How to Be Successful With Luxury Rental Properties

When you think of rental properties, what comes to mind? Most investors think about cheaper homes in middle class neighborhoods that are affordable for families. But at the other end of the spectrum, you’ll find luxury rental properties that appeal to the rich and famous. And there’s plenty of money to be made here, too.

Why Own Luxury Rental Properties?

There are seemingly limitless options for investing in real estate. From single-family homes in middle class neighborhoods to mobile home parks to commercial strip malls, opportunities abound. 

So why would you consider owning luxury rental properties, which obviously command a higher price and require a large infusion of cash on the front end? Well, there are several reasons, including:

• Tax benefits. For starters, there are some pretty significant tax benefits that come from owning rental property (including deductions for things like mortgage interest, taxes, and certain fees and expenses). Then there’s the power of depreciation, which can significantly lower your tax bill when an expensive piece of real estate is involved.
• Appreciation. Real estate tends to appreciate proportionally. In other words, a $1 million property is going to appreciate faster than a $100,000 property (generally speaking). If that $1 million property goes up in value by 5 percent in a year, you’re talking about adding $50,000 in equity. The $100,000 property would have to appreciate by 50 percent to achieve that same return.
• Land. While not always the case, luxury rentals tend to be located in areas with high demand and/or desirable surroundings. Whether it’s a big city, coastal region, or hot vacation destination, the land itself usually commands value.
• Personal use. While you’ll have to rent the property out for most of the year in order to enjoy the maximum tax benefits, there’s nothing stopping you from spending some time at the property and using it as your family’s own personal vacation spot.

These are just some of the surface-level benefits. The reality is that there’s a lot to love about owning luxury rentals. And as long as you have a plan, the ROI can be significant.

4 Tips for Success

Just owning a luxury rental property doesn’t guarantee success. There are plenty of other factors involved. Here are a few tips:

• Stage the Property Well

Your luxury rental’s listing photos are among the most important elements you can invest in. And one way to really set your listing photos apart is by paying for excellent staging. We’re not talking about property staging in the sense of renting furniture, but rather working with a designer to help you find and incorporate the right design for the property.

• Focus on Experience

Do you know what wealthy people love more than anything else? Contrary to popular belief, it’s not money or even things. Wealthy people love exclusivity and experiences. And if you want to attract wealthy renters and wow them, the emphasis should be on the experience above all else.

Think about the fanciest hotel you’ve ever stayed at, and that’s the experience you’re going for. There should be a welcome basket when they arrive, a phone number they can call for concierge-level service, and other amenities that make them say, ‘wow!’

• Hire a Property Manager

You absolutely, positively need a property manager to oversee your property. But we’re not talking about just any property manager – we’re talking about a luxury property management company. You need someone who understands the market, knows how to manage the nuances of high-end luxury properties, and has the ability to keep your property rented with the right tenants.

• Look for Cash Flow Boosters

Always be on the lookout for ways to increase cash flow. For a luxury rental property, it could be offering luxury vehicles to rent in addition to the property. Or maybe it’s partnering with a local company to offer catering services. The options are limitless.

Adding it All Up

When it’s all said and done, luxury rental properties can make great investments. It’s all about how you structure the deal and the amount of planning and strategic effort that you put into it. Keep the aforementioned tips in mind and you’ll have a pretty decent idea of how and where to start.