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Investing in Real Estate




Today, investing in real estate does not have to be expensive or complex.


WHO IS THIS INVESTMENT INTERESTING FOR?


An investment in real estate is not only interesting as an alternative to low interest rates, but makes sense for all capital investors. With real estate, every asset is appropriately diversified. As solid tangible assets that retain their value, they are among the safest investments. The performance of land, flats and houses correlates little or not at all with other asset classes such as shares or bonds. Real estate is also suitable as a retirement provision or as protection against inflation. Especially young people with a relatively secure job and investors with savings can invest part of their capital in real estate. Since real estate is long-lived, capital investors benefit from the return on the investment over a long period of time, provided they take the plunge at a younger age. For beginners, for example, the purchase of a condominium is suitable in order to gain experience with renting real estate. In the case of condominiums, special features must be taken into account because not only the separate living space is acquired, but also shares and rights in the common and special property. Condominium owners are also members of the owners' association, which decides jointly on changes, acquisitions and repairs within the residential complex.


In order to achieve an appropriate return, a regular income must be generated from the investment property, the house or flat must be rented out. In the case of an owner-occupied home, the economic effect is realised through the tenant savings, plus a psychological return through beautiful living and a sense of well-being within one's own four walls. Capital investment or home ownership - this is the question many real estate investors face at the beginning. The capital investment in a real estate property brings a positive return on the investment from the first month on. An owner-occupied home pays off when it is sold at a later date and the proceeds are higher than the purchase price. So if you want to generate a continuous inflow of liquid funds throughout the investment period, you have to put money into rented properties. However, there may be other reasons for deciding on a property as an investment, such as the owner moving for professional reasons or inheriting a house. In addition, the reverse path from landlord to owner-occupier is also possible in later years of life. Investors can choose to rent out the following types of property as an investment:

  • Condominiums

  • Holiday flats

  • Detached or semi-detached houses

  • Rental apartment buildings

  • Commercial properties

  • Mixed-use properties: Residential and commercial buildings

  • Nursing flats


THE MOST IMPORTANT SUCCESS FACTORS


The yield is used to assess whether the purchase of a property is worthwhile as an investment. In real estate projects, investors focus primarily on future increases in the value of the property. Even with real estate, the profit lies in the purchase. The purchase price is an important criterion for determining whether the investment is worthwhile. This depends primarily on the location and surroundings of the property as well as the age, condition and equipment of the building. It is therefore indispensable to attach great importance to the selection of the investment property or to invest a lot of time in it. In areas with exorbitantly high rents, there is more of a risk of vacancy than in regions with average rent levels. The additional costs of purchasing a property, which amount to between 10 and 15 percent of the purchase price, should also be taken into account. These include notary and court fees, estate agent commissions as well as land transfer tax, which varies by federal state. The lower the purchase price or the acquisition costs of the property in relation to the proceeds achieved, the higher the profitability of the property. However, the lower purchase price alone does not guarantee a high property return if this is due to a lack of infrastructure or a rural location without growth potential. If the property is to be sold at some point, the return depends above all on the proceeds from the sale. Whether an investment in real estate ultimately pays off depends heavily on the modernisation of the property and the long-term development of its location as well as the general real estate market. Only in areas with population growth do property values and rents increase. The acquisition cost must also be put in relation to the potential income. Income regularly flows to the investor from renting out the property in the form of rental income. The rental yield is determined from this, whereby a distinction must be made between gross and net rental yield.


The net rental yield is decisive for comparison with other financial investments or real estate. This includes both the incidental costs of the property purchase and the management costs that cannot be passed on to the tenants as well as the annual reserves for repairs. The annual net yield for the landlord is calculated from the difference between the net cold rent and the annual management and maintenance costs. This is then divided by the investment volume, including incidental purchase costs, to give the net rental yield. The expected useful life also plays a significant role in the yield analysis of real estate, as it directly influences the volume of rental income. Owners of condominiums face additional burdens such as monthly house fees due to property manager, ongoing operating and property maintenance costs, which have a diminishing effect on returns. For major renovations, the condominium owners form a maintenance reserve; only heating and operating costs can be passed on to the tenants.


However, the rental yield does not do justice to an exact economic view of the property. The tax component of the property investment and how the property is financed must also be considered. These two factors are reflected in the calculation of the property return or return on equity. The investor's personal tax rate is part of the property yield calculation. The property yield results from the difference between the annual rental income and the maintenance costs of the property and the tax burden of the private investor. The leverage effect of a loan taken out for the property acquisition can significantly increase the investor's return on equity. Borrowing capital ensures a high return on equity for real estate compared to other capital investments.



ADVANTAGES OF REAL ESTATE INVESTMENTS


The advantages of a real estate investment are obvious, neither deflation nor inflation erode the value of a property. With a rental property, additional income can be earned; owner-occupiers can save on rental payments. A property represents a crisis-proof investment for retirement. The price fluctuations of real estate are relatively low, and over a longer period of time, real estate usually shows increases in value. If the property serves as an investment, financial advantages are possible through tax-favourable depreciation, especially in the case of listed properties. The tax-saving opportunities are far better for rented residential properties than for homeowners. Capital investors can write off the building value of their property; in addition, any investment in the rented building is tax-deductible. Moreover, owners who have financed their property by borrowing from the bank can claim the interest on the loan on their income tax return. Real estate with sales profits can be sold tax-free after ten years. Real estate can be borrowed against at any time and the owner is always creditworthy. Real estate has a long lifespan and can secure stable income for the owner in the long term.



DISADVANTAGES OF REAL ESTATE INVESTMENTS


Despite the advantages of real estate investment, the disadvantages of investment real estate are not to be neglected. The example of an apartment building is the best way to illustrate how close the advantages and disadvantages of real estate investment can be. Due to the multiple rental income, its rental yield is exceptionally high, but this is offset by the considerable management and repair expenses of a large property. Generally, rents cannot be raised indefinitely and the rental income is taxable. Capital is tied up in land and buildings for the long term; they cannot easily be sold overnight if necessary. Property prices could fall and then fall below the purchase price.


Finding a profitable property costs considerable time and effort. Incidental purchase costs and ongoing operating costs are often underestimated by investors. Small investors have to take out loans and get into high debt to buy a property. This gives them a cluster risk in their portfolio and a poor risk distribution of their assets. Vacancy reduces the rental yield that was calculated at the time of purchase. Tenant disputes and arrears increase the loss of rent. After the property purchase, hidden defects can become visible and burden the result with high and unplanned repair costs. Owner-occupiers usually do not benefit from increases in value and usually have to prove a minimum equity contribution when financing the property.



CONCLUSION


However, you can avoid these disadvantages from the outset and still invest in real estate; you do not have to rent or buy a house.


In addition to traditional real estate capital investment, new forms of investment make it possible to invest in real estate in an uncomplicated way. Crowdinvesting in real estate eliminates the need for you to worry about reducing vacancies, the creditworthiness of tenants or permanent repairs.


You can participate in attractive real estate projects online via different portals, the handling is very simple, and the investing is transparent. By investing small amounts, you are able to spread your real estate investments over many projects. Each investor decides for himself which properties he wants to invest in. Private investors thus know exactly which project they are financing.


As an alternative to the stock market, investments in interesting real estate projects can bring you an above-average return without large price fluctuations and without you having to hold on to your money for very long. Since you do not bear any additional closing costs, crowdinvesting for real estate brings you significantly higher returns than other safe forms of investment.



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