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Million-Dollar Home Sales Skyrocket. Should You Invest in One?

Nov 21, 2020 by Maurie Backman
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Home sales have been booming over the past few months. Low mortgage rates have created a surge in buyer demand across the country, and home loan applications don't appear to be slowing down.

But while you'd think we'd be seeing the most growth among starter homes and homes that fall into a more moderate price range, the most dramatic increase in sales is occuring at the very top of the housing market. Homes costing $1 million or more have seen their sales numbers double since last year, reports the National Association of Realtors (NAR)

A big reason for that? Buyers are snatching up properties in hot vacation spots. Now that workers no longer need to stay in specific cities to be near their office buildings, more buyers can purchase homes off the beaten path -- a path that's often expensive. Sales in Lake Tahoe, for example, have boomed, while pricey beach towns are seeing an uptick in purchase demand.

Of course, as a real estate investor, a home costing $1 million or more may not be in your budget. But let's assume you can swing a more expensive property. Is it worth your money?

The upside of a million-dollar home

Homes tend to command $1 million or more for a reason: Either they're extremely expansive or they're located in a prime spot, like on a lake or right next to a popular ski resort. Of course, in some ZIP codes, million-dollar homes constitute starter properties (think Silicon Valley). But for the most part, when you buy a million-dollar home as an investment, you get something out of it, such as proximity to nightlife, jobs, outdoor entertainment, or theme parks. So if you can swing the payments on a property like that, you may find it not only gains resale value over time, but it also provides a steady stream of rental income while you own it.

Imagine you pay $1 million for a home that's ski slope-adjacent. If you're able to rent out that home for $10,000 or more a week for many months of the year, over time, that could prove to be a solid investment.

The downside of a million-dollar home

Despite the investment potential, buying a more expensive home comes with risk. First, if you're getting a mortgage, you may need a jumbo loan, which is harder to qualify for and generally costs more rate-wise. Furthermore, with a million-dollar home, you're automatically limiting your buyer pool, so you may struggle to sell your property when the time comes.

And while even moderate earners may be in a position to spring for a luxury home vacation rental, ultimately, you'll be catering to a very specific clientele -- people who expect certain amenities from a home they stay at for leisure. As such, you may have to sink additional money into your property for rental purposes.

Finally, in some areas, like New York City, you may be hit with a mansion tax when you buy a home worth $1 million or more. That tax may not be a deal-breaker, but it's an added expense to consider.

What's the right move for you?

If you can afford a million-dollar property and feel it has potential to be a money-maker, buying it could be a smart move. But don't chase a property with a $1 million price tag for the prestige alone. Rather, vet that home to make sure it's truly a worthwhile investment.

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