How to Invest in Luxury Real Estate

Are you ready to step up your property buying by adding a luxury real estate investment to your portfolio? Real estate is often considered a safe investment, and high-end properties can be a potentially lucrative way to diversify your investment portfolio. 

Luxury real estate can cost a lot, but investing in the high-end property market is less about the money and size of the property and more about delivering the luxury features and amenities that appeal to affluent buyers or tenants. Learn more about how to invest in luxury real estate.  

What Is Luxury Real Estate?

What distinguishes a piece of real estate as luxury goes beyond just a high price. Luxury real estate is a high-end property that offers exclusive features and exceptional amenities.

Luxury properties are often characterized by high price points, prime locations, expansive living spaces, unique amenities, high-quality and customized designs and building materials and historical or cultural backstories.

Luxury residential properties might include villas, mansions, penthouses, ranches, condominiums and vacation homes. Office buildings, retail spaces and hotels in prime business districts offering exclusive features and amenities to high-net-worth clientele may also qualify as luxury commercial real estate.

High-end buyers and tenants are looking for exclusive addresses, such as Fisher Island in Miami Beach, with lake, river, ocean or mountain views. They desire the privacy and security that come with gated communities and limited-access roads, bridges and ferries. Beauty, uniqueness and automation add to creating an exclusive environment for high-end clientele.

Cost Estimates for Luxury Real Estate

The Institute for Luxury Home Marketing set the median threshold for a luxury single-family home at $900,000. For 2024, the median sales price of a luxury single-family home was $1,268,750. For attached homes — condos and townhouses — the median threshold is $675,000 and the median sales price is $834,950.

While costs vary by location, a 3,000-square-foot luxury home costs an average of $600,000 to $1.2 million to build in the United States. Consider these average cost estimates for building a 5,000-square-foot luxury home in the following cities:

• Atlanta: $2 million to $4 million
• Chicago: $2.5 million to $4.5 million
• Miami: $3 million to $5.5 million
• Los Angeles: $3.5 million to $6.5 million
• New York City: $4 million to $7 million

The key factors impacting upscale property development are location, size, design and finishes. Acquiring the land can be a major cost if you're building.

Upper Fifth Avenue between 49th and 60th streets in New York commanded the highest annual retail rents in 2023 — $2,000 per square foot — making it the most expensive business street in the world.

Other luxury commercial cost estimates include $500 to $1,000 per square foot for a high-end office building in a major city, $350 to $600 per square foot for a boutique hotel and $1,000 and above for a flagship store on a prime street.

How to Invest in Luxury Real Estate

Ready to pursue exclusive real estate opportunities? Here are some different types.

Direct Ownership

Your luxury real estate investment can lead to directly owning a property. You can purchase residential luxury properties, high-end vacation homes or undervalued or distressed luxury properties.

Buying high-end homes, mansions, ranches, estates or penthouses in affluent areas gives you a property to rent long-term or sell later at a higher price. Luxury vacation homes in popular destinations, such as Aspen, Maldives, Hawaii, Ibiza or Lake Como, Italy, can generate luxury rental income during peak seasons. 

Competition can be stiff for buying undervalued luxury properties, but you can research local zoning requirements, renovate a home and sell it at a higher price.

Rental Properties

If you buy or build a luxury home in a prime location, you can earn luxury rental income, charging top dollar for the home as a short-term or long-term rental.

High-net-worth individuals, celebrities and corporate executives often seek out exclusive properties for long-term leases. You also can generate significant cash flow by listing a luxury vacation home as a short-term rental on platforms such as Airbnb or Vrbo, charging high rates and potentially reaping tax benefits too.

International Luxury Real Estate

By focusing on major global hotspots — Dubai, Hong Kong, London, Paris, Singapore and others — you can almost guarantee yourself access to affluent buyers from around the world with a luxury real estate investment. These major global cities offer economic stability and an appealing lifestyle.

While you can take advantage of currency fluctuations and emerging markets to boost returns, you also can benefit from some countries offering citizenship programs that encourage foreign investment in local real estate.

Fractional Ownership

You can pool your capital with other investors to build a premium real estate portfolio through fractional ownership. This way, you and other investors can divide your time at the property based on your proportional share, and you can benefit from renting the property at other times.

Companies like Pacaso allow you to own a portion of a property without the responsibility of managing it. You can create a similar arrangement through equity sharing — you and someone who occupies the home jointly make a down payment. Then the person living in the home makes the monthly payments and takes care of the home while you split the property’s appreciation.

Tips for Success

To successfully invest in luxury real estate, follow these tips:

• Research the market: Understand location trends, demand and your potential return on investment. When investing in luxury real estate, choose markets with strong growth potential and a high demand for luxury properties.
• Hire professionals: Work with luxury real estate agents, attorneys, property managers, marketing professionals, architects and designers familiar with the market. Your team can keep you updated on trends and property values.
• Diversify: Spread your investments across different property types and locations. Also, consider diversifying your strategies; pool resources to spread the risk, share knowledge and optimize returns.
• Assess financing: You may need to acquire a jumbo loan. This requires a higher down payment (between 20% and 30%), excellent credit, stable income and sizable assets. Other options could include private lending, bridge loans, equity financing, hard loans, syndication and joint ventures.
• Plan for Taxes and Costs: Account for property taxes, maintenance, insurance and other costs that can be higher in luxury markets. Have the resources available for repair or renovations with high-quality materials and craftsmanship. Cutting corners can undercut the value of your property. 

With the right plan, you can make the most of your investment.

Frequently Asked Questions