One benefit of investing in real estate as a capital asset is that banks are very eager to provide loans for it. Real estate produces cash flow via rental income, unlike, for instance, gold. While strong stocks also offer cash flow through dividend payments, they tend to be more vulnerable to fluctuations compared to income-generating properties. Additionally, real estate investments are regarded as hedge investments against inflation.
Their value rises at almost the same pace as inflation. But it can also be different: In the worst case, the yield object proves to be a capital guzzler. Whether your investment property becomes an economically successful capital investment depends above all on whether you adhere to certain principles when selecting the property, calculating and financing. The following tips should be followed by both beginners and “old hands”:
Well thought-out shopping list
The first thing to consider is whether you would like to rent an individual apartment or an apartment building to someone else. The type of property you choose depends on how much money you can and want to spend on the purchase. On the one hand, an individual apartment can be cheaper and therefore attractive in price, because you have to raise less equity capital to buy the property. On the other hand, flats offer fewer opportunities for returns than an entire residential or commercial building.
Clever financing strategy
With a smart real estate financing strategy, you don’t have to do without an apartment building if you don’t have enough equity to buy it. If you want to buy apartment buildings or other more expensive properties and thus exceed your budget, you can finance the purchase with a high proportion of borrowed capital, i.e. a loan from a bank. If inflation rises, you can even profit from it: Your loan loses value with inflation, so your liability becomes smaller in real terms. In addition, you benefit from fixed interest rates on the loan if interest rates increase.
Location and layer check
When choosing a location or location for your investment properties, make sure you have a good infrastructure, a sufficient supply of jobs and an attractive city centre. All this means that many people like to live in the town. For you, this means secure rental income. It is best to have at least 10,000 inhabitants living in the selected city, as this reduces the probability of vacancies. An extraordinarily good location always goes hand in hand with a correspondingly high rent, which gives you a very good return – but at the same time this can also reduce the letting probability. The rental price of a property also depends on how the region develops economically and culturally. This is difficult to assess in advance.
Popular regions at present are Munich, Berlin, Hamburg, the Rhine-Main region or cities such as Oldenburg and Heidelberg. Experts are predicting rent increases there until at least 2020. However, the yield properties there are significantly more expensive than in areas with lower rents. It may therefore be more worthwhile to invest money in locations such as Dresden or Oranienburg (near Berlin) that are not yet overpriced.
Inspected building fabric
It is important to inspect the property personally. Does the property description in the exposé correspond to reality? Is the living space or the plot area indicated correctly? Does your investment object have a well-groomed appearance? In addition, you should be aware of the maintenance costs you will incur.
However, the pure age of a property does not say much about the actual structure of the building. Therefore, inspect the property and the building plot with a real estate expert. Always take a look at the entire building, even if you only want to buy a single apartment. Obtain information on refurbishment and modernisation measures in recent years.
Tenant check
In order to achieve any income, or a return, at all by the real estate, the most important thing is of course: the rent. If tenants already live in the property, you should have the tenancy agreements checked in advance – for example for an effective beauty repair clause. Find out how high the respective rent deposits are and whether the tenants pay regularly so that you can be sure of your rental income.
If it is a vacant apartment, get information about the regional rental conditions. Not all rental offers you receive are serious, because experience has shown that not everyone has the money to pay you the rent permanently. Therefore, check the applicants carefully.
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