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Investment properties: 8 tips on how to successfully invest in real estate

Valeria Nickel, February 5th, 2021

"Investment property" - this term is attached to the promise of a long-term, lucrative source of income. Real estate that an investor acquires in order to increase his or her assets is referred to as investment property. So he does not live in the house himself, but rented or sell it to a third party. Other names are "Investment property“, „Investment properties"Or"Apartment buildings“.

As a rule, these are investment properties Residential real estate. Of course, investors can also use Commercial real estate such as investing in office real estate. However, there are special risks here, such as a more volatile market and usually more demanding tenants. An investment in commercial real estate is therefore more suitable for experienced capital investors.

One advantage of residential real estate as capital investments is that banks are very happy to loan them. Real estate generates one through rent payments Cash flow - in contrast to gold, for example. Good stocks also generate cash flow through their dividend payments, but they are more prone to fluctuations than investment properties. In addition, real estate investments are considered inflation-proof financial investments. Their value is rising at almost the same rate as inflation.

But it can also turn out differently: In the worst case, the return property turns out to be a capital swallower. Whether or not your investment property will be an economically successful capital investment depends above all on whether you have specific Adhere to the principles in the selection of the property, calculation and financing. Both beginners and "old hands" should consider the following tips:

1 | Think through your shopping list

The first thing to do is weigh up whether you are a single one Condominium or an apartment building or want to rent out an entire residential complex. Which type of property you choose depends on how much money you can and want to spend on the purchase. On the one hand, a single apartment can be cheaper and therefore attractively priced because you have to raise less equity to buy the property. On the other hand, apartments offer fewer potential returns than an entire residential or commercial building.

2 | Choose a clever financing strategy

With a smart real estate financing strategy, you don't have to go without an apartment building if you don't have enough equity to buy it. If you want to buy multi-family houses or other more expensive objects and thus exceed your budget, you can buy it with a high price Borrowed capital, i.e. a loan from a bank.

If inflation rises, you will even benefit from it: Your loan will lose value with inflation, so your liability will decrease in real terms. In addition, you benefit from fixed interest rates for the loan if the interest rate trend increases.

3 | Check location and location

When choosing the location or the location of the investment properties, make sure that there is a good infrastructure, sufficient labor supply and an attractive city center. All of this leads to the fact that many people like to live in the place. This means for you: Secure rental income.

Ideally, at least 10,000 people should live in the selected city, as this reduces the likelihood of vacancies. An exceptionally good location always goes hand in hand with a correspondingly high rental price, which gives you a very good return - but at the same time it can also reduce the likelihood of letting.

How the region develops economically and culturally also influences the rental price of a property. That is difficult to predict in advance. Popular regions are currently Munich, Berlin, Hamburg, the Rhine-Main area and cities such as Oldenburg and Heidelberg. Experts predict rent increases there until at least 2025.

However, the investment properties are significantly more expensive there than in areas with rather lower rents. That is why it can be more worthwhile to invest money in locations like Duisburg or Chemnitz that are not overpriced are.

4 | Inspect the building structure

It is important to take a personal look at the property. Does the property description in the exposé match the reality? Is the living space or the area of ​​the property specified correctly? Does your investment property have a neat appearance?

In addition, you should be aware of which Maintenance costs to come towards you. On the one hand, you can estimate this based on the age of the property:

Age of the building in yearsFrequent defects in the building structure, necessary repairs
up to 10 years
  • Moisture damage
  • Mould
  • Plaster chipping
  • Cracks in the masonry
up to 20 years
  • Exterior painting on facades, exterior doors, windows
  • Staircase / railing / door leaf painting
  • Textile floor coverings
up to 30 years
  • Sanitary installations
  • Boilers and boilers
  • Balconies
  • Plastic floor coverings inside
  • Gutters, downpipes and roof connections made of zinc sheet
up to 40 years
  • Tile and tile flooring
  • Roof covering and roof connections
  • Heating pipe network
  • Electrical installation network with sockets and switches
  • Windows and external doors, stairwell
  • Access & garage condition

However, the pure age of a property does not say much about the actual building fabric. You should therefore visit the property and the building plot with one Real estate appraisers. Always look at the entire building, even if you only want to buy a single apartment. Also get information about Renovation and modernization measures in recent years one. Then there will be no unpleasant surprises.

