Real Estate Investing
In recent decades capital has increasingly been invested in real estate. Investing in real estate offers profound ways to make money. But on the con site, the acquisition and possession of multi-family apartment, tenements and land is much more labour-intensive than investing in Stocks, Bonds or REIT (Real Estate Investment Trust).
The issue of real estate buying can be very emotionally occupied. Some real estate buyers dream of their own house, and want to pay off as quickly as possible.
In particular, if a construction project with little equity and much sweat was built with their own efforts, one would not want to hear anything negative about their house construction.
This may be the case with real estate investors who are already financing a multi-family home, have the commercial real estate or see real estate more than one form of investment. The prerequisites to earn money with real estate have probably never been as good as today.
In Switzerland, bonds and mutual funds with all maturities have negative interest rates at the beginning of 2017. In Germany, you will certainly lose money (even without inflation) for all government bonds with a maturity of fewer than 8 years.
Because of the low interest rates may seem tempting to invest in real estate, even if the yield calculation yields only a 2% or 3% return on equity.
Real estate investment is regarded as an inflation-proof investment, and an additional value can be generated by letting the property increase in price.
But we have to question ourself, if these rules are still valid after years of money creation, declining population and massive construction projects. Many investors simply do not remember the times of 8% or even 14% interest.
Even if you have real estate finance project for the next 20 years think about if you will find a buyer for a 2 Mio. CHF family flat in Zürich, if the interest rate is at 8% in 20 years again. The buyer would have to pay 160,000 CHF in interest, alone a year (assuming 8% interest) in addition to other costs associated with a flat in Zürich.
Probably it will not be enough for future yield calculations, simply to calculate the returns with a real estate yield calculator and thus obtain a meaningful number.
Real estate is built in Switzerland and Germany as well as in other Central European cities made of stones, bricks and mortar. In cities such as Basel and Zurich or Vienna, you can still admire the buildings from 15th and 16th centuries.
In cities such as Frankfurt, Duesseldorf, Cologne or Berlin, it is rather the 70's buildings that partially shape the cityscape but are still in best condition. The longevity of European buildings can be a significant problem for real estate investment, which we will discuss later in this article.
In contrast to the construction in Central Europe, paper, cardboard and wood are often made in combination with insulation wool in the US. The problems of a real estate bubble thus disappear much faster than in Europe.
For example, if you travel approximately 300 miles from Detroit to Chicago, you will see thousands of ruined houses from the 2008-09 real estate crisis. Unlike in Europe, where stone houses may be of 100 years old and the tax-depreciation or tax-deduction of the residential real estate.
In many European countries, tax-depreciation is over 100 years or 1% per year; while USA's tax-depreciation is only over 40 years, the houses in the real estate bubble are already decayed and uninhabitable after a few years and can be rebuilt.
Similar architectural styles as in US have also prevailed in UK, where you can see many decayed wooden houses when you leave London, in the direction of Leicester, Nottingham, Sheffield and Leeds.
What is Rental Investment?
A man buys a rental property and charges a predicted amount for a regular time interval. It can be defined as a property in which the landlord gets rent from the renter on a monthly basis. The property could be located in commercial or residential area.
The proprietor, the landowner, is in charge of paying the home loan, maintenance, cost of sustentation, stamp duty, taxes and everything related to the property. In the real world, the house-owner charges enough amounts which cover all these expenses.
Why do people prefer investing in rental properties?
Nowadays, the trend of investing in rental property has become very popular. Property Investments is substantially emancipating and quite visceral. One can find many financing strategies related to real estate investment.
People prefer to spend their money on some sort of rental property, because they think it can save their time and efforts.
In order to shield themselves from the heavy taxes, people consider it as an excellent approach to invest their money.
If you are new to investment, and do not have much information, then you might be unaware of why