Anyone who is currently looking to increase the current wealth diversification has likely entertained the idea of entering into the real estate market. Real estate, generally speaking, is an investment that can be expected to appreciate in value over time.
Many people significantly prefer owning property over renting because instead of simply paying an additional monthly expense, property owners are actually able to accumulate equity. With each passing year, you will be able to claim a significantly larger portion of your home as your own. Once your mortgage has been paid off entirely, you will be sitting with a significant amount of (admittedly illiquid) wealth in your hands.
However, even once you have made the decision to enter into the real estate market, there are still many other important decisions that you will need to make.
- How much are you currently hoping to invest?
- Where do you plan on purchasing your property?
- What features will be needed in your new home?
- Are you planning on investing in luxury real estate or regular real estate?
Clearly, there are a lot of different things that all prospective property owners will need to think about before making any investments. Each of these variables can have a significant impact on the degree that your property appreciates in value over time.
Keeping all of these things in mind, this article will discuss the essential differences between Denver luxury real estate and regular real estate. As is the case with all investments, both options will have a significant number of pros and cons associated with them.
Balancing Costs with Potential Benefits
Before we begin the process of comparing different real estate markets, it will be important to think about how we can determine the value of an investment. The value of a real estate investment will involve carefully balancing the costs of the property (usually spread out over time) with the potential for that property to increase in market value.
The location of your property will be incredibly important. Investing in rapidly growing luxury real estate in Denver, Colorado will make it much more likely that your property will appreciate in value. Other factors such as your neighborhood, potential property taxes, and the cost of getting a mortgage will also have a direct impact on the quality of any prospective investment.
The Differences between Luxury Real Estate and Regular Real Estate
When many people hear the term “luxury real estate”, they initially assume that this term is describing ordinary real estate that is generally nicer than the alternatives. While this may be true to a certain extent, it is important to recognize that the luxury real estate market and regular real estate market will require investors to have very different strategies—not all homes will be affected by market forces equally.
From an investor’s perspective, there are quite a few things that make luxury real estate different from regular real estate:
- Initial cost. As you would expect, luxury real estate is considerably more expensive. Consequently, luxury real estate investors will need to be willing to risk more capital.
- Appreciation over time. In most growing markets (such as the Denver luxury real estate market), expensive homes will appreciate in value at a greater rate. For example, if a regular home is appreciating in value by 3% a year, a luxury home in the same neighborhood may be appreciating by 6%.
- School districts. Luxury homes are more likely to be located in high-performing school districts, which is one of the reasons their appreciation rates are so high.
- Interior features. In a luxury home, you will likely find more square footage, newer features, and higher ceilings in general. However, the location of the home will still have a greater importance than any of these variables.
- Property taxes. Naturally, the more property (and other forms of equity) that you currently own, the more you will eventually owe to the government. It will be important to confirm all relevant taxes and fees before closing on a home in either market.
By accounting for as many differences between real estate markets as possible, you will have a much easier time deciding which sort of real estate investment makes the most sense for you.
The Benefits of Investing in Luxury Real Estate
As the list above indicates, one of the main reasons why property investors are eager to enter the Denver luxury real estate market is that—assuming that current trends continue—these properties will appreciate a significantly higher rate. With the S&P 500 having its first negative year in a decade last year (2018), the prospect of investing in real estate has become increasingly more appealing.
By investing in the right market, your home will eventually be able to sell at a rate much higher than the interest rate attached to your mortgage (resulting in a net profit). In the meantime, you will have the opportunity to enjoy all of the benefits that a luxury home can offer. Increasingly expansive interiors, stylish interior design schemes, and luxury amenities will all help create the sort of home ownership experience you’ve been searching for.
The Drawbacks of Investing in Luxury Real Estate
On the other hand, entering into the highly competitive luxury real estate market is not without its fair share of drawbacks. In exchange for a high potential to earn returns on your investment, you will first need to “risk” (or at least, commit) a significant amount of capital. Additionally, the real estate market is notoriously illiquid, meaning that if an emergency arises in the future, you may have difficulty accessing your primary source of wealth.
Luxury real estate properties will also cost more to own over time. Between interest accrued, monthly utility bills, and annual property taxes, many people are surprised just how expensive owning a luxury property can sometimes be. Still, for those who are comfortable and able to afford it, investing in a luxury real estate property is certainly worth considering.
Making the Decision that’s Right for You
Ultimately, whether a luxury real estate property is right for you will be a very personal decision. Your current financial situation, access to specific markets, and long-term capital objectives will need to be carefully considered.
When deciding whether to invest, it may be helpful to speak with a financial adviser or real estate agent. The best Denver real estate firms will be able to readily answer your questions and also help you identify what you are able to currently afford.
Deciding whether to invest in new property is likely one of the biggest decisions that you will ever need to make. Taking the time to do your research and compare your available options will be incredibly important. While the cost of property ownership will indeed be greater in the luxury market, the potential returns over time may justify the initial risk.