EXPENSIVE REAL ESTATE: BUY OR AVOID IT?

 What Is Luxury (Expensive) Real Estate?

Contrary to what people think, a property is not termed “luxury” just because it is expensive or costly. Expensive real estate should also be exclusive, unique, and viewed as superior in some way. Most individuals with high net-worth want a property with state-of-the-art amenities such as a luxury pool, chef’s kitchen, motion detectors, and Jacuzzis and so on. High-end buyers are also looking for a property with custom architecture, opulent finishes, and privacy. Access to luxury activities and the beauty of nature is another thing rich and affluent individuals look for in luxury properties.

 Investing in Expensive Real Estate?

Before purchasing that expensive house in the real estate market, one needs to understand the advantages and disadvantages of taking such decision and proceeding to investing in expensive real estate.

Advantages of Buying Expensive Real Estate

• Less expenses on improvements – Purchasing the costliest property in the neighbourhood means that you are buying the best home. Besides having great amenities, expensive real estate is also likely to be in great shape overall. This means that you won’t have to spend much on home improvements before you rent it out or sell it.
• Higher rental income– Wealthy individuals are willing to pay top dollar for a rental property that has impressive architecture, exquisite finishes, great landscaping, and state-of-the-art appliances. For example, you can earn between $6,000 and $8,000 from a luxury rental in Banana Island. Investing in luxury rental in a great location will enhance your chances of generating a high return on investment.
• Higher resale value – Expensive real estate usually appreciates quickly due to the fact that it is in high demand. When you eventually decide to sell it, you will earn a good return on investment. You could even boost the real estate appreciation further by renovating it or upgrading the appliances.

Disadvantages of Buying Expensive Real Estate

• High property taxes– Property taxes are calculated based on property value. This implies that buying an expensive investment property translates to you paying high property taxes. This will eat into your profits and lower your return on investment. Be sure to check out property tax history before you make a purchase.
• Higher cost of maintenance – With all its high-end appliances and features, maintaining expensive real estate can be a nightmare. You might have to spend hundreds or even thousands of dollars every year to keep everything running effectively. If you have low occupancy rates, you will have to foot all these costs from your pocket.
• Trouble with resale – Finding a buyer for you real estate property might be very difficult due to the high cost of acquisition. As a result, you might be forced to sell your expensive real estate below market value. This in turn results to a negative return on investment.

How to Analyse Expensive Real Estate to Decide Whether or Not to Invest

Buying an expensive house can be very tricky for any first-time real estate investor. That doesn’t mean that it won’t make for a good real estate investment. You just have to know how to analyse expensive real estate to ensure you get a good return on investment. The methods used to analyse are,

• Neighbourhood analysis

Neighbourhood analysis is the first thing you need to do before making an investment decision. This will help you understand real estate market trends and find the best performing positive cash flow properties in good neighbourhoods.

• Real estate investment analysis

Real estate investment analysis involves analyzing an investment, using the various analytical methods, to establish its potential profitability.

The Most Expensive Real Estate Markets in Nigeria

If you’ve decided to go for expensive real estate, you have plenty of Nigerian cities to choose from to start your investment property search. According to research, the most expensive real estate markets in Nigeria include the following:

1. Banana Island (Lagos State) – N450 Million ($2.81Million).
2. Maitama (Abuja) – N450 Million ($2.69Million).
3. Asokoro (Abuja) – N418 Million ($2.6Million).
4. Jabi (Abuja) – N400 Million ($2.5Million).
5. Nicon Town in Lekki (Lagos State) – N320 Million ($2Million).
6. Ikeja GRA (Lagos state) – N250 Million ($1.56Million).
7. GRA Phase 2 in Port Harcourt (Rivers state) – N145 Million ($906,000).
8. Lekki scheme 1, Lekki (Lagos state) – N140 Million ($875,000).
9. Alalubosa GRA in Ibadan (Lagos state) – N100 Million ($625,000).
10. Ibara in Abeokuta (Ogun state) – N80 Million ($500,000).

Conclusion

Investing in expensive real estate can be a very profitable venture as long as the right steps are taken.

Decide what you want ahead of time. Do your due diligence and find the best location for your investment.

Working with a real estate agent that has experience in the local luxury property market will enhance your chances of finding a home with good cash on cash return. If you are not paying in cash, be sure to get pre-approved by a lender before you start searching for expensive real estate.

You need to get the property inspected before signing on the dotted line in order to know what you are really delving into.