The Advantages and Disadvantages of Luxury Rental Property Investment

Looking to expand your investment portfolio in 2021? Luxury rental properties are big business, and wealthy investors worldwide are increasingly taking this route to generate multiple additional streams of income – as well as setting themselves up with yet another valuable nest-egg for the future. High-end real estate can be a tricky path to navigate, but armed with the right knowledge, you can quickly start to turn a tidy profit. Whilst there are many possible pitfalls if you don’t take the time to educate yourself before you take the leap, the pros of investing in luxury property far outweigh the cons, and many investors go on to create a sizable and robust portfolio of rental properties around the world. From taking advantage of the demand in tourist hotspots to working only with the highest calibre of long term tenants, there are several approaches that could serve you well – but to help demystify the entire process, we’ve sorted the advantages and disadvantages.

The Advantages of luxury rental property investment

rental property making money

Luxury rental properties are big business, and wealthy investors worldwide are increasingly taking this route to generate multiple additional streams of income

Investing in luxury rental properties might feel like one of the pricier ways to stash your cash, but it also happens to be one of the lowest risk ways to grow your fortune. Unlike stocks and shares, houses will never lose value entirely – in fact, on the contrary, they generally tend to double every ten years or so. With this in mind, if you’re prepared to play the long game then your luxury rental properties could be worth an impressive amount in years to come, setting you up for retirement or serving as a robust and secure asset that can be passed down to your children. While there is certainly some money to be made when it comes to buying and selling homes – usually with some renovations completed in between to increase value – renting out your properties instead can provide you with some generous streams of monthly income. And, given that tenants’ payments will generally pay off the mortgage for you as well as keeping some additional profits coming your way, in the long-term you can stand to make some huge gains. For some, committing in investing in rental properties has provided complete financial freedom in the long-run, allowing them to stop working on other projects all together.

luxury holiday apartment

Many investors are taking full advantage of the demand for premium rental property in tourist hotspots. Image credit: amok/Bigstock.com

When you own a rental property, there are also certain tax advantages that you can take into consideration. For instance, you can claim deductions on repairs, hot water, heating, non-refundable deposits, and the cleaning of communal areas, making for a great way to reduce your tax bill whilst continuing to make a profit. If you are looking for a way to diversify your entire investment portfolio, rental properties are definitely the way to go. This is because they are in a completely different category compared to other more traditional investment types, and by dividing up your ‘egg’ into different ‘baskets’,  you can reduce your overall risk and improve your chances of financial success. Add to all of this the fact that owning a rental property or three can set you up for a long and prosperous retirement – often commencing far earlier than it does for many and giving you some valuable extra years in which to live life to the full – and there’s no denying that it’s a sensible way to invest your money to ensure a bright and fortuitous future.

The Disadvantages of luxury rental property investment

property rentals

Before taking the plunge into rental property investment, it’s important to consider the potential pitfalls and roadblocks you may encounter to ensure that you are suitably prepared for any challenges that might come your way. Of course, before taking the plunge into rental property investment, it’s important to consider the potential pitfalls and roadblocks you may encounter to ensure that you are suitably prepared for any challenges that might come your way. For some investors, the idea of having to deal with difficult or unreliable tenants is enough to put them off. It’s possible that you might find yourself dealing with people who are regularly late paying the rent, leave the place in a mess when moving out, or – in the worst case scenario – cause severe damage to your property that could ultimately reduce its overall value.

Even so, when it comes to luxury properties, there are a multitude of high-end property management companies out there who will be glad to alleviate you of any such stress and worries. Accustomed to dealing with wealthy clients, they often offer a comprehensive service that ensures your properties are marketed to only the highest calibre of potential tenants, and will carry out inspections, oversee maintenance and collect rent on your behalf. And, if tenants have left a mess behind when they move out, then they’ll source the best end of tenancy cleaning in London and anywhere else in the UK to get your property back to its best in no time. Enlisting the help of such a company will no doubt make the entire process easier and more manageable, leaving you free to enjoy life while the money continues to roll in.

propery management

When it comes to luxury properties, there are a multitude of high-end property management companies out there who will be glad to alleviate you of all the stresses and worries of owning rental property. If you’re looking to make a quick buck or are eager to keep your assets liquid then property is less so than other options you might consider. If you need to sell quickly, for example, then you may encounter a few roadblocks – particularly when your tenants are mid-way through a tenancy agreement and have the right to remain in the property at least until it ends. Add to that the time-consuming process of preparing a home for sale and putting it on the market – not to mention the handling of staging and viewings, and it might not be the right choice for you if you’re thinking short-term. But if you’re prepared to sit on your investments for at least a few years, then it’s an excellent path to take.

Luxury rental property investment does require a fair bit of research before jumping in, and while homes have shown a steady appreciation over the years, the market does fluctuate. Fail to do your homework, and you might find yourself buying a home at a greater price than what it is actually worth – and may even struggle to rent it out at a rate that is sufficient to cover your costs. So, be sure to consult with a real estate specialist who will be able to guide you when it comes to learning the ropes, and will be able to provide reliable information on specific properties and areas, including pricing.

The bottom line

Owning a luxury rental property is considered a low-risk investment which offers excellent earning capability, as well as being a great way to diversify your portfolio. There’s little denying that it’s a great investment choice, but it pays to take the time to learn as much as you can about it before you dive in. Fail to prepare, and it can easily become a stressful and time-consuming process – but by enlisting the right kind of help from the professionals, you can make the process as smooth as possible.

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