Real estate has long been considered a safe investment, whether you own, flip, or rent. If you have the money, you may want to expand your portfolio into the luxury real estate market. Before you jump in, here are some of your options for investing in luxury real estate.
- Real estate isn’t considered luxury just because it’s expensive. It must also be unique, exclusive, and perceived as superior.
- High-end buyers want access to luxury activities like shopping, dining, and the arts, as well as proximity to other luxury homes.
- Luxury real estate investors can flip a mansion, invest internationally, buy a luxury condo, buy a high-end vacation property, or build from scratch.
- Luxury real estate prices were hot and had been soaring. Case in point: The most expensive residential real estate sale of 2019 was a Manhattan penthouse that sold for $240 million, according to data from Miller Samuel Inc. That’s almost $166 million more than the previous year’s top New York City sale.
With the wealth of the world’s richest people growing, it had seemed that the potential market for luxury properties was larger than ever. Then the coronavirus pandemic hit, and prospects for real estate prices and real estate, in general, have become notably uncertain. Bargains may be available for those with cash. However, the willingness of potential investors to step up and buy them is doubtful, to say the least. Whether you’re interested now or thinking about future investments, here are key principles for investing in luxury real estate based on market growth before the pandemic.
It’s crucial to understand the features that characterize luxury property before you invest. A high price tag alone won’t put a property in this category. “It has to be unique and exclusive—in a good way, in a desirable way,” said Randy Char, senior VP of operations at One Queensridge Place, a luxury Las Vegas high-rise. “People who are wealthy will pay a premium for something that’s perceived to be superior.”
High-end buyers want locations with access to luxury activities such as high-end shopping, dining, and the arts, as well as proximity to other luxury homes. A trophy address, like Park Avenue in New York City, adds value. Having a storied history doesn’t hurt, either. Many luxury buyers seek the natural beauty of a waterfront location, or at least views of a river, ocean, or lake. Others want countryside or mountainside views.
High-end buyers desire many of the same features that all buyers want but on a grander scale. They want privacy and security, sometimes to the point of seclusion. They want beauty inside and out and can afford custom architecture, custom design, over-the-top attention to detail, and opulent finishes.
They also want amenities on top of amenities: a chef’s kitchen, luxury pool, expansive owner’s suite, and outdoor living space, not to mention home automation, motion detectors, car lifts, and temperature-controlled wine cellars. Many also want space, but you certainly don’t need a massive home to live in luxury.
Cost of Building a Custom Home
What is the cost of building a custom home? This is a common – and important – question that homeowners ask when considering building a custom home. There is no simple answer – the answer is always going to be, it depends. As you go through the process of building a custom home, there are over 200 decisions to make – each of which will ultimately affect the cost of the home. In order to better understand what variables affect the cost of building a custom home, we are going to investigate the four primary categories of cost:
- Site
- Scope/Size
- Structure Complexity
- Specifications
Site
In addition to the sales price of the site, there are numerous other aspects of the site that will affect the cost of building your home. Each site is unique, with its own benefits and challenges. Following is our list of top items to take into account when selecting a site for your new home. Each can have an effect on the cost of building.
- Topography: steep sites often require extensive and expensive excavation and fill. Dirt is cheap, moving it is expensive.
- Geology, soil conditions and vegetation. For example, expansive soils or rock formations beneath the surface will increase your building costs.
- Utilities: the availability of services to a site is an important consideration, as it is expensive to bring or upgrade water, sewer, power and other utilities, as well as roads and sidewalks, to a piece of property.
- Length and grade of driveway.
- Design challenges due to lot shape, zoning, easements, setbacks and building restrictions.
- Cost of fees for permits.
- Is your lot in a community with design guidelines? This means your home will be reviewed by a Design Committee to ensure it meets minimum standards for design, materials, etc.
- Storm water detention and drainage on or off site.
- Other considerations can include (but are not limited to): flood plain, climate, snow load, noise mitigation, wild fire mitigation, etc.
