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Are luxury real estate rentals worth the investment?

We asked the experts to walk us through all you need to know to get the best out of yours.

By LLM Reporters  |  June 22, 2022
Modern villa house exterior in garden
Image Credit: chisi/Bigstock.com

When it comes to investments, luxury real estate rentals are often seen as one of the best options out there, offering an additional and lucrative stream of income and the potential for growth as the property market continues to surge. From show-stopping mansions nestled in scenic hillsides to oceanfront villas enjoying breath-taking views along the coast, high-end properties such as these are forever in demand, and when yours is located in a popular holiday destination or an exclusive and private hideaway that only the affluent know about, then you’re likely onto a winner.

Even so, there are some important factors to consider before taking the plunge if you’re new to luxury real estate rental investment, from whether or not a property is viable to the cost and time required to maintain it. We asked the experts at Progressive Lets, the leading premium letting agents in Peterborough, to walk us through all you need to know to get the best out of yours.

The perfect luxury property

While there’s no such thing as perfection, there are certainly a few key things to look for when it comes to purchasing luxury property. Unlike other properties, the major selling point of luxury real estate is not just the house or villa itself, but the lifestyle that comes with it, and this is one of the many reasons they hold so much appeal to affluent individuals and families looking for either holiday lets or long term rentals.

Luxury apartment building by the sea in Porto Montenegro
When seeking for the ideal luxury property to add to your investment portfolio, you’ll want to look for something that exudes opulence and exclusivity. Image credit: PhotoDim/Bigstock.com

When seeking for the ideal luxury property to add to your investment portfolio, you’ll want to look for something that exudes opulence and exclusivity, and while the location is of course an important consideration, stand-out amenities like infinity pools, home cinemas, fitness centres and outdoor kitchens will all add to the experience of renters to make their stay a truly special one that will likely keep them coming back for more.

There are many different styles of property to consider, from stately homes and castles to lavish villas and penthouse apartments. For many, opting to invest in a condominium or high-rise building in its entirety yields the most returns, so consider pouring your money into a multi-property building rather than a single large dwelling to multiply your income streams if you can.

If you have a particular set-up in mind that you feel would perfectly facilitate a luxurious lifestyle and a memorable stay, then another option is to have a property custom built to meet your requirements. Not only will you be able to choose the floor plan layout, finishes, fixtures and fittings, but you’ll also be able to have some stand-out amenities included – and having a home built around these instead of adding them into an existing property will allow them to take centre stage and ensure that the transition between spaces and sense of flow is just right, rather than an afterthought.

Having said that, ‘flipping’ an existing property to add value is often a great option for those who love taking on projects and the sense of accomplishment a completed renovation project brings. As a general rule of thumb, you won’t want to spend more than 70 per cent of the property’s estimated value bringing it up to scratch. Bear in mind, however, that this does require much more work and can take time, which of course, isn’t for everyone.

Luxury house at night in Vancouver, Canada.
Each property is unique and different, and considering appreciation and cash flow at every stage of the purchase and subsequent rental is essential

Capacity for growth

Of late, the property market has been surging, and prices are at an all-time high. The jury is still out as to whether such growth can be sustained, but the general consensus is that most will hold their value for years to come at the very least, and in all likelihood, continue to appreciate. With this in mind, the current investment required to purchase a luxury property is significant compared to several years ago – but if you’re prepared to play the long game then you could be thanking yourself for it in years to come.

Nevertheless, overall yield on luxury properties doesn’t tend to be as high as on standard properties due to the initial outlay, so do take some time to do some calculations before making your decision or parting with any cash. Each property is unique and different, and considering appreciation and cash flow at every stage of the purchase and subsequent rental is essential.

The bottom line

Due to the initial expenses of purchasing a luxury property and the upkeep required to keep a high-end property in check long term, you could expect to see a significant dent in your profits from renting, so have some thorough market analysis conducted on your behalf to ensure that the rent you charge will offset any costs. If you decide to go ahead with the purchase, be sure to put around a third of the income from a property aside to cover maintenance as and when it’s required.