Investing in Luxury Vacation Homes: A Real Estate Hedge Against Inflation

We all want to live a life of luxury, and people are beating us to the punch. Did you know that "super-luxury homes" are surging across the US, rising by over 35% last year, outpacing ordinary homes?

Well, the good news is that you can get involved too, even if you don't think you can afford it. It's a great investment, a great status symbol, and a great protector of your savings. Let's talk about the luxury real estate hedge against inflation!

What You Need to Know About Rising Inflation

It's no secret that inflation is on the rise. Investors need to do whatever they can to protect their portfolios as they are eaten alive by rising prices. Here's what you need to know about the current situation.

The Causes of Inflation

It's no surprise that economic relief played a role in rising inflation, but it's a little more complicated than that. Most economists agree that were already on track for substantial inflation, even before the pandemic.

In 2021, $13 trillion was printed by the Federal Reserve. This amounted to $5.2 trillion for COVID-related relief, $4.5 trillion for quantitative easing, and $3 trillion for infrastructure. According to the most recent data, The Federal Reserve reached around 8.89 trillion U.S. dollars as of August 23, 2022.

Clearly, this is driving inflation at record rates, which you can't miss in the press these days. Still, this isn't the only cause of inflation, as large companies are continuing to raise prices beyond the levels predicted by the Fed.

How Does This Affect Real Estate?

Unfortunately for new buyers, inflation has a very strong effect on the real estate market. First, inflation drives up the cost of the already heavily-inflated housing market. Second, the Fed is choosing to combat rising inflation by raising interest rates.

For new real estate investors, or investors looking to diversify their portfolio, this poses particular challenges. The cost of buying new luxury vacation homes is already through the roof, while mortgage interest rates are now over 6%, which is the highest they've been since 2008.

If the bank decides you don't have the money for 20% down along with those interest rates, there's little you can do as a solo investor. Let's talk about how to invest in luxury real estate.

How to Invest in Real Estate With Rising Inflation

They say that real estate has the lowest barrier to entry of any investment. This is because you only need to pay 15% to 20% down to have total control. However, the barrier to entry is only rising with soaring inflation and interest rates.

Fortunately, there are other options for prospective investors that can help them get started with as little down as possible and still reap the rewards. Let's talk about those options.

Co-Ownership

Co-ownership of a home can allow anybody to purchase and enjoy a luxury property for only a fraction of the price. This could be for investment purposes or enjoyment. How else can people afford a multi-million-dollar estate for a portion of the year?

Essentially, every co-owner's name will be listed in the LLC Owning the property, giving them co-ownership of the property. From there, owners can choose which times each of them will use the home each year.

The best part is that these decisions are entirely up to the owners' discretion. If you choose to rent out the place as a luxury home, you may choose to earn the rental income as an investment property.

Alternatively, you can enjoy amazing vacations on a schedule for each owner to use as they please. The opportunities of co-ownership are endless. With rising inflation and interest rates eating away at your bank account, this could be your best opportunity to purchase a luxury estate.

Benefits of Co-Ownership For Luxury Vacation Homes

Now that you know about co-ownership as a way to start investing in luxury real estate, you may be wondering if it's right for you. Well, here are some of the most important benefits of luxury home co-ownership.

Real Estate Hedge Against Inflation

Real estate is one of the best defenses investors have against inflation. Everybody needs a place to live or stay when they travel for work or pleasure. When inflation rises, so do housing costs, as they are an essential expense that isn't going anywhere any time soon.

Also, the building itself isn't going anywhere. While you may write off "depreciation" on your taxes, housing costs always trend upward in the long run. While you allow your investment to generate semi-passive or passive income, the value of your house will likely increase over time.

On top of that, you can set your own rates. If prices rise, so can yours, protecting you from inflation. If you ever decide to resell, you may even make a profit!

Steady Income (For Investors)

If you buy a luxury home in the right location, you can benefit from a very steady income. Even during the peak of the pandemic, people were eager for a safe place to vacation, which meant that the short-term rental industry remained fairly secure compared to many others.

More importantly, let's compare it to other real estate investors. Many were harmed due to the eviction moratorium as a result of the pandemic. However, vacation rentals are paid up front, guaranteeing your income every time.

Certain areas will offer extremely safe and secure income year-round. Whether that's in southern Florida or near popular ski towns in Colorado or Vermont, you can earn a stable and passive income.

Also, people who can afford these rentals are much less likely to be severely impacted by rising inflation. This creates even more stability for luxury real estate, as you're appealing to high-income travelers.

Higher Profit Potential

On average, short-term luxury rentals generate a much higher profit margin than long-term rentals. If you're interested in getting into real estate but have limited funds, you may want to buy a decent rental property for a steady income. Still, for the same price, you can benefit from much higher potential income with short-term rentals. Some luxury Airbnbs rent for over $3500 a night!

Also, it's much easier to raise rates to keep up with inflation on a short-term rental. Long-term tenants may be exempt from rent increases due to local laws and regulations. However, you can set your own rates and change them whenever you want in a vacation rental.

Shared Liability

When something goes wrong at your home, you're entirely responsible for fixing it. Unfortunately, the more your house is worth, the more it costs to fix on average. The same goes for insurance, property taxes, and more.

With co-ownership, the responsibility does not fall entirely on you. All owners of the property will share expenses evenly or as agreed upon fully managed by Lifestyle Asset Group for your peace of mind.. There's nothing else quite as forgiving in the real estate business.

Enjoyment

Do you see yourself purchasing a multi-million-dollar estate any time soon on your own accord? With inflation eating away your current investments, those prospects are likely becoming less and less realistic.

If you want to have a luxury getaway that you can enjoy throughout the year, then there's no easier way to get in than with co-ownership. If you purchase with only one or two other investors, then you may have up to half of the year to enjoy your new home! Our homes are typically owned by 5-8 families and most owners want to use their property 4-6 weeks a year.

Invest in Real Estate Today

Now that you know about the real estate hedge against inflation, you can see why so many investors are choosing luxury vacation homes. If you're interested in having your own dream home, this is a great way to get started!

Stay up to date with our latest real estate news, and don't hesitate to contact us with any questions or for help finding the luxury home of your dreams!

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