Investing in Real Estate
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
- 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
Investing in real estate
A profitable investment: property as security
Buying real estate has long been known as a secure way to invest, and that remains as true today as ever. Interest rates for construction loans are at an all-time low, and if you invest in real estate now, it will be safe from future depreciation even in case of inflation. In fact, property investment is particularly advisable in the current climate, post financial crisis; while financial investments risk losing value on the free market, material assets such as real estate provide a consistently reliable source of income.
But it’s not just developments in the financial sector that make property investment such a sound decision. Take a look at the current real estate market: purchase prices for investment properties are steadily increasing in popular cities like Berlin, Frankfurt, Hamburg, and Munich and will continue to rise in the foreseeable future. What that means is that property investments in those cities are bound to produce high returns; four percent yields after taxes are not at all uncommon.
A variety of criteria must be taken into account when purchasing a property. An investment can generally be considered secure if the following factors have been thoroughly reviewed: location, building structure, and terms of tenancy. If interest rates are low, investors will enjoy advantageous conditions when considering different financing opportunities. Beyond that, several other things can help make the purchase of a property even more lucrative.
To ensure that happens, it’s usually a good idea to consult a competent real estate agent. He or she will have valuable expert knowledge of the real estate market, as well as a portfolio of suitable offers. Many prospective buyers focus on residential areas they already know, which makes sense if you’re planning to buy for personal use. But if you see the property primarily as an investment, other factors become more important – security, profitability, and future performance. This is where real estate agents can help, drawing on their wealth of professional experience and business expertise specific to the real estate industry. If you’re interested in buying a property, consider speaking with a bank or insurance company well ahead of purchasing. As real estate agents, we at ZIEGERT cooperate with over 300 independent banks. This allows us to offer you a combination of investment and financial consulting, provided by an extensive network of experts.
What are the advantages of buying property as a form of investment?
There are a number of benefits for buyers when it comes to investing in real estate. First, this type of investment is very stable. Property ownership not only provides a degree of social security, it also insulates investors from stock market developments. Tax benefits and high returns through rental income provide further arguments in favour of investing in real estate.
A rental property is always viable. In the short term, rental revenue is a reliable source of income; in the long term, you’ll profit from the increase in your property’s value over time.
Regular income from rental payments provides a reliable revenue stream. As long as the demand from (prospective) tenants is high, landlords can increase returns by increasing rents.
Stability of property values
Apartments and houses are known for their extraordinary value stability. With your private assets spread across multiple classes, you reduce the risk of loss and secure your assets even in critical times.
Long-term fixed interest rates
With interest rates historically low, you can profit from long-term fixed rates. Fixed rates will preserve current interest rates in the future.
Additional savings for your retirement
Many property owners that buy to invest save a lot of money in the long run. Not only do they not have to pay rent, they also own lucrative assets and receive regular income through rental payments. This is an attractive retirement provision.
Recent calculations have shown that property owners are considerably more flexible in old age than those living in rental homes, with over 30 percent more financial leeway.
What to consider when purchasing property
There are several criteria to keep in mind when buying property. The most basic of these is purchase price and whether construction financing options are a good fit with the availability and total amount of personal funds. Long-term viability should always be the top priority. Prospective buyers should be able to contribute at least 20 percent of the purchase price from their own capital to prevent their financing scheme becoming too risky.
Ancillary costs such as broker fees, real estate transfer taxes, and land register entries should always be taken into account. A broker’s commission will be up to six percent of the buying price, and value added tax (VAT) will amount to 19 percent. Real estate transfer taxes vary depending on the German federal state in which the property is bought, ranging from 3.5 percent in Saxony to 6.5 percent in Thuringia. Legal and notary costs will usually amount to around two percent of the buying price.
If you have a high income and the tax burden that goes along with it, investing in real estate may be the right choice for you. Real estate related expenses are tax deductible, reducing your overall tax payments; this includes interest from your property loan, broker fees, property taxes, and legal fees. Beyond that, you can also declare up to two percent of any expenses incurred for repairs and renovations in your annual return.
The total gains from letting property largely depend on revenue and ancillary costs, though there are a number of other factors that can influence investment returns. In general, you can calculate the gross return by multiplying the annual rent revenue by 100, then dividing by the property’s market value. So for example: rent revenue €40,000 x 100 / market value €800,000 = 5 percent gross return. A more accurate reference point for calculating overall gains, however, is the net return, which includes other expenses such as those incurred during acquisition. These, in turn, include both the buying price and any ancillary costs.
Calculating acquisition costs
To calculate acquisition costs, add the buying price to all legal fees, property taxes, and broker fees. You can determine your net rental revenue by subtracting non-recoverable operational costs and annual reserves from the annual net rent. If applicable, you should also consider potential property vacancy; this can be included into your calculations by subtracting a fixed percentage that reduces overall rental income. In Munich, for instance, this rate is around three percent. Additional factors to consider when calculating net returns include repayment fees for loans and tax advantages due to letting.
You will be able to determine your net return by dividing annual net rental revenue by total investment costs and multiplying the subtotal by 100. So, for example, if you were to buy a property for €600,000, with additional costs of €90,000, you would have an investment cost subtotal of €690,000. Let’s say that after taking into account tax savings, VAT, income tax, and expenses for ancillary costs, maintenance, and reserves, the annual rent for your property amounts to €30,000. Your final calculation will look like this:
30,000 / 690,000 x 100 = 4.35 percent net return
Bottom line: what to consider when investing in real estate
Interest rates for housing and construction loans are currently at an all-time low, making it an ideal time to invest in real estate. To maximise returns, it’s better to invest sooner rather than later. Another way to increase returns is to buy multi-family dwellings; that way, you’ll have multiple streams of rent revenue. If, on the other hand, you plan to sell for a profit some time down the line, it might be more advisable to buy a single-family home. Either way, the property and land are likely to grow in value over time.
If you’d prefer less operational effort at the cost of lower returns, you might consider moving into your owned property. In general, and depending on the location, returns of up to eight percent are not unheard of at the moment. To reach these numbers, buyers must think economically: when doing your calculations, remember to factor in expenses for renovations or repairs, tax charges, and potential periods of vacancy of the rental property.