Real estate has long been a smart play for investors seeking to build wealth. Year after year, it remains one of the strongest, most consistent segments in which to put your money.
When it's on a winning streak, it can pay enormous dividends for the savvy investor. Even when it's down, it doesn't remain that way for long. There's often money to be made in a depressed market, as well.
Luxury residential real estate proves particularly rewarding for those interested in buying, building, and selling a portfolio of standout homes and properties.
While real estate wealth building can be as straightforward as purchasing a home, holding it for a specific time, and generating equity, there's a lot more to it for the more adventurous investor.
Let's explore four tips for building wealth in real estate.
Identify Your Goals
Before starting any investment strategy, real estate or otherwise, a critical first step is establishing your goals. Yes, you want to build your wealth, but part of the journey is ensuring that you enjoy it.
More than that, real estate offers multiple ways to earn your wealth.
Are you hoping to build a vast portfolio of high-end residential housing? Do you want to generate a source of consistent monthly income? Or is your plan simply to acquire a few vacation homes for personal use and pass the properties on to your descendants?
The time frames involved will vary greatly, as well, dependent on the approach most suited to your needs.
You could potentially start seeing returns on your investment in six months or less if you choose an aggressive renovation route. Ground-up spec house construction is considerably longer. For a single project, you could see the result in as little as 12 to 18 months. Those eyeing a longer-term commitment will appreciate ongoing income properties.
We discuss several of the most popular options below. As you review them, think about which ones carry the most interest for you. Investing in real estate is just as much about the experience it provides you personally as it is the money it may generate.
Decide early on what you hope to get out of your investments financially and emotionally to ensure an intelligent strategy and a more rewarding experience.
Find Your Niche Residential Investments
As we noted, there's a lot of variety for those wanting to build their wealth through real estate. Again, the path you choose depends mainly on your goals.
The three major types of luxury home investing—renovation, new construction, and rental property—all have their pros and cons. You stand to make a quick profit with renovation, though markets can prove finicky if you make too many or too few improvements.
New construction is highly lucrative but also carries a longer time frame and greater risk. Long-term rental property requires the most significant commitment, time-wise, but is generally lower risk and generates the most consistent income.
Below we provide further detail for each approach.
Arguably one of the hottest trends in real estate investment is flipping houses. HGTV shows have made the craze incredibly popular. The purchase, renovation, and reselling of a home is a big business at every level of housing—luxury included.
Luxury, however, presents a steeper challenge to ensuring profits versus flips under $500,000. As a general rule, luxury homes already come with a bevy of upgrades and updated features. They tend to be better maintained and in locations where housing trends are more stable (you're less likely to take advantage of an up-and-coming neighborhood when flipping a luxury home).
That said, the niche market for renovating upscale is quite lucrative. For starters, the overall renovation costs tend to be lower thanks to fewer updates being necessary. Fresh paint and swapping outdated elements make a significant impact on high-end homes.
Market research is critical to ensure you're flipping a house in an area that offers the most bang for your buck. You will also need to account for marketing costs to move the home.
Overall, renovating a home is ideal if you're after short-term gains. Building lasting wealth will require an abiding commitment and a lot of buying, remodeling, and reselling houses. That said, many real estate empires started with a single flip.
Custom construction is the proverbial double-edged sword of real estate.
Build a home with the amenities, finishes, and luxuries people want in a sought-after location, and you'll have an endless line of buyers demanding a tour and offering top dollar.
Miss the mark on just one of those intangibles, and you could be left with a multi-million dollar property nobody wants, including you.
The other drawback is time. A custom-built residence can take anywhere from eight months to two years to complete. That construction process comes with plenty of ups and downs.
However, new construction affords an investor the potential for a sizable payday. You also have options for how to approach the build. Oversee the construction and, once complete, occupy the home until it's sold. Of course, you can also build and list if you know the house will move quickly in your specific market.
In either case, before entering into a ground-up project, make sure you build to capture the broadest possible luxury market while crafting a home that will appeal to the audience's tastes and yearning for exclusivity.
Not the renovation or construction type? Investing in income-generating rental property is often the most lucrative form of long-term wealth-building in real estate.
The most basic form of rental property is purchasing a high-end single-family home or upscale condo unit in an area where demand for housing is high. If you bought the house with a loan, the rates you charge would cover your mortgage and any third-party management fees before you pocket the remaining amount as profit.
In many cases, a great deal on a rental property means you'll have to take on some level of renovation, so keep that in mind as part of your initial costs. The more homes you pursue ownership in, the greater your long-term profits.
Vacation rentals are also big business. From high-rise condos to beachfront bungalows to cabins perched in the mountains, vacation rentals are a hot commodity. With the end of the pandemic in sight, expect an even greater demand for these short-term accommodations as people start traveling more.
For both the standard home and the vacation rental, seek out properties in markets that are always popular, where demand is high, and the renters are constantly funneling in and out of town.
To maximize the investment, the home needs to appeal to a broad pool of renters. For single-family or condo renters—the house should be near good schools, top-notch transportation options, or bustling commercial and business districts.
Vacation homes need to be in areas that never go out of style—such as stunning Hawaii estates.
Know Your Financing Options
Beyond how you build real estate wealth, there are a few additional factors to account for when moving into real estate investments—above all else, there's financing.
When dealing in luxury real estate, cash is often the popular way to acquire property. You may also want to consider seeking out a Jumbo loan.
Set aside for those loans that exceed $548,250 in 2021 (the amount varies based on year and location), as they possess more stringent requirements than conventional loans.
However, for those wanting options with less upfront financial commitment, Jumbo Loans (or Jumbo Mortgages) provide additional flexibility when purchasing your investment property. If you aim to buy into the luxury market without a considerable upfront outlay, these nonconforming loans are an excellent option.
Partner with a Savvy Real Estate Professional
Depending on how large your property portfolio grows, you may find the need to employ several specialists to get the most from it—lender, CPA, tax or real estate attorney, a trusted list of contractors.
One area that is a must for any property investment strategy is partnering with a savvy real estate professional. In addition to helping you navigate the markets that pique your interest, a great agent will identify neighborhoods and properties where your investment dollars have the most impact.
Plugged-in agents also come with their own list of contacts and connections. Whatever the need—financing, accounting, construction or maintenance, staging, and marketing, or representation—they'll know how to connect you.
Ready to explore the best of Kailua-Kone real estate? Contact Leiola Augustine today to start your home buying or selling journey. From real estate on the Kona Coast to the Kohala Coast homes for sale, allow Leiola and her team's years of experience and expertise to be your guide to the Hawaii luxury real estate market.