- The site of this Tuscan style home presented many unique challenges and strongly influenced the design
Scope/Size
The size of your home has a direct impact on the over-all cost to build it. Generally speaking, increasing the size of a project will increase the total project cost (but not necessarily result in an increase in cost per square foot).
For example, if you are building a 4,000 square foot home and your cost is $350 per square foot, your cost will be $1.4M. If, during the design process, you decide to add an additional 500 square feet to your home, it will increase your total cost by $175,000.
It is important to remember that size isn’t everything. Specifications, which we discuss below, have a significant impact on your cost per square foot. A smaller home built to luxury standards could easily cost more than a larger home built with only the basics.
Structure Complexity
Picture a simple 2 story craftsman style home. Now picture an elaborately designed old world European home with volume spaces and arches in the interior, and a multitude of gables and chimneys on the exterior. Common sense tells us the craftsman will be cheaper to build, but why? A complex house is always more expensive to build than a simple house.
This is partly a function of the shape of the house and the relationship of the amount of roof and the amount of foundation to the area of the home.
- Homes with long rectangular plans mean more walls for the same square footage.
- Ranch plans are more expensive than 2 story homes because they require more foundation and more walls for the same square footage.
- Angles are more expensive than square corners; curves more expensive than straight.
- Every corner and elevation change increases the cost of the foundation.
- Creative designs that require extraordinary structural members to span long distances become very expensive.
- The height of walls needed to create large volume spaces are costly due to safety concerns and difficulty of installation.
Large swings in price can occur depending on a home’s structure and complexity. This is often where value engineering is required in order to keep a project within budget.
Specifications
Specifications can be broken down into three main categories: structural, finishes and systems. This is another area where large swings in price can occur, and why we recommend a design build work flow involving the builder and interior designer from the start. Assembling and including your whole team in the architectural design process will give you a better understanding of over-all costs throughout the process, and how design decisions impact your budget.
Structural
Structural considerations include the quality and size of materials as specified by the engineer to build the shell of the home. Large and custom structural materials are more expensive. Materials for building a net-zero or energy efficient home cost more now, but can save you money in the long run.
Finishes
All other things being equal, the total cost of a home built with luxury finishes versus a home built with basic finishes can vary enormously. Finishes are items that are visible and important to the eye – the ‘touch, see, feel’ – elements of a custom home. Cabinetry is a great example: a whole house package of cabinetry can cost anywhere from $20K for the basics to over $100K for top of the line custom cabinetry. There are so many items that fall into this category that it can be easy to lose control of the total cost. Even a small increase in the cost of each item can impact the bottom line. Examples include:
- Windows
- Cabinetry
- Millwork: trim and moldings.
- Surfaces: this includes items such as flooring, countertops, backsplashes, bath surrounds, exterior walls, roofing, decks, patios, drywall, glass/mirrors, etc. Examples include:
- Exterior walls: brick and thin stone add 30% over the cost of stucco.
- A level 5 drywall surface can cost 40% more than a level 2.
- Quality solid surface counter can be installed for $20 per square foot. An Iron Red granite or other premium material can set you back $100+ per square foot.
- Fixtures: lighting, plumbing, etc.
- Appliances
Systems
Systems are not something you can touch and see every day, but they have a huge impact on the comfort and functionality of your home. Systems include HVAC (heating, ventilation and cooling), thermal wall systems, home technology, geo thermal, etc.
10 High End Feature List That Luxury Home Buyers Want
The epitome of a luxury home is not just a well-equipped house. Rather, a luxury home is one whose features will allow the owner to feel lavish or spoiled. Think of royalty. Think opulence. Think extreme extravagance.
The word luxury brings to mind a lot of amenities, such as swimming pools, saunas, gyms at home, tennis courts, garden, games rooms and fully stocked kitchens but what are the extra elements that buyers of luxury homes want? What is a luxury home buyer looking for the purchase of his new home? These are 10 things that the wealthiest seek before buying a house.
