What You Need to Know About the Long-Term Value of Luxury Real Estate

For many, the current housing market looks bleak. Home prices and inflation rates continue to rise, while inventory faces a gradual decline in the wake of high demand. People doubt the longevity of the market as it currently stands — but amid widespread apprehension and the threat of an imminent market crash is a stalwart contender: luxury real estate. According to a recent study, luxury real estate remains an enduring industry and profitable investment across the entire world, not just North America.

The long-term value of luxury real estate affords several benefits for buyers, sellers, and investors due in part to the versatile applications of real estate itself. Pieces of real estate make for great investments and avenues for profit while simultaneously building home equity over time. Our guide explains the core benefits of luxury real estate, its long-term value, and why you should consider browsing luxury Orlando homes.

Luxury real estate is widely favored as a popular and particular hard asset — a physical or otherwise tangible asset with high intrinsic value, typically acquired long-term. The practicality of luxury real estate provides second-home buyers and property investors with a sturdy hedge against inflation, meaning that it protects against a potential decline in value due to external factors, such as the current housing market. An inflation hedge is expected to maintain its current value over time or even increase its value.

Luxury real estate is one such inflation hedge. Due to the intrinsic value of luxury properties and the value linked with the affluent and desirable communities they’re located in, luxury real estate is a prime candidate for maintaining and increasing its overall value over time. It goes without saying that investing in luxury real estate remains an attractive venture and is expected to hold this position for the remainder of 2022 and well into 2023.

Thanks to stock profits, increased savings, and rising home equity generating more wealth for the affluent population, the luxury real estate market has seen tremendous growth over the last couple of years. Luxury, single-family home sales increased by 15% in 2021, while prices skyrocketed by 20% from their original values in 2020, according to the 2022 Global Luxury Market Insights report by Coldwell Banker Real Estate LLC. The market growth coincides with the growth of the world’s wealthy population, which expanded by nearly 20% in 2021.

The report expects the luxury market to continue to grow as international buyers take interest in luxury properties and as newly accumulated wealth encourages luxury buyers to buy additional properties. Approximately 70% of people with a net worth of $5 million or above own at least two properties, if not more. The report also found that more and more luxury buyers are buying vacation homes in highly desirable locations.

There are two major reasons luxury real estate makes for a great, worthwhile investment: it presents an opportunity to turn a consistent profit and increases your home equity.

Second-home buyers may discover a new avenue for profit in the beauty and location of their luxury homes. Consider this scenario: you spend most of the year living in your first home while occasionally traveling to your second home for vacation or a much-needed break from your day-to-day life. What happens to your second home while you’re not there? The answer is simple — furnish it into a vacation rental. Especially in touristic regions like Orlando, vacation homes turn a good, steady profit on visitors looking to enjoy their stay in the comfort of a luxury home rather than a hotel.

The greatest benefit to the long-term value of luxury real estate is the steady accumulation of home equity. Defined as the difference between your home’s current market value and your remaining mortgage balance, home equity is an incredibly versatile and useful asset. It’s good for obtaining home equity lines of credit (HELOCs), home equity loans, down payments for new properties, and cash-out refinancing.

How does a property accumulate home equity? Easy — as market values rise, so does the value of your property. Let’s say you recently bought a home for $1,000,000. Over the next 12 months or so, the market value increases to $1,500,000. Within those twelve months alone, you have generated an equity of $500,000, money that is effectively yours just for owning the property. You can then use this equity as you see fit.

Of course, home equity isn’t a guaranteed increase. If market values decrease, then so will the value of your property. Fortunately, luxury real estate’s position as an inflation hedge enables it to protect against declines in property value. Any piece of luxury property is desirable on its own, even more so in favorable, popular locations.

If you’re interested to learn more about luxury real estate, or perhaps you’d like to start the search for Orlando homes and more, reach out to a local real estate agent to steer you in the right direction. Marissa Crawford of the CORE4 Group is an esteemed agent with plenty of expertise in the area and its charming communities. With Marissa at your side, you can comfortably browse glamorous and elegant Orlando, FL, luxury homes. Don’t delay — contact her at your earliest convenience to learn more.