According to Christie’s International, which surveyed 81 international luxury markets, sales of luxury homes grew 11% per year in 2017. In some markets, limited supply and increased demand have allowed luxury homes to exceed market prices. sales of non-luxury homes.

In the United States, a stable economy has helped boost sales of luxury homes, despite rising interest rates and questions about the impact of tax reform on wealthier investors.

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“The equity bull market is in the longest stretch in US history and as a result there is growing activity among high net worth individuals,” said David Parnes, luxury real estate expert and co-host of “ Bravo’s Million Dollar Listing Los Angeles ”. . “” This should continue to energize portfolios and create a wealth effect, increasing confidence and funds to invest in luxury real estate. “

However, investing in high-end properties is not limited to the elite.

“The newly created net worth attracts a new buyer, including millennials,” says Patrick van den Bossche, president of Realty Executives International.

If you’re ready to invest like the rich, here’s what you need to know to climb the luxury real estate ladder.

Adjust your perspective. Luxury real estate is not a trivial real estate investment.

“They say all real estate is local, but that’s not the case when it comes to luxury real estate investments,” says Jason Haber, broker at Warburg Realty in New York. “The luxury market is a global market; the pool of buyers is international. As a result, it is aimed at a wider audience and may therefore demand higher prices. “

This can translate into high returns for investors.

“Luxury real estate investments offer higher returns than the stock market without as much volatility,” says James Harris, business partner and co-host of Parnes. He says real estate investors in the best performing markets are getting a bargain and that “US luxury real estate values ​​will always rise over time.”

High-end real estate may also hold up better when traditional real estate or stocks go down.

“Luxury real estate investments tend to rebound better when markets soften, because they are seen as desirable, are generally unique, and tend to have high intrinsic value that exceeds replacement cost,” says van den Bossche. “An important advantage of owning real estate is that it will never be at zero value, even in a dismal market, when stocks can drop to such a low.”

Luxury markets are not created in the same way. In general, luxury real estate can be lucrative, but some markets can be hotter than others, both nationally and internationally.

“In New York, there is now a saturation of supply and this imposes constraints on prices,” explains Haber.

He says luxury properties saw a huge increase in value from 2013 to 2016, as a new generation of luxury condos entered the market.

“Billionaire’s Row” developments along the 57th Street corridor put an exclamation mark on the luxury market, ”said Haber. But, “that exclamation mark has turned into a question mark because oversupply has become a real problem.”

In 2017, Seattle led the way with the most robust year-over-year luxury sales growth, followed by Denver, Dallas and San Diego, according to Christie’s. Santa Fe has proven to be the fastest growing luxury second home market, with home sales volumes of over $ 1 million reaching levels not seen since the pre-housing crisis period.

Internationally, Vancouver, Singapore and Vietnam have emerged as some of the strongest luxury housing markets. Studying market trends is crucial in choosing where to invest in luxury properties.

“Most major markets are experiencing a slowdown in luxury real estate,” says Edward Mermelstein, real estate investment advisor and partner at One & Only Realty Holdings in New York. He cites setbacks in still developing countries affected by economic and political instability, such as China and Russia.

However, Mermelstein notes that in specific cities, such as London and Hong Kong, luxury real estate is able to survive economic downturns. “In fact, when the economies slow down, most of the luxury properties in the aforementioned markets will retain their value.”

Focus on allowance, allowance, allowance. Direct ownership is an avenue for luxury real estate investments; real estate investment trusts, exchange-traded funds, and crowdfunding are alternatives that may offer fewer barriers to entry. How you choose to invest largely depends on your investing style, your goals, and how much initial purchase you are willing to make.

Van den Bossche says investors who venture into luxury real estate through crowdfunding should be aware of what they are investing in. , which is driven by cash flow from tenant payments.

REITs can provide exposure to luxury homes, apartments and vacation properties, as well as luxury hotels and resorts, but the cost must be weighed against the returns.

“Most residential REITs tend to be private unions created by family offices or wealth management companies,” van den Bossche explains. “They tend to provide additional marginal returns that are impacted by REIT management fees, administration fees and cost of ownership. “

If you can afford to invest directly in a luxury property, due diligence is essential.

“An investor needs to work with their financial advisor and determine the level of exposure they want in their portfolio,” Haber explains. “It’s important to remember that luxury comes at a price and it is expensive.”

Brothers Zach and Cody Vichinsky, co-founders of Bespoke Real Estate in Water Mill, New York, say it’s all about understanding the specific nuances of a property and determining your ultimate investment goal.

“In most places, investors need over a million dollars to even start looking for luxury real estate options in the markets,” said Zach Vichinsky. “Once the property is secure, the options are endless and can range from building custom homes and remodeling them to offering their new purchase to potential tenants.

Cody Vichinsky says investors should know the location and the market in which they are buying in order to identify properties that will result in a high return. It’s also important to consider your endgame and exit strategy.

“Being prepared to pay very high prices, managing expectations and understanding the return on investment are all ways to reduce risk,” he says. “When investing in a property that is priced in seven digits, it’s important to make sure there is a demand for what you’re trying to sell. “

Zach Vichinsky warns against succumbing to tunnel vision with luxury properties. “Having a diversified portfolio should be important for any investor. Sticking to a single market can become obsolete and this approach has many inherent risks. “


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