A house with character
A house is not luxurious unless it has a large entrance with a large staircase that leads to a second floor, and open, airy and extensive floors.
Technology
We cannot escape the growing swarm of technological innovations. Today’s homeowners want everything related to technology, and the builders who adapt to this technological trend are those who will stay at the top of the real estate market. Literally, with a touch of a button on your Smart Phone:
- you can now lock the doors,
- control the climate of your home,
- turn the lights on and off,
control your alarm system and everything from the other side of the country
These are the built-in features that today’s luxury home buyers are looking wfor.
The builders who install these wireless home automation devices are spot on with the trends that luxury home buyers are looking for.
At the opposite end of the spectrum of technology is an increasing trend for recyclable materials. Homeowners are increasingly aware of their environmental footprint and are looking for houses that use old recycled materials such as wooden beams, wooden floors and doors.
Fully equipped kitchen
The kitchen is the heart of the house. An opulent life requires a magnificent kitchen. Forbes magazine says that a quality kitchen is a huge necessity when it comes to a million-dollar house. An opulent kitchen will always contain a warm atmosphere, wine coolers, quality appliances similar to a restaurant, and a lot of storage in a large pantry.
External kitchen and swimming pools
A well-stocked indoor kitchen is not simply enough for someone looking for luxury. The well-to-do buyers now crave the comforts of a cozy kitchen and outdoor kitchen area.
The main features of the ideal outdoor kitchen would include:
- A Built-in Gas Grill,
- A Sink,
- A Food Preparation Area,
- A Small Fridge For Food,
- Drink Storage And Plenty Of Other Areas.
Large pools, hot tubs and changing cabins are also on the top lists of those seeking luxury. Spacious pools with water games, such as waterfalls and lots of privacy is necessary.
Location
The location is the jewel in the crown of the house itself. Rich or poor all want their little piece of paradise. An extensive private, tree-lined property that is kept safe from prying eyes is a must when it comes to luxury living.
The wealthy buyers want exclusivity in their property, a hidden oasis, a place to be free, to rest and relax in the most absolute secrecy. Whether the property is in front of an exclusive beach, all buyers of luxury homes want the perfect hidden location.
Gaming and cinema rooms
The gaming and cinema halls (or Home Theater) are little old but still current caprice when we talk about luxury homes. It is already a fact that a million-dollar house must have a cinema and a gaming room.
Luxury homeowners seek to take advantage of this trend even further with amenities such as indoor basketball courts, indoor pools and sports bars that feature televisions and lots of liquor.
Large bathrooms
A lavish life requires a splendid bath. The trips of a high-class person will take you to some of the best spas and hotels in the world. Homeowners want to recreate this luxury in their daily lives through spa-like bathrooms in their own homes.
This includes impressive showers, underfloor heating, towel warmer and of course a huge immersion bathtub, where you can escape the stress of Wall Street.
Exercise rooms
The rich do not like to sweat in the gym in front of everyone. Who can blame them when they can exercise in their own private sports facilities, in their own homes? The zenith of gyms at home, obviously is to include a lot of space for weights and equipment, but also include wireless speakers, televisions and of course, a covered sauna and pool to relax after training.
A huge main room
Luxury should not stop when one crosses the threshold of their most intimate sanctuary (the bedroom). Many hours of our lives are spent in the bedroom. It is imperative that the bedroom be a large open space with space for a huge bed and plenty of resting areas.
First class technology is also welcome in this private lodging. With integrated automation systems for lighting, security, remote control curtains and climate control top the list of what should not be missing in the bedrooms.
Dressing rooms
An extension of the room is the dressing room. A high priority for wealthy women is a place to store and show off their extravagant purchases such as shoes, bags and cosmetics. Women and men alike seem to have a growing desire for a large separate room to dress and show off their high-end garments.
This area of the house would require walls lined with cedar shelves, racks to show shoes, bags and ties, and of course plenty of lighting and mirrors to model your chosen attire or apply makeup.