Why Invest in Luxury Real Estate?

By Brad Greiner, CEO of OpenAiRE Brokerage and Open Air Homes

 

The concept of investing in short-term luxury rentals has been gaining momentum recently, and it’s not hard to see why. Almost all investors want to own a beautiful home overlooking the city or desertscape.

Additionally, the economy has been growing, and the private accommodation sector, in particular, has been booming. This has made it significantly easier for people to go on vacation.

So, should you invest in luxury vacation rentals? Are they with all the hype? And most importantly, are there recommended practices when investing in short-term rentals? In this guide, we’ll take you through everything you need to know about investing in luxury properties, including how to assess their viability.

 

A Quick Overview of Luxury Real Estate

Luxury vacation rentals are associated with high levels of convenience, abundance, and exclusivity. This is why most real estate investors often associate these kinds of property with secluded locations and mansions. You should, however, note that while the location of your property highly impacts its luxury status, it’s mostly about the amenities. They are the unique features that amplify a person’s experience.

So, instead of thinking about a beautiful house nested on the hills, start considering factors such as proximity to luxurious dining facilities and high-end shipping centers, unrivaled views, security, privacy, and unique architecture. People are more willing to pay more for premium experiences than they are for a big house.

 

Luxury Short-Term Rentals vs. Long-Term Rentals?

Luxury short-term rentals are one of the most overlooked yet highly lucrative investment homes options. They are, however, a great option, even for novice real estate investors.

Some of the benefits of investing in luxury short-term vacation rentals include;

• Most of the transactions are made in cash.
• Technology has made it easy to promote your property on platforms such as Airbnb.com.
• You only deal with tenants for short periods.
• Most of your money is paid upfront, so you don’t have to deal with the hassle of tenants that don’t pay their rent.
• As long as you have a great project management partner, your investment will always be in great condition for the next renters.
• A high average monthly income.

With a great investment plan, short-term vacation rentals may just be your ticket to financial independence.

 

Top Reasons to Invest in Luxury Short-Term Rentals

In 2021, the total revenue from the US rental vacation industry was a whopping $13.3 billion. With the industry steadily growing, statistics reveal that it will be worth $20 billion by 2025. If you’re still debating whether you should invest in luxury short-term rentals, here are the top reasons that say ‘go for it!’

 

1. They Guarantee a High Return on Investment

Investing in luxury short-term rentals usually brings in serious money for their owners, especially if the houses are located in popular tourist destinations. This is because rental prices for these types of properties are usually higher than those of long-term rentals.

Even though your property might take a little longer to get rented out as compared to a long-term rental, it’s important to note that you can still charge a premium price for it. For instance, if you have a three-bedroom property in a prime area, you can charge $1,200 per night instead of the $800 you would charge for a week-long stay.

The best way to ensure you get a high ROI is by making sure your property is in great condition and has all the necessary amenities. You should also consider hiring a property management company to help you with this.

 

2. Great Passive Income Generator

If your property is located in a strategic location, it can easily become a passive income generator, especially if you have a steady flow of tenants year-round. The beauty of this is that you don’t have to do any extra work after the initial investment; the property will simply generate income for you.

This is a great option for investors looking for some additional income apart from their day jobs. For example, if you have a property in Miami, you can easily make an extra $1,000 every month without having to lift a finger.

Simply put, you are making an investment that keeps on giving. Luxury short-term rentals have been known to generate a monthly income of $1,500-$10,000 on average, making it one of the most lucrative real estate investments you can make.

 

3. You Also Have Your Own Getaway Location

Admit it: You can’t wait for your next vacation. Well, owning a luxury short-term rental property automatically gives you your own getaway destination. This is especially beneficial if you live in a city that experiences cold winters. So if you own a property in a warm destination such as Miami or Hawaii, you can easily turn them into your personal oasis where you can escape during winter.

What’s more, you can always rent out your property when you’re not using it and make some extra cash. This is a great way to offset the costs of owning a second home. You can also use this property for special events such as weddings and family reunions. Just be sure to invest in an area you love, as you’ll likely be spending a lot of time there.

 

4. Tax Write-Offs

If you decide to invest in a luxury short-term rental property, you can easily get tax write-offs. This is because the IRS considers these properties to be a business. This means that you can deduct your rental expenses from your taxable income.

Some of the deductions you can claim include mortgage interest, property taxes, depreciation, repairs, and advertising. You can even claim a loss if your property doesn’t generate any income for a year. This is a great way to reduce your taxable income and save some money.

Be sure to consult with an accountant to find out exactly what deductions you’re eligible for, as each property is different.

 

5. Easy to Advertise

One of the best things about owning a luxury short-term rental property is that these houses often have a ready market. You can use websites such as Airbnb, VRBO, and HomeAway to list your property. For example, Airbnb has over 2 million active users, and VRBO has over 1 million. These are great marketing platforms! You can even use social media platforms such as Facebook and Twitter to get the word out.

Don’t forget to invest in a great marketing strategy to ensure that your property gets rented out quickly. This can include creating a professional website, hiring a photographer to take pictures of your property, and writing great descriptions.

If you do this correctly, you are guaranteed a high occupancy rate and a healthy return on your investment.

 

Effective Tips for Investing in Luxury Vacation Rentals

The global vacation rental industry is expected to grow at a CAGR of 7.28% between now and 2026. The growth potential is massive! However, like all other investment opportunities, it’s critical that you get into the vacation rental industry with a plan. Here are practical tips to guide you.

• Go for prime locations – When it comes to vacation rentals, location is key. You want to invest in areas that are popular among tourists and have a variety of attractions and exciting activities. This way, you’re guaranteed a steady stream of renters all year round. Some popular tourist destinations include Orlando and Miami.
• Get the right property – Not all properties are the same. You should go for a property that is in a prime location and is also furnished and decorated lavishly. This will attract high-end renters and ensure that you make a good profit.
• Understand your Competitor – In all types of industries, it’s important to know who your competition is and what they’re doing. This is especially true for the vacation rental industry. Make sure you know what kind of properties your competitors are renting out, what they’re charging, and what amenities they offer. This will help you stay ahead of the curve and attract more renters.
• Hire a property management company – A property manager will take care of all the day-to-day tasks associated with renting out your vacation property. This will free up your time so that you can focus on marketing and increasing occupancy rates.
• Market aggressively – To be successful in the vacation rental industry, you need to market aggressively. You can use a variety of marketing channels such as social media, online listings, and search engine optimization to get the word out.

 

Are Luxury Short-Term Rentals Worth the Investment?

Yes!

When done correctly, investing in a luxury short-term rental can be a great way to increase your income and secure a great return on your investment. With the industry growing at a fast rate, now is definitely the time to get into the game.

Ready to purchase a real estate investment property? Our agents at OpenAiRE can help!