Real Estate Investing: The Promise Of Today’s Luxury Condo Market

As the real estate market stays hot in the majority of US cities and suburbs, the luxury condo market continues to boom. In response, investors are left asking one simple question: Do luxury condos make for smart long-term investments? Let’s explore this question in more detail so that we can arrive at an educated conclusion.

The Luxury Condo Boom

Look around and you’ll see that luxury condos are having a moment. In cities like Miami, high-rise developments are being designed by some of the biggest names in architecture. Just casually peering at the skyline reveals towers with apartment residences ranging from a few million dollars all the way up to Renzo Piano penthouse (which hit the market at $68 million in 2018).

According to ManhattanMiami.com, a leading luxury real estate firm in the city, this is just the beginning. There are dozens of pre-construction stage and existing condo buildings for sale – many of which are being gobbled up by savvy investors who see them as promising assets.

But it’s not just Miami – or even the United States – luxury condos are appealing everywhere. They’re even popping up in the most unlikely of places. A couple of markets in the Philippines are currently highly competitive. In particular Manila’s luxury home market is outpacing global players like Paris, Berlin, and Singapore. (This is the direct result of swiftly rising rental rates and limited supply of apartments.)

From Miami to Manila and everywhere in between, the luxury condo market is red hot. For those with the financial capital and expertise to get their hands close to the heat, this could be a prime opportunity to get involved.

The Case for Investing in Condos

Condos have always been a favorite niche for savvy real estate investors. Typically investors cite benefits like these:

• Fewer responsibilities. When you own one, you’re typically responsible for the “drywall and in.” This quite literally means that you own everything from the drywall in. Everything outside of the drywall – hallways, landscaping, community areas, roofing, foundation, etc. – is the condominium’s responsibility. This removes unnecessary variables from an investor’s plate.
• Luxury appeal. Condos have a certain luxury appeal that adds a premium to their image. High-income earners often flock to apartments because of the simple maintenance and limited responsibility. Demand is always there.
• Safe long-term outlook. Over the long haul, a condo isn’t going to plummet in value – at least not a luxury one. While it’s possible that a market downturn will impact the price, you have a fairly safe long-term outlook (10-plus years).

The Strikes Against Investing in Condos

Luxury condos will always be a bit of an anomaly. Whereas traditional ones come with predictable benefits and concerns, there’s a lot to consider with higher-end units like these. Some possible negatives include:

• Tighter lending requirements. The lending requirements for a luxury one can be a bit higher than they are with a single-family home or apartment. Depending on the financier you’re using, you may be required to fork over a minimum down payment of 20 to 25 percent. Some lenders even require you to live in the unit for a minimum period of time before leasing.
• Slower appreciation. Apartments don’t typically go up in value as fast as other types of properties. But when you consider that they hold their value fairly well, it all tends to wash out.
• HOAs and special assessments. HOA dues can be expensive and condominium associations can get sticky. There’s always the risk of special assessments, too, which can get expensive. Researching the history of the association ahead of time will provide some keen insights into how it is managed.

The Decision That’s Right for You

It’s impossible to offer up a blanket answer to the question of whether luxury apartments make for smart long-term investments. At the end of the day, it comes down to the confluence of situational factors. If you’re looking for something you can invest in and then turn around and sell for a profit in a year or two, you’re probably better off finding a single-family home that you can add value to. But if you’re looking to add a long-term luxury asset to your portfolio, a luxury condo could be a smart acquisition.

Do your due diligence and know what you’re looking for ahead of time. A disciplined approach will yield dividends.