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.
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!