Luxury Income Property

Let me start by saying that luxury income properties generally do not make sense for non-owner occupants looking for a cash flow investment.  Market pricing for lavish, well-located assets often do not provide enough income potential to cover debt service and other housing expenses – though there may be an opportunity to produce a positive return on investment at disposition after a long-term hold period.

That said, for owner occupants looking to buy into a premier location with great schools while maintaining a lower cost of living, a multi-unit luxury building is a great option to consider.  george st

Let’s examine a current market listing in Chicago:  1336 W George Street is currently listed for a cool $1.8 MM, and boasts a recently renovated 4 bed, 3.5 bath single family home PLUS a 2 bed, 2.5 bath coach house (which you can’t build anymore in Chicago – and there are some enviable coach houses out there).    The coach house can bring in a potential $36,600 per year in net income, which over a 30-year period of ownership adds up to over $1.09 million.  The below example assumes insurance costs 20% higher, and uses recently rented comps for 2 bed, 2.5 bath apartments in the area to benchmark rental income.  Shown here, this luxury income property owner actually pays 34% LESS every month because of the boost in rental income.  Further, these back of the envelope figures do not take into consideration any of the post-tax benefits of operating a rental property such as expense deduction and depreciation expense.

20% Down Payment $1.8MM Single Family Home $1.8MM 2-Unit Building Difference
Principal, Interest, Taxes and Insurance $8,954 $9,004 $50
Coach House Rent $0 ($3,100) ($3,100)
Total Monthly Cost $8,954 $5,904 ($3,050)

 

For a recurring-expense-conscious, luxury-home-seeker looking to purchase a showcase home in Chicago – be on the lookout for unique opportunities to acquire luxury real estate with income potential.  You’re bottom line will thank you!  Contact us to hear more!

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