Whether you own, flip, or rent, real estate has been considered a significant investment. If you have the money, high-end real estate financing is an excellent way to expand your portfolio.
If you’re interested, it’s essential to learn more about high-end real estate financing before making any massive purchases. Keep reading for more information.
What Is High-End Real Estate Financing?
High-end real estate financing allows investors to acquire the necessary funds to buy a luxury property based on their current assets’ value. For example, someone may dream of owning a Malibu mansion but can’t make an outright cash purchase. However, that person may have assets that are worth a considerable amount of money.
For example, expensive jewelry worth millions of dollars. This jewelry could be offered as collateral for a loan that would allow the purchase of the Malibu mansion.
In the best circumstances, the jewelry’s loan value would match or exceed the price required to purchase the mansion. This would abolish the need for the owner to access their cash reserves to close the deal.
What Is Luxury Real Estate?
Before you invest, it’s essential to understand what makes a property luxurious. A sky-high price tag alone doesn’t make a property luxurious.
A property must be unique and exclusive in a desirable way to be considered luxury real estate. Wealthy people will pay high prices for property that’s viewed as superior.
Plus, high-end buyers look for locations that have access to opulent activities, including high-end shopping, dining, and arts. They also prefer areas that are close to other high-end homes.
Notable or trophy addresses, such as Park Avenue in New York City, add value. Many luxury real estate buyers may desire a beautiful waterfront location or views of a pretty river, ocean, or lake.
However, others may prefer bucolic countryside or dramatic mountainside views.
High-end buyers seek many of the same features that all purchasers want, except on a larger, grander scale. They seek privacy and security, sometimes to the point of extreme solitude. They dream of beauty inside and outside the home, spending money on custom architecture and design, with luxury finishes and meticulous attention to detail.
Luxury buyers also seek lavish amenities, such as a chef’s kitchen, outdoor swimming pool, temperature-controlled wine cellars, and more. Many also want as much space as possible, but this isn’t a requirement for living in luxury.
When you pick a luxury home as an investment, it’s essential to consider property aspects that cannot be changed. For example, you can’t change the weather, how far the beach is, or the fact that airplanes fly straight over the property.
How Does Asset Financing Work?
Asset financing works with traditional lenders deciding whether to loan funding based on the applicant’s credit history.
However, some well-off investors may not have the right credit track record to attract a bank loan. The individual or business may own property and assets worth a significant amount of money.
This is where an asset lender helps. An asset lender isn’t usually phased by an applicant’s credit history. Those that do look at credit don’t typically give it as much weight in their lending decision compared to traditional lenders.
Instead, asset lenders base their decision on the value of the assets or collateral. This means that an individual or business without an amazing credit history could still obtain a loan.
How Much Does Luxury Real Estate Cost?
In markets and areas where prices are typically lower, you may require as little as half a million to own luxury real estate. However, you’ll need at least one million dollars to purchase a luxury property in most major cities. Of course, prices increase where the cost of living is high.
Luxury properties typically cost around three million in San Francisco, five million in Los Angeles and New York, and seven million in London. Luxury purchasers often pay with cash. However, a jumbo mortgage is another option.
If you’re financing the property, you must have a significant down payment, faultless credit, proof of income and assets, and considerable cash reserves.
What Are Some Tips for Investing in Luxury Real Estate?
If investing in luxury real estate sounds suitable for you, there are several things to consider before getting started.
First, it’s essential to identify your goals. While the goal of investing in real estate is generally to earn a return on your investment, when you deal with luxury properties, think about your desired outcome.
If you want to turn a quick profit, it may be best to focus on flipping. If you’d like a long-term income, investing in a luxury apartment building is a good idea.
You must also consider the market. If you invest in a seven-figure luxury property, be sure that the market will support this decision and do your research. Check out the local job market, cost of living, average household incomes, and the region’s economic outlook.
If you’re going to rent your property, think about the year-round and peak-season traffic.
High-End Real Estate Financing
Investing in luxury properties can be exciting. There are many ways to get involved in high-end real estate financing, from building a custom property to flipping a villa to purchasing a vacation home.
Before you make that all-important purchase, it’s essential that you understand the features that gift you lasting value to receive the best return on your investment. And of course, always make sure there’s a steady market of buyers or renters available for your properties.
Want to learn more? Get in touch today to find out how our asset-based lending solutions can facilitate your high-end property purchase.