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Real Estate Investments

REAL ESTATE INVESTMENTS AT A GLANCE Real estate is considered a safe and profitable investment. It should not be missing in any portfolio if you want to accumulate wealth. The term "concrete gold" is often heard in connection with real estate. It makes clear how popular the acquisition of residential property is. But how can one invest in houses or flats? It is not always necessary to buy your own property. There are interesting alternatives that are just as safe and profitable. THE FIVE REAL ESTATE INVESTMENTS INVESTORS SHOULD KNOW ABOUT Before deciding to invest in houses or flats, it is important to compare the alternatives. In principle, there are five different ways to invest money in concrete gold. The choices are the purchase of:

  • Real estate

  • Real estate shares

  • Real estate bonds

  • Real estate funds (open-ended/closed-ended real estate funds)

  • Crowdinvesting in real estate

What are these individual investment opportunities all about?

THE PURCHASE OF REAL ESTATE Buying a property is probably the best-known way to invest in concrete gold. The investor can use his home himself and not have to pay rent after a few years in old age. He can also rent it out to a tenant as an investment. THE REAL ESTATE SHARE If you want to invest your money in shares in the real estate business, you buy shares in public companies that are active in the real estate industry. Such companies develop, build, manage and market houses. These are usually apartment buildings with commercial or residential use. THE REAL ESTATE BOND Real estate bonds are fixed-interest securities. They are usually secured by a real estate lien. A bond is a debt security. A bond is usually subordinated. This means that in the event of insolvency, all outstanding claims of creditors are reimbursed first. A bond is therefore a real estate investment with a certain risk. It is not suitable for every investor. THE REAL ESTATE FUND If you want to invest your money in real estate at a manageable cost (read more about investment costs here), you might opt for a fund. In a fund, a fund manager collects money to invest in various properties. In doing so, he selects properties with a high return. As an investor, you have the choice between open-ended and closed-end real estate funds. With an open-ended real estate fund, the investment volume is usually unlimited. The fund assets grow as new investors invest money. The units can be bought and sold at any time. For the investor, the costs of an open-ended fund are usually manageable. A closed-end real estate fund is characterised by a limited volume. Once all units have been sold, it is closed. The investor must hold his share until the end of the term. Closed-end funds usually require a minimum investment. This means that the investment volume per investor is higher. CROWDINVESTING IN REAL ESTATE Real estate crowdinvesting is still a rather unknown form of investment in Germany. With this form of investment, it is not a single investor who has to raise a large sum. Rather, many investors join together to form a so-called "crowd" and invest in larger construction projects. A real estate investment is possible even with small amounts. Nevertheless, the returns are attractive. Real estate crowdinvesting is a form of investment that was previously reserved for institutional investors.

FIVE CRITERIA DETERMINE AN INVESTMENT As an investor, you should look at the following five criteria to assess a capital investment.

Risk diversification: No investor should put all their money into a single investment. To reduce the risk of losses, it makes sense to spread the amounts over several investments. Putting all your eggs in one basket increases the risk of losing all your money.

Minimum investment: The minimum investment determines how much money you have to invest. If you can invest 50 euros a month, you have other investments to choose from than an investor with a volume of 5,000 euros or 10,000 euros. For small investors, an open-ended real estate fund or crowdinvesting is a good option for a monthly contribution of 50 euros. If the volume is higher, you might buy your own property or a closed-end fund share.

Capital commitment: Once the money is invested, you can no longer access it. Therefore, you should only invest what you do not need. A strong capital commitment reduces flexibility. You should think about this before choosing an investment.

Costs: Every investment involves costs. Sometimes there are expenses for the brokerage, for the estate agent, for the administration or for maintenance and modernisation. You should compare the costs before making a decision.

Co-determination: With some investments, investors have the right of co-determination. With other investments, decisions are left to a professional administrator or manager. The right choice depends on how much influence you want to exert as an investor.

THE RIGHT REAL ESTATE INVESTMENTS FOR EVERY INVESTOR The diversity of investments makes it possible: there is at least one suitable option for every investor to invest in real estate. BUYING REAL ESTATE Anyone who buys a house or flat for their own use or as an investment naturally has no risk diversification. The buyer invests all the money in a single property. Those who want to live rent-free in old age opt for owner-occupation. Those who want to expand their financial leeway rent out the property. However, a property often ties up the investor's entire assets. Costs are incurred for the purchase, for management and for maintenance. Whether a property is a suitable investment therefore requires careful consideration. It is suitable for investors who want to invest for the long term. REAL ESTATE SHARES If one wants to buy real estate shares, one should pay attention to a broad diversification of securities. Another thing to consider is that prices have risen sharply in the past. No one likes to judge whether further price increases are possible. Nevertheless, shares are still an investment with an attractive long-term return. REAL ESTATE BONDS By issuing a bond, a company takes on outside capital. It depends on the creditworthiness of the issuer whether the investor will eventually get back the money borrowed. Bonds are therefore associated with a certain risk. Many securities are complex and difficult to understand in terms of contract design. That is why bonds are usually not suitable for beginners in the real estate business. REAL ESTATE FUNDS An investment in open-ended funds is possible even with small amounts. The capital commitment remains manageable By including several properties in the fund, one achieves good risk diversification. Therefore, a real estate fund is well suited for investors who want to invest in the medium to long term with solid returns. Closed-end funds lead to a high and long capital commitment. They can be risky and are therefore rarely an option for private investors. CROWDINVESTING IN REAL ESTATE With crowdinvesting, investors participate in attractive return opportunities even for small amounts. The capital committed is manageable. The risk diversification is high, the risk of loss is rather low. Crowdinvesting is therefore ideal for private investors who want to invest in the medium term.


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