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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:

  1. 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. 

  1. 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. 

  1. 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.

  1. 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. 

  1. 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. 

  1. 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.

What is an Initial Deposit?

If you’re buying or selling a home in Southern California sometime soon, you’ll likely have to deal with the Initial Deposit.

The initial deposit is a negotiated amount to pay and to be held in escrow when the buyer and seller have reached an agreement on the sale of a property. It’s usually 1-3 percent of the purchase price, the latter being more common here in Souther-California. The initial deposit constitutes a “good-faith” gesture that after you have paid the deposit, you will not continue looking for other homes.  But besides this fact, there are other things a buyer should know about the initial deposit than the ones stated above, and this blog is going to answer your questions. 

Is it required to pay the seller earnest money?

It is not required. Earnest money is not required according to the rules of California real estate, but it is legal to offer to the seller. Many of the properties being offered for sale in Southern California are experiencing multiple offers from buyers all competing to get their hands on a dream home. It’s why many offers are being presented with an initial deposit of 3%. Buyers showing this kind of good faith will be more likely to leave an impression on the seller which can be one of the deciding factors.

Can I get the money back?

There are a few ways to get it back:

1)The initial deposit will go directly towards the purchase price at the close of the sale.

2) The purchase agreement spells out the contingencies upon which the buyer can cancel the deal and have the money returned. Certain circumstances like findings during the inspection, a problem with the appraisal, or the buyer’s inability to secure financing may all be contingencies that allow the buyer to cancel the transaction. At the same time, if the buyer does not remove these contingencies in writing during the time specified in the purchase agreement, the seller has the right to cancel the transaction and the initial deposit will be returned to the buyer.

3) Seller is unable to secure another property for themselves. In the event that the seller has a contingency in place to find a replacement property and is unable to close on their new home, they can cancel the deal in writing, and the deposit will be returned.

What happens to the money at closing?

The initial deposit provided by the buyer is held in escrow and will be applied directly towards the purchase price (or other associated costs) at the close of the sale. Escrow will factor in the whole initial deposit into your closing costs and downpayment.

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To get a better understanding of the initial deposit and how it works you can review the California Residential Purchase Agreement.

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If you have any questions or concerns about the initial deposit or anything else related to real estate, feel free to call me at 323-497-2596

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