There's an interesting trend that's cropping up all over the U.S. in terms of the luxury real estate market. A recent report from CNBC documents a surprising trend: Many owners of luxury properties are dumping their luxury homes in favor of renting. The trend seems to be particularly strong in Manhattan, Florida, and the San Francisco Bay area.
Why would the world's affluent who can afford to buy pretty much what they want decide to rent instead? Here are just a few of the reasons.
1. Many affluent buyers own multiple properties. With the recession, like everyone else, they have seen a decline in property values. Instead of maintaining multiple homes with full staff in each home, they can cut their expenses tremendously by dumping homes they use only a few weeks per year and opting for a luxury vacation rental instead.
2. Even in this tough environment, many businesses are thriving. The challenge is borrowing capital to expand. The loan market is virtually non-existent. Consequently, many people are opting to liquidate their luxury real estate holdings in favor of putting that cash flow back into their businesses where they can generate a larger profit.
3. Another common reason many people are liquidating is that they have a hedge fund mindset. To them, real estate is like any other commodity they may trade. When they believe the values are declining or will remain flat, there is no upside in keeping the investment.
4. In many areas, renting a luxury home is cheaper than buying one. For example, in Beverly HIlls, you might pay $24,000 per month to purchase a $2,000,000 home. You can probably rent the same property for about half that cost.
The question is how can you capitalize on this trend in your market? If you haven't already done so, consider getting into the luxury rental business. A rental at $5,000 per month at a six percent commission is the equivalent of a $60,000 sale. Many lease commissions are at 10 percent, so this same lease would be the equivalent of a $100,000 sale at that commission rate.
The cash is instantaneous once the lease is signed, unlike selling a distressed property that can take months to sell.
Many agents have further expanded their business by engaging in property management. (Please note you need separate Errors and Omissions insurance to protect yourself.) Most property managers retain 10 percent of the rental price for managing the property. In the example above, if you had both sides of the deal plus the property management, that single transaction could net you $9,000.
If you haven't looked at this side of the luxury real estate business, it might be smart to do so.
Posted by Bernice Ross, Do you need help closing buyers and sellers more easily? If so, Real Estate Dough has the strategies and the tactics you need to close more buyers and sellers at the right price and the right commission.