With the U.S. housing market still well below pre-pandemic inventory levels (-23.1%), the new build investment market continues to produce high-end returns for savvy investors. While searching for the best places to build houses, many investors ponder the benefits of investing in a luxury build vs. a standard home. But what makes a luxury home a luxury home, and is it worth the higher upfront costs?
In this article, we’ll elaborate further on the differences between a luxury build vs. a standard home, the pros and cons of investing in luxury builds, and what you need to succeed in the luxury real estate market.
In this article, we’ll elaborate further on the differences between a luxury build vs. a standard home, the pros and cons of investing in luxury builds, and what you need to succeed in the luxury real estate market.
What is a Luxury Home?
What is considered a luxury home?
For homebuyers and renters, luxury real estate is more than an expensive property. Consumers expect everything a standard home offers, but at a far more grandiose scale. This includes:
- High-end building materials
- Custom designs
- Top-tier amenities & home features
- Superior craftsmanship
- Prime location
Where cost-efficiency is top of mind in standard home, or spec-build, constructions, luxury builds lean into upfront costs with the goal of higher returns in the end. Investors new to the luxury real estate market must understand the expectations and costs that come with a luxury new build home project.
The Pros & Cons of a Luxury Build
If you’re trying to decide whether or not luxury real estate is for you, it’s important to weigh the pros and cons of a luxury home build before investing.
The Pros
- Location: Luxury homes are built in affluent, high-quality, and often high-demand areas. In most cases, investors are dealing with high-quality, serious clients who are financially ready to take the property off the market.
- Modern Amenities & Features: By adding the latest in Smart home technology and modernized amenities, luxury builds often have all the features today’s homebuyers and renters want.
- Customization: Unlike spec builds, where the home designs are often pre-determined by a developer or builder, luxury home projects give investors more say in the floor planning and customization of the property.
- Appreciation Potential: With top-end building materials and craftsmanship, luxury properties tend to appreciate faster than standard homes.
- Higher ROI: Pound for pound, a properly strategized luxury real estate project will accrue a greater ROI than a standard home build.
The Cons
- Upfront Costs: As mentioned, the costs of building a luxury home can far exceed those for a standard home build project and require a significant upfront capital investment.
- Competition: Luxury real estate markets are often smaller and more saturated, creating more competition among investors.
- More Risk: With more upfront costs, luxury builds present a greater risk for investors. Additionally, the luxury market is more susceptible to economic downturns, which can significantly impact the value or demand for a luxury home.
- Financing: Financial institutions also take on greater risks when funding luxury builds. Many capital providers only work with experienced investors with a solid track record.
The Essentials to Luxury New-Build Success
For experienced investors looking to dip their toes into luxury new-build investing, there are 3 “essentials” you must do to succeed in today’s markets:
- Research local markets
- Find the right luxury contractor
- Partner with a reliable & flexible capital provider
Research Local Markets & Home Design Trends
Not all markets are suited for a luxury build. When performing market research for any real estate investment project, you want to identify areas with:
- Thriving job markets
- A strong economy
- Residential growth
- Low unemployment rates
Luxury market investors take research a step further and look for areas that attract high-net-worth individuals, including:
- Prestigious neighborhoods
- Exclusivity
- High-quality amenities
Areas or neighborhoods with gated communities, luxury or high-end shopping centers nearby, or private pools and spas will attract more luxury home target consumers.
Once you identify the right markets for a luxury build, you must also tap into that market’s local home design trends. What are the latest and hottest features in high demand in those areas? While wants vary from market to market, some of the more common top ROI-boosting features in luxury homes include:
Once you identify the right markets for a luxury build, you must also tap into that market’s local home design trends. What are the latest and hottest features in high demand in those areas? While wants vary from market to market, some of the more common top ROI-boosting features in luxury homes include:
- Smart home technology
- Gourmet kitchens
- Luxury outdoor spaces
- Dedicated home offices & flex spaces
Find the Right Luxury Home Builder
Unlike spec builders, luxury contractors are often master craftsmen who specialize in building high-end custom homes. Where standard home builders offer pre-designed floor plans with limited customization, luxury home builders encourage creativity and can design a home based on your unique ideas or suggestions.
Finding a local luxury contractor with an understanding of local design trends and demands, who can help facilitate the construction of a highly sought-after luxury build, will simplify all phases of the construction process.
Finding a local luxury contractor with an understanding of local design trends and demands, who can help facilitate the construction of a highly sought-after luxury build, will simplify all phases of the construction process.
Finding a Capital Partner
Much of the success of a luxury build project depends on adequate, reliable, and accessible funding. With more upfront costs and customization options, project estimates can change dramatically throughout the construction of a luxury home. Partnering with a reputable financing partner gives investors the flexibility, freedom, and capital necessary to fund each aspect of the construction process and cater to the unique needs of their target market.
Final Thoughts
The benefits of investing in luxury builds can far outweigh those of standard homes, regardless of the associated risks. However, luxury real estate is often reserved for experienced investors with a track record, who have the financing necessary to succeed in today’s highly competitive luxury markets.
CIVIC: Your Luxury Build Capital Partner
For over a decade, CIVIC has provided investors with reliable and agile lending programs. Our experienced team of industry professionals, fast approval processes, and term flexibility give investors the freedom to tailor loans to meet and exceed their unique project needs.
Our Ground-Up Construction Loan Programs offer:
Our Ground-Up Construction Loan Programs offer:
- Up to 100% of construction costs
- 12 to 24 month loan terms
- 1-4 non-owner occupied unit residential, townhome, and condo eligibility
If you’re ready to tackle a luxury build investment project, CIVIC can be a helpful financing partner. CLICK HERE to schedule a FREE consultation with a CIVIC team member today!
