If you’re looking for ways to build long-term wealth with property investments, you may have wondered about luxury properties. Are they worth buying? Should you invest in high-end properties, knowing you’ll need to pay higher property taxes and a higher mortgage?
A luxury home is more than just an expensive property. For example,Investopedia explains that high-end properties also provide access to luxury shopping and luxury dining and are perceived as superior.
While luxury homes cost more to buy and maintain, they can also offer substantial returns if you buy the right properties. If you’ve been thinking about buying some high-end rental properties, here’s why you should pursue that goal.
Wealthy tenants will take better care of your property
You want tenants who will take great care of your property, and the ideal tenant will treat your property like it’s their own. You can’t prevent accidents, but wealthy tenants aren’t likely to kick holes in the walls and allow their pets to pee on the carpet every day.
There is a correlation between a tenant’s income and how well they take care of their home. While plenty of good tenants isn’t wealthy, you can skip the guessing game by investing in a luxury property. Just a handful of bad tenants can set you back in big ways.
Imagine the following scenario where you have four bad tenants back-to-back:
Bad tenant #1
Your first tenant stops paying rent for two months, and you have to evict them. The easiest way to make it is to use a fillable eviction notice to state all details. Your eviction costs $1,000, and you lose out on two months of rent plus one month to fill the vacancy. At $1,700/month rent, that’s $5,100 in lost rent for a total loss of $6,100.
Bad tenant #2
Your second tenant pays rent but leaves behind $5,000 in damages with burned carpet, destroyed walls, and a broken toilet. You only collected a $500 security deposit, so you have to pay $4,500 out of pocket for repairs.
Bad tenant #3
Your third tenant never calls you when the roof starts leaking, and neither did your previous two tenants. The leak has been going on for years, but you didn’t know until you found a small discoloured area in the ceiling corner. You have part of the roof removed and discover everything has rotted, and you need a new roof over that area that costs $7,000.
Bad tenant #4
Your fourth tenant is a hoarder and collects trash for six months until they call you to repair it. You can’t evict them because hoarding is a legally protected disability, but you know you’ll have to pay thousands of dollars to haul away all the trash in the future when they move.
Your losses in this scenario
After all four tenants, you’ve lost $17,600 out of pocket. That’s the equivalent of losing ten months of rent. In addition to your financial losses, you’ll also have to deal with losing your time and energy cleaning up, scheduling repairs, and going to court to file paperwork and attend hearings. You’ll never get those hours of your life back.
If your tenants cause too much damage, your property might become a money pit, and you could have to sell to avoid a losing situation.
Luxury real estate can build generational wealth
If your goal is to take care of your kids and grandkids with your estate, you can build generational wealth with luxury property. Not only can real estate be passed on to your family members, but luxury real estate will provide a higher return, both now and in the future.
If you’re worried about inflation becoming a problem in the future, that’s not something you need to worry about since home values appreciate. Also, consider that real estate income has been increasing at a higher rate than inflation for the last twenty-five years, making property investments an appealing asset to add to your estate plan.
Real estate is a long-term game
Real estate investing is always a long-term wealth-building strategy, no matter what kind of properties you buy. Most properties won’t become profitable until the mortgage is paid off, although you can certainly generate profits beforehand. But you’ll have outstanding debt until your mortgage is paid in full.
The difference with luxury homes is that the game takes a little longer to become profitable. However, the returns are generally higher, and in the end, it’s worth the wait.
