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Investing in Virginia’s Luxury Real Estate Market

Investing in Virginia’s Luxury Real Estate Market

driveway in front of red brick mansion

Known for its outstanding education system, incredible attractions, and thriving tech industry, Virginia is among the top states to live in. The “Old Dominion” also offers excellent investment opportunities, especially in real estate. The state boasts stunning properties that are the epitome of luxury living, with their custom designs, upscale finishes, and exquisite landscaping.

Real estate has always been considered as one of the best investments to make - and for good reason. It’s a stable purchase that comes with great benefits. Whether the investment property is turned into a rental home or held on to as it appreciates in value, it’s an excellent strategy for building wealth. As the next location to invest in, here’s why Virginia’s luxury real estate market should be on everyone’s radar.

What is a luxury investment?

With its potential to generate wealth, build equity, and provide passive income, it comes as no surprise that real estate makes a great investment. In general, it is a more stable asset than other investment types. Luxury properties, in particular, continue to increase in value over time and offer great returns. While the definition of luxury is relative, a luxury property is typically defined by its exclusivity, uniqueness, and high-end features.

Luxury homes typically have architectural details that make it stand out from other real estate types. Whether it’s old-world accents or ultra-modern glass walls, a distinctive  design is more likely to attract discriminating tenants and future buyers who are willing to pay a premium for the added value. Luxury properties are also built with high quality materials, which adds to the property’s long term appeal.

Location is a crucial aspect when dealing with real estate. A property in a sought-after area tends to be higher in value because of its desirability and access to top-notch amenities. An upscale home also comes with a higher price tag because of the luxury living experience that it offers. With an upscale property, one can expect lavish indoor and outdoor living spaces, posh interiors, and gorgeous views. Smart technology and home security systems are typical in a luxury home as well. 

Why is Virginia an excellent place to invest in real estate?

usa skyline

When it comes to investment opportunities, Virginia is one of the best markets to consider. The state, which is also designated as a commonwealth, is home to around 8.6 million people. Virginia has a rich and storied history, a diverse combination of cultures, and endless opportunities for leisure and recreation. All these add to the location’s desirability – one of  the reasons the state consistently ranks high among the top places to invest in. 

  1. Strong economy 

    Virginia has a robust economy. The commonwealth constantly attracts new investors and businesses with its highly skilled and educated workforce. Almost half of the population have a bachelor’s degree or higher. In addition, Virginia’s prime location near Washington, D.C., as well as its business-friendly policies, puts it on top of lists of the best states to do business in. 

    Virginia has one of the lowest unemployment rates, registering 2.7% halfway through 2022. According to the Virginia Association of REALTORS’ Home Sales Report for August 2022, the commonwealth’s unemployment rate falls below the national average of 3.5%.

  2. Thriving tech industry

    Virginia’s tech in dustry is thriving and it shows no signs of slowing down. As one of the biggest tech hubs in the country, around 10% of Virginia’s workforce is tied to this booming industry. GO Virginia, a business-led economic development initiative, often provides grants to tech-related projects and programs.

    Virginia is also the largest data center in the nation. Specifically, Northern Virginia has data centers that belong to top companies like Amazon, Google, and Microsoft.

  3. Increasing home values

    The real estate market in Virginia continues to flourish as evidenced by consistently high home values and low inventory. The average price of a single-family home in Virginia has risen by 5.3%, settling at around $373,000 as of September, 2022 . The luxury homes in Virginia have values ranging from $1.75 million to as high as $39 million.

  4. Exceptional livability

    Virginia is known for being the most livable tech hub in the country because of its top-notch schools, beautiful beaches, and majestic mountain ranges. There’s no shortage of things to do here, from visiting historic sites to exploring a wealth of national parks. Residents can also expect quality healthcare. There are 89 hospitals in Virginia, with a high ratio of 127 primary care physicians per 10,000 residents. 

  5. Rising rental rates

    As a thriving tech hub with a steady population growth, it’s no wonder there are many renters in Virginia. According to the Virginia Association of REALTORS, the average rent for a multi-family home increased by 11.3% in the first quarter of 2022. Virginia also has one of the highest rental rates in the country, ranking 19th out of 56 states and territories.

What to look for in an investment property

miniature house on a graph

There’s more to an investment property than its market va lue. Before making the decision to put down money on a certain property, investors also need to consider other elements such as the location, convenience and amenities, and the local economy. To ensure that the property to be invested in is a profitable one, the following features must be present:

Prime location

Location is a key factor when it comes to real estate. Whether it’s an investment property or a residence, location matters because it influences the property’s value. The interiors, exteriors, and the structure of a property can be changed, but not its location. Although the elements of a good location can be subjective, the basic features to look for include a central location, a good neighborhood, and easy access to top attractions and destinations.

Proximity to amenities

Accessibility to schools, hospitals, parks, restaurants, and other establishments is a plus for any investment property. Properties that will be turned into a vacation rental, for example, must offer easy access to the beach.  Proximity to local amenities is one consideration when scouting for a location. This sets them apart from standard homes and helps boost their value.

Potential cash flow

When renting out a luxury property, looking at the potential cash flow is a must. To make a profit, the gross cash flow must exceed the operating expenses. A good indicator of a healthy cash flow is the 2% rule. According to this rule, if the monthly rent for the property is at least 2% of its purchase price, then it is most likely to produce a positive cash flow.

Potential for growth

Another important factor to look for in an investment property is the potential fo r growth. Aside from the house itself, the surroundings must also be evaluated. What’s around the area? Are there any ongoing or planned developments that can increase or decrease the property’s value? For example, if a great view is one of the property’s best draws and a planned development can obstruct that view, this may diminish the value. On the other hand, a new shopping center or transportation hub can have a positive impact on real estate prices in the area. 

