One might question this notion and it actually holds a little bit of irony. The word “luxury” already gives away that whatever the product is, it is a liability. Luxury, by definition, is expensive, usually a delicacy, elegance or refinement rather than a necessity, so what makes luxury homes a good investment if its purpose is to cater to one’s splendor?
Before we dive deeper, we must go into the core meaning of “luxury real estate” by today’s standards.
One misconception is that the price tag is what defines luxury properties, it does not. While the price tag is a significant factor, it is not the only one. There are more factors that constitute a luxury investment house.
Luxury properties are primarily defined by their uniqueness and exclusivity, which raises its value more than the cost of the actual materials used and construction.
For properties like these, one might also consider location – the residence’s proximity to another luxury home, to the community, and to famous and storied parts of a city all add into the value of a luxury investment. This is the case for trophy addresses such as New York City’s Park Avenue and Los Angeles’ Hollywood.
The proximity to high-end activities also plays a role, such as how near the home and lot is to shopping districts, fine dining restaurants, museums, etc. The view and environment are factors also. Sometimes, people want views of beautiful landscapes like the lakes, oceans, rivers, and mountains.
Another key factor that defines luxury properties is their features. Luxury homes contain the same features other homes do, but they do it on a much larger scale. Tighter security to the point of exclusion, custom architecture, interior design, foreign furniture, chef’s kitchen, and many more unique features.
All of these traits are what makes a luxury property luxurious, and it’s all of these too that makes their value skyrocket. The aesthetic of looking rich, of course, comes with a price. That being said, here are the benefits of buying a luxury home:
- Involves Less Risk
A luxury property type of investment does not carry as much risk as paper investments especially when investing in the long term. Equity and home prices increase over time because they’re physical assets which is unlike stocks that’s held up by a nebulous force and are prone to dropping its value anytime.
- Assured Capital Growth
Land and property never decreases in value. Instead there is a steady increase called capital growth. You’re always guaranteed that in real estate. That’s because space is becoming more scarce in the physical world, thus real estate prices rise due to the rarity of land area.
- Rental Opportunities
Luxury investment properties are a prime asset to become luxury rentals. If you own a property with several of the characteristics above, then you’re qualified to liquidate your assets as a rental. There’s a huge market for luxury rentals for lease or for a couple day stays.
Not only that, your property can also be event venues if it qualifies in that category.
- Tax Benefits
Tax benefits for luxury properties could exist in the form of deductions on property taxes, lower mortgage payments and interest rates, and depreciation benefits.
- High Resale Value
If your home has high-value features such as a desirable location, exclusivity, proximity to entertainment and dining areas, or has an interesting history, you’re going to have a better chance of ROI than other forms of assets.
- Effective Inflation Hedge
We already know that the value of an investment property increases overtime, and can better keep up with inflation. If your money is tied up with an investment property, your funds are going to grow along with it. It’s only going to continue to rise. This helps investors because their property will never be behind inflation. As the cost of living rises, the value of investment property does, also.
To put it simply, inflation is a benefit or will not harm luxury property investments.
How Property Taxes Are Determined
As we all may know, or to those who don’t, the first installment of property taxes is due November 1st and are delinquent after 5 pm on December 10th. After that, they will be delinquent and a 10% penalty will be added to the tax dues. If December 10th falls on a weekend or holiday, taxes are not delinquent until 5 pm the next business day. We, at Landon Pacific Realty, decided to help inform our amazing clients with how property taxes are determined through this blog!
Here are the fundamentals that you should know:
Property taxes are governed by California State law and collected by the county. The County Assessor must first assess the value of your property to determine the amount of property tax. Generally, the assessed value is the cash or market value at the time of purchase. This value increases not more than 2 % per year until the property is sold or new construction is completed. The auditor-controller applies the appropriate tax rates, which include the general tax levy, locally voted special taxes, and city or district direct assessments. The Tax Collector prepares property tax bills based on the Auditor-Controller calculations, distributes the bills, and collects the taxes.
Property tax in LA County is comprised of multiple factors. First, the general property tax levy is applied across the state of California. Next, voter-approved debt may apply, depending on where the property is located. If the property is in a school district or special district, an additional property tax will be applied. In compliance with Proposition 13, the general tax levy of 1 %, or $ 1 per $ 100, is applied as property tax by the state. Cities and local municipalities can levy additional tax on property. For example, the city of Los Angeles in LA County usually applies a property tax rate of .021297 to .029754 on top of the 1 % general levy. School districts taxes comprise the majority of a property tax, second only to the general tax levy. These rates can range depending on the school district and the given year. You can look up your real estate parcel on the LA County tax website to see what the actual property tax rate will be for the current year.
DID YOU RECENTLY SELL YOUR PROPERTY?
Although escrow prorates taxes and gives appropriate credit between buyer and seller, the actual taxes may not have been paid and you are responsible for any unpaid taxes at the close of escrow.
Read your escrow papers and/or title report to determine if any portion of the annual taxes was paid by the previous owner before the close of escrow. If any taxes remain unpaid call the Tax Collector and request a bill.
When you call, give the Assessor’s Identification Number from the previous tax bill; the property address; or the legal description.
State law stipulates that failure to receive bills does not permit the Tax Collector to excuse penalties on late payments.
Do’s and Don’ts of Property Taxes
- Pay online at propertytax.lacounty.gov. eChecks are FREE and you can pay up until 11:59 P.M. Pacific Time on the delinquency date. See “Payment Options” on the enclosed insert.
- Utilize self-service options at propertytax.lacounty.gov: – Locate the amount due. – Review your payment history. – Learn to avoid penalties by understanding postmarks.
- Enroll in our Property Tax Management System. Manage payment for properties you own. Visit propertytax.lacounty.gov for more information.
- Call your lender – not the Tax Collector – with questions on impound/escrow accounts. Lenders may debit accounts up to several months prior to submitting the payment to the Tax Collector.
- Understand that the Tax Collector has limited authority under the law to cancel penalties. Review our Penalty Cancellation Policy on propertytax.lacounty.gov under “Self-Service Options.”
- Wait until the last few days prior to December 10 or April 10 to pay your bill. If you pay close to the delinquency date and something goes wrong, you will not have the opportunity to correct it.
- Pay your bill using online bill payment services which your bank or financial institution offers. See “Online Banking or Bill Payment Services” on the enclosed insert.
- Mail your payment without understanding the importance of postmarks. Review “Avoid Penalties by Understanding Postmarks” on propertytax.lacounty.gov under “Resources.”
- Ignore Supplemental Secured Property Tax Bills. Most lenders DO NOT pay them. Review our Supplemental Secured Property Tac information on ttc.lacounty.gov under “Property Tax FAQs.”
- Think the Tax Collector can cancel a penalty due to a good payment history. The Tax Collector cannot. Review our Penalty Cancellation Policy on propertytax.lacounty.gov under “Self-Service Options.”