5 | Check future tenants

In order to generate income or a return from the property at all, the most important thing is of course: the rent. If tenants already live in the property, you should check the Check rental agreements let - for example, on an effective cosmetic repair clause. Find out how high the respective deposited Rental deposits and whether the tenants pay regularly, so that you can be sure of your rental income.

If it is an empty apartment, get information about the regional rental conditions a. Not all rental offers that you receive are serious, because experience shows that not everyone has the money to pay you the rent on a permanent basis. So check the applicants very carefully.

6 | Calculate costs correctly

Buying real estate is expensive - not just in terms of the price of a house or condo, but also in terms of that Additional purchase costs. These usually consist of fees for brokers and notaries, land registry costs and real estate transfer tax. Depending on the federal state, you as an investor must offset incidental purchase costs of at least 10% of the pure purchase price.

In addition, there may be Financing costs, that is, monthly interest and principal payments if you have taken out a loan. In addition, renovation and ongoing repair costs are often incurred.

Your income as an investor is made up of the monthly rental income (and, if applicable, the sales price to be achieved later). To find out whether a property generates good income and a good return, you can use the multiplier (also known as the rental price multiplier) as a guide.

The key figure is easy to calculate. The formula is:

Duplicator =
Purchase price
/
Net rental income

For example, if the purchase price is 150,000 euros and the rental income is 7,500 euros, the result is a rental price multiplier of 20. This means that your income will not pay off the purchase price for another 20 years. In expensive areas the multiplier is even 25 to 30, in cheaper areas it is 15 and less.

7 | Realistically assess the risk

When renting a property it can always be too unforeseen costs or loss of rent come. You can hardly influence this. In many regions, the development of rental prices is also difficult to predict.

Investing in an investment property is therefore usually associated with risks that are difficult to assess. Do not be afraid to expect these problems and set yourself a sufficient buffer for them. Especially when making purchases with a high proportion of outside financing, you should make sure that you can always make the interest and principal payments.

8 | Don't forget taxes

Last but not least, as a landlord you should keep an eye on possible tax advantages and disadvantages. The following three tax aspects should be emphasized:

  1. Depreciation for wear (AfA): Landlords can claim acquisition or production costs to reduce taxes. In the case of residential real estate, the annual depreciation is two percent of the purchase price; in the case of monument properties, it is significantly higher.
  2. Speculative tax: If there are less than ten years between buying and selling a property, the tax authorities demand a speculation tax. Brokerage fees and renovation costs in the first three years can be taken into account. The amount of the speculation tax then corresponds to the personal income tax rate.
  3. Three object border: If more than two real estate objects are sold within five years, the seller is considered a commercial real estate dealer and is taxed accordingly.

Equity crowdfunding as an alternative

You want to benefit from real estate as a capital investment, but would like to avoid the high capital commitment when buying the investment property and the major management effort? An alternative is real estate crowdinvesting. In doing so, you join via an internet platform such as MOUNTAIN PRINCE works with other investors and collects the necessary sum for existing properties or construction projects.

This so-called swarm financing therefore already works for the individual small sums. So you can invest in several real estate projects at the same time without having to raise a lot of capital. This is also favored by relative short terms and trading optionswhich means that investors' capital is not tied up for a long time and remains flexible.

After the investment, you don't have to worry about the administration or argue with the tenants of the property. Crowdinvesting is therefore a new, exciting investment alternative for self-determined investors who want to free themselves from the disadvantages of buying real estate.

Image copyright: Rusinka / shutterstock.com

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