Property as Investment
Important aspects when acquiring real estate as a capital investment
Would you like to purchase a property? There are some criteria to consider here. In order for you to find the property that suits you, we offer you our support at all stages.
1. Definition of individual requirements
- Location and district,
- the type of dwelling and its size, and
- the number of rooms.
On our homepage you can narrow down your search according to these criteria.
2. Use of expert advice
We are at your disposal with our experience and competence as a contact partner in the search for the ideal real estate as an investment. Take advantage of our advice, in which we inform you about the properties tailored to your needs and compile a selection of available properties. Our range of services includes comprehensive answers to all questions, tours and individual support from the first to the last step.
3. Information on available properties and financing options
Check your financial possibilities before purchasing. We advise you on real estate loans, financing in general and support you in the selection of offers.
4. Conclusion of contract
After the decision for a real estate follows the conclusion of the purchase. We will provide you with the necessary documents and act as your contact person.
Real estate as a capital investment
Profitable investment: the investment in real estate
Your own property has always been considered a safe investment. This is still valid today. The interest rates for a construction loan are at a historic low, and if you invest your money in real estate, it is better protected against value reductions due to inflation. Especially since the financial crisis such an investment is recommendable – while investments often lose value on the free market, residential or house ownership as material assets represent a reliable source of income.
Not only the developments in the financial sector, but also the current real estate market shows that it makes sense to make such an investment. The prices for investment properties continue to rise, especially in popular cities such as Berlin, Frankfurt, Hamburg and Munich. There is no end in sight here, which is why a real estate investment promises a high return in the future. This often amounts to up to four percent after deduction of the tax burden.
Financing options for the purchase of real estate
When purchasing real estate, a multitude of criteria must be taken into account. Basically, the investment is safe above all if you include the quality of several factors in your considerations. These include the location, the building fabric and the tenancy. If interest rates are low, investors can also look forward to advantageous conditions with regard to financing. However, there are other aspects that distinguish a lucrative real estate purchase and meaningful financing.
When deciding which property to purchase, it is usually sensible to use the services of an expert real estate agent. This agent has the necessary market knowledge and usually has a portfolio available in which suitable offers can already be found. Many people concentrate their search for a house or an apartment on the closer region they are familiar with, as they know the real estate market best there. If you would like to purchase the property for your own use, this also makes sense – but if the purchase is more for investment reasons, it is advisable to keep an eye on other factors such as security, profit opportunities and value development. This is where the real estate agent comes into play, who knows his way around and knows what to look for.
If you want to buy a property, you should also consult a bank or insurance company beforehand. As real estate agents, we cooperate with more than 300 independent banks. For this reason, we are able to offer you combined investment and financing advice and are supported by a broad network of experts.
What are the advantages of buying an investment property?
As a real estate buyer, you benefit from a number of advantages. You are making an investment that is characterised by a high stability of value. In addition, residential property offers social security and makes you as an investor independent of stock market developments. Tax advantages and high returns through rental income are also among the arguments in favour of buying a property.
Increase in assets
A rental property is always worthwhile. In the short term, you as the landlord receive reliable income from the rental income. In the long term, you benefit from an increase in the value of the property.
Income from rents
Regular rental income is a reliable source of income. If demand from tenants and prospective tenants is high, landlords are given the opportunity to increase their returns through higher rents.
Stability of the property value
Houses and apartments are considered extraordinarily stable in value. This also affects private assets, as assets are spread across several asset classes. This reduces the risk of defaults and protects your assets even in critical times.
Long-term fixed interest rates
If interest rates are currently low, you benefit from a long period of fixed interest rates. This hedges the current interest rate for the future.
Additional pension option
Many homeowners who purchase the property as an investment save a lot of money. They do not have to pay rent, have a lucrative asset and also receive income from rentals. This is an attractive way of restoring your old age. According to calculations, property owners in old age are much more financially flexible than people who live for rent – they have up to 30 percent more leeway.
Important factors when buying real estate
Price of the object
There are several criteria to consider when buying real estate. Basic aspects are the purchase price and the adjustment of the construction financing to your own possibilities. The top priority is long-term affordability. At least 20 percent of own funds should be available to prevent the financing from becoming too insecure.
In addition to the purchase price, these calculations should also take into account ancillary costs, such as brokerage fees, land transfer tax and the land register entry. The brokerage fee amounts to up to 6 percent of the price, in addition the value added tax of 19 percent results. With the land transfer tax, a rate of 3.5 percent (in Saxony) and 6.5 percent (in Thuringia) – depending on the federal state – must be calculated, and the expenses for court and notary are around 2 percent of the price.
If you have high income and correspondingly high tax burdens, you should think about investing in real estate. The expenses can be claimed for tax purposes and thus reduce the tax payments. The deductible costs include interest on the real estate loan, broker’s commission, property tax as well as notarial and court expenses. In addition, you can declare two percent per year of the costs of purchase and expenses for repair and renovation activities in your tax return.
Calculation of returns
The amount of profits from real estate ownership as a landlord depends on the income and ancillary costs. But not only these, also other factors influence the possible yield. Calculate the gross yield by adding the annual rental income and the value of the property on the market. This can be illustrated with the following sample calculation:
Rental income 40,000 Euro x 100 / market value 800,000 Euro = 5 percent gross yield
However, a more precise figure is the net return, which includes further expenditure such as acquisition costs. These expenses include the acquisition price and the ancillary acquisition costs already listed.
Calculation of acquisition costs
To be added are the purchase price as well as fees for notary and land register, land transfer tax and broker’s commission. The net rental income is calculated by deducting from the annual cold rent non-apportionable operating costs as well as the annual reserves. To this end, the potential vacancy of the property must be taken into account. This is calculated by subtracting a percentage which reduces the rental income. In Munich, this is around 3 percent. Other factors used to calculate the net yield include interest and loan repayment costs as well as tax benefits from letting.
You obtain the net rental return by subtracting the investment costs from the net rental income and then multiplying the total by a factor of 100. With a property purchase price of 600,000 euros and ancillary costs of 90,000 euros, total costs of 690,00 euros are achieved. A rent of 30,000 euros is charged for the property. Tax savings, income tax and expenses for ancillary costs, maintenance and reserves are already included. The equation looks then as follows:
30,000 / 690,000 x 100 = 4.35 percent net yield
Conclusion: What has to be considered as an investment object for the real estate?
Current mortgage lending rates have been at a record low for several years – ideal times to acquire real estate as a financial investment: It is not for nothing that they are referred to as “concrete gold”. It also makes sense to start investing early in order to get more out of the yield. Multi-family houses are regarded as optimal investment properties in terms of yield, as they enable multiple rental income. Who would like to reduce the expenditure and attach less importance to net yield, uses the acquired object simply. Are you planning to resell the property at a profit at a later date? In this case, the purchase of a single-family house is recommended, as the land contributes considerably to the increase in value. Depending on the location, returns of up to 8 percent are quite within the realm of the possible – economic action is called for here. When calculating in advance, take into account expenses for renovations or repairs, tax burdens and any vacancy of the rental property.