Low end vs luxury real estate: which is a better investment

Whether you are looking at it now or thinking about future investments, you may be wondering what league you want to play in the real estate investment game – low or high? As with any investment, you need to know your numbers. We’re telling you the things you need to know before deciding between low-end and luxury real estate investments. But first we need to know what these two mean.

Low-end properties target the lower to mid-market. That means investing in standard starter houses that are in second-rate neighborhoods – but good and acceptable. It could also mean investing in apartment buildings – maybe even living in one and renting the other. On the flip side, luxury properties are meant for high-end buyers looking for prime locations with access to a luxurious lifestyle or unique experiences like life by the sea. The Institute for Luxury Home Marketing defines the luxury market as the top 10% of the market’s price range, but not below $ 500,000. In parts of California and New York (among many other areas), starter homes cost well over $ 500,000.

Let’s dive into some numbers and compare a $ 1 million luxury home and we have a $ 300,000 low-end property.

As an investor, you want to know what prices will rise in the future.

Let’s take a look at the luxury property first:

If you buy a property for $ 1 million and make a 20% deposit of $ 250,000 and borrow 80%. In order for you to make a 20% return on your investment, the property must be worth $ 1.2 million at some point in the future to get your money back. This is due to the acquisition costs.

Now let’s look at the low-end property:

If you buy $ 300,000 worth of property and borrow 80%, you need approximately $ 60,000 for the 20% down payment. In order for you to make a 20% profit, the property needs to be worth only $ 360,000 at some point in the future to get your money back. This is due to the acquisition costs.

If we look at that, it can be said that you can save a $ 60,000 deposit much faster than a $ 250,000 deposit. You also have lower loans to repay for low-end vs. high-end models.

But what if you already have a $ 250,000 deposit on hand and you can afford $ 800,000 in loan repayments, why not just play the game of high rollers? Another aspect is demand. The real estate market is competitive, with far more populations choosing simple, affordable homes over luxury. With this money, you can buy 3 non-luxury, more sellable properties compared to one luxury home.

In summary, with low-end real estate you need less capital, which makes it particularly attractive for small investors. You also have more potential buyers who can afford it. High-end real estate, on the other hand, is a resource reserved for people who can spend a lot of capital on first-class home ownership.

It all depends on what your risk tolerance is and what type of business you’re excited about. So no matter what game you play, do it well. And you can always count on a good realtor and teammate like Broadpoint Properties to guide you through the process of buying and managing property.

This article first appeared on the Broadpoint Properties website, https://servingsandiegocounty.com.

Submitted by Elisabeth Hartig Lentulo, real estate attorney, reachable at 760-532-1057, [email protected] or http://www.ehlentulo.com. CalBRE # 01904564