Is Luxury Real Estate a Stable Investment?
When it comes to investments, most financial experts will tell you that real estate is safer than stocks and currency. Luxury real estate is a great vehicle for investors to diversify their portfolio, and possibly create passive income, but it’s helpful to look at all the factors. In general, is purchasing a luxury home a stable investment, and if so, how do you utilize that investment to the fullest?
Perhaps you’re only at the beginning of your journey to purchasing an investment property, or vacation home in Summit County or the Winter Park area. Perhaps you’re looking for ways to maximize your current investment. Whatever stage you’re in, here are something things to keep in mind as you move forward:
- Buy and Hold
- Passive vs. Active Income
- Property Management Companies
- Short or Long Term Rentals
When to Hold and When to Sell
Buy and Hold Your Property
Buy and hold investing is a stable, passive way to acquire income versus other more “active” options. Passive income is also the best approach for those new to investing. It’s always important to properly calculate your investment. You wouldn’t want to invest a large majority of your funds into a home that needs substantial repairs and updating after the purchase. Simply put, you want to watch out for properties that will put you above the overall market value of the home.
When it comes to investing in luxury homes, these estimates and calculations can be a bit different. Your home will likely need fewer repairs to begin with, but will also bring in higher amounts of return per month if you’re looking to rent it out either short or long term purposes.
The typical buy and hold strategy is considered “passive” because it requires an overall minimal effort from the investor once the home is rented out. Although it might not be quite as simple as sitting back and receiving a rent check, it is a good way to utilize your investment property without going into the real estate business full-time.
Buy and Sell Your Property
There are benefits to purchasing a home only to turn around and place it back on the market. Typically, flipping a home is one way to achieve active income, but it’s a much higher risk, and a definite gamble. There are a multitude of factors that can make what once appeared to be a simple flip into an investment that’s more trouble than it’s worth. It is possible to flip a luxury home, but there’s no guarantee that you’ll make a profit off your property. Yes, there is a chance that your flip can pay off quickly, but renting out your investment will give you consistent income, tax benefits, and can help you build your net worth.
Should You Hire a Property Management Company?
Let’s say you’ve put in significant effort into finding the perfect property in a location with high rental demand. You make the purchase. That in itself is a huge decision, but quite possibly the second biggest decision you’ll need to make is whether you should hire a property management company.
If this is the only investment property you own, and you’re going ahead with a passive income plan, it may be easy enough to manage the property on your own. But what if you don’t live near the property? What if your current life schedule makes proper management practices out of the question? This is where a good property management company can come in handy.
What Do They Do?
Management companies deal directly with current and prospective tenants, saving you both time and worry. From marketing your rental, collecting rent, to handling maintenance and repair issues. They’re even able to handle any tenant complaints should they arise.
They can be a huge asset to your prospective investment business, or just your single investment property. Of course, hiring a management company means giving up some of your income. There are factors that make it worth it for some, and too high a cost for others. Management companies have the local know-how and general experience to keep up a property, as well as getting tenants or short term vacationers interested in your property. It may give you a certain peace of mind being assured that your investment is being properly cared for. Hire a property management company if:
- You own multiple investment properties
- Your property is located far away from home
- You have no interest in managing the property
- You have limited time
- You can afford the addition to your original investment
If any of the above apply to you, you may want to consider getting in contact with a good management company.
Short Term Rental or Long Term Leasing?
You could see success with either! With the growing popularity and high demand for short term homes in vacation areas, short term rentals —or 30 or less days of continuous stay by an occupant—may be the perfect place to start. There will likely be times during the year that you’re looking to enjoy your property yourself or with your family. With short term renting, it’s much easier to blackout any calendar dates you know you’ll want to relax in your home away from home.
With all this in mind, your luxury property can be a stable investment depending on the reason for your investment, the location of the property, and your long-term vision.
By Coldwell Banker