cities, one would need at least one million dollars.