As U.S. wealth continues to grow, with individuals holding over $5 million in net worth increasing by 17% from 2019 to 2021, real estate has become a prominent avenue for portfolio diversification. The allocation of wealth to real estate surged to $3.6 trillion in 2021, according to Coldwell Banker Global Luxury’s “A Look at Wealth” report.
For those looking to enter or expand their real estate investments, insights from top luxury real estate specialists highlight key strategies:
1. Define Your Investment Goals
Before venturing into real estate, it’s crucial to understand your ultimate objective. As Nathan Zeder of The Jills Zeder Group advises, “Real estate is expensive, so make sure it’s something you’re comfortable doing.” Jill Eber emphasizes clarifying your purpose: Are you buying to flip, rent, or hold? Each goal dictates a different approach:
- Buying to Rent: Be prepared for the responsibilities of property management, including market changes, repairs, and breakdowns. A reliable team for maintenance is essential if you’re not hands-on.
- Buying to Flip: Start small, as expenses can accumulate rapidly. While inspections might be less critical for a property slated for demolition, always be aware of potential costs.
- Buying to Hold (Secondary Home): This strategy demands more front-end due diligence, with a thorough inspection being vital. Having a trusted real estate agent to guide you through the transaction is key.
2. Location Dictates Return on Investment (ROI)
“Location, Location, Location” remains the golden rule in real estate, particularly for investment properties. Ed Feijo, serving the Cambridge, Massachusetts market, stresses the importance of a saleable location where tenants desire to live.
- Desirability: Joyce Rey, a Beverly Hills-based agent specializing in multimillion-dollar homes, notes that sophisticated investors prioritize prime locations and quality construction, which bolster market strength. Jill Eber concurs, highlighting desirable locations, waterfront views, and a home’s “feel” as crucial to buyers. Proximity to schools and walkability are also significant factors.
- Bottom Line: While these elements contribute, the core of the investment is the ROI, which is always heavily influenced by location. As Feijo advises, “Never give up a good opportunity, because you’ll never regret a good purchase.”
3. Prepare for the Luxury Migration
The real estate market is currently experiencing significant demographic shifts, requiring flexibility in investment strategies.
- Suburban Shift: Joyce Rey observes a notable migration to the suburbs in California, driven by a desire for more land. While some are moving out of state, many are retaining their California homes and acquiring secondary residences elsewhere for tax benefits. The luxury market continues to see domestic buyers as the majority, but global buyers are re-emerging, historically contributing 20-25% of annual luxury market activity.
- Tight Inventory: Cambridge, Massachusetts, like many U.S. cities, is facing tight inventory. Feijo notes it as an attractive secondary city near Boston, offering more value for money. He sees an influx of younger families, predominantly domestic buyers, with occasional international buyers whose children attend local universities.
- Miami Hotspot: Miami continues to be a magnet for investors due to its multicultural environment, strategic location, and international stature. Nathan Zeder has witnessed a monumental increase in movement from other U.S. regions, particularly California and the Northeast. He anticipates a further influx of international buyers as global travel restrictions ease.
- Real Estate as a Safer Bet: Many investors are shifting from the stock market to real estate, drawn by its decreased volatility and perceived overall stability. Zeder’s international clients, in particular, view U.S. real estate as a potentially “safer bet” in both the short and long term.
4. Find a Great Partner
Navigating the complexities of real estate investments, especially in the luxury sector, necessitates expert guidance. Joyce Rey strongly recommends finding a trusted real estate professional: “Pick a great broker at Coldwell Banker. Get professional advice and guidance from a knowledgeable real estate agent that you trust implicitly.” Leveraging an experienced agent can provide invaluable insights and support throughout the entire investment process.