Advantages of purchasing luxury real estate in Virginia

front view of large estate home

Why invest in Virginia luxury real estate? These are just some of the advantages an investor can expect.

  1. Tax benefits

    A rental property come with certain tax benefits, including write-offs and tax credits. Common income tax write-offs for rental properties include property taxes, property insurance, and the costs that come with maintaining the property. 

    Certain features in a VA luxury real estate property may also qualify for a tax exemption. In Fairfax County, properties with solar equipment are entitled to the five-year Solar Energy Equipment Tax Exemption. As long as the solar equipment is used to heat water or cool the space, residential and commercial property can qualify for the exemption.

    Real estate investors in Virginia also enjoy a low property tax rate of 0.80%, which is below the 1.07% national average.

  2. Property appreciation

    Real estate properties appreciate over time and Virginia is no different. Investors who purchase a luxury real estate property in the state will have minimal concerns about its resale values. Despite a slight dip in home sales activity, Virginia home prices continue to rise year-after-year due to the demand for housing and the low inventory.

  3. Strong economic growth

    Virginia’s strong economic growth is a huge advantage for real estate investors. The commonwealth’s strong economy, which is driven by its productive workforce, massive tech industry, and world-class schools, indicates a stable demand for housing now and in the future. A healthy economy will always be a major draw for new or transient residents, ensuring a continuing demand for rentals. 

  4. Portfolio expansion

    Investing in real estate is a proven strategy in boosting and diversifying one’s portfolio. 

    For investors who have other investment vehicles such as stocks, bonds, and mutual funds, adding a VA luxury real estate property to their list of assets reduces risk by spreading their exposure across various investment types. 

  5. Effective inflation hedge

    Inflation has been on the rise and it shows no sign of tapering anytime soon. Although the inflation rate across the nation has slowed to 7.7% in October, 2022 from a high of 8.2%, it still affected the local economy and overall spending power. 

    On the bright side, there are inflation-hedging investments that can soften the blow. An investment property is one of them. Real estate – particularly luxury real estate – has been proven time and again to be an effective hedge against inflation because its intrinsic value is generally unaffected by economic downturns. Moreover, the profitability of rental properties relies on rental income growth. Since rental income typically follows the same pace as inflation, a rental property can bring higher returns as inflation grows. 

  6. Global market reach

    Virginia’s luxury real estate market isn’t limited to local buyers. Since the luxury real estate industry appeals to high-end buyers from all over the world, there is a wider market that includes international tenants and buyers. Global investment continues to contribute to Virginia’s economy and many foreign real estate buyers are attracted to the commonwealth because of its prime location, thriving economy, and outdoor attractions. 

Tips on purchasing a luxury investment property in Virginia

Before starting one’s investing journey into VA luxury real estate , keep these important tips in mind:

  • Set real estate investment goals

    Defining goals is crucial when investing in Virginia luxury real estate. While the main goal of any investment is good returns, it’s essential to determine how the goal will be achieved. Will the property be rented out? Will it be flipped to make a higher profit? Other luxury real estate investors also take the buy-and-hold route, selling the property once its value has significantly increased.

    Being clear on their goals will help investors decide which type of luxury property to purchase. Upscale condos, apartments, and other multi-family properties are typically rented out while luxurious single-family homes and estates are often used as primary residences or as vacation homes. 

  • Work with a luxury real estate expert

    Investing in luxury real estate is easier with the guidance of a Realtor. An experienced agent will provide expert advice and assistance in finding the VA luxury real estate that matches an investor’s goals. The Realtor knows which factors to take into consideration and what to watch out for before making the decision to invest.

    When interviewing potential agents, it would be good to ask about their experience in helping clients buy investment properties. What were the challenges they faced in the past and how did they overcome it? The Realtor should be asked about their knowledge of the local area as well. How well do they know the chosen area? What does its current real estate market look like? How do they plan to find the property that corresponds to the client’s goals?

  • Research, research, research

    Every investment decision should b e made with thorough research. While investing in real estate often promises high returns, it also carries some degree of risk. That’s why proper research and planning is a must. 

    For an investment property to do well, it needs to be in a sought-afte r area. As part of their research, investors should look at the desirability of the neighborhood, the available types of properties, and the demand for housing. 

    Evaluating current market conditions also helps in forecasting future profitability. By doing a real estate market analysis, one can have a better understanding of the market and see if it's a good fit for their real estate investment goals. For example, if property values in the area have been on a downward trend, perhaps it would be better to consider investing somewhere else.

  • Know one’s financing options

    There are several ways to finance a real estate investment. A jumbo loan is the most common financing method for luxury properties since it allows investors to take out a loan that’s higher than the conforming limit of conventional loans. In Virginia, the 2022 conforming limit in most counties is $647,200, although this can be higher in certain areas. With a jumbo loan, an investor can obtain financing for luxury properties priced higher than this.  

    Since jumbo loans carry more risk, the down payment, interest rate, and closing costs tend to be higher as well.

    Investors should also consider buying with cash. This gives considerable savings on interest fees, and allows one to own property without any debt tied to it. 

Get expert guidance when investing in Virginia luxury real estate

Thinking of investing in VA luxury real estate? Whether a seasoned investor or someone new to the game, it’s always best to enlist the help of a local real estate expert like Suzanne Hairston. 

A Certified Luxury Home Marketing Specialist with over 21 years of real estate experience, Suzanne knows how to navigate the luxury market in Northern Virginia. Her successful track record makes her the top agent to work with when it comes to investing in luxury homes in the region.

Suzanne Hairston brings clients one step closer to achieving their real estate investment goals. She can be reached by calling 703.596.5288 or by sending her a message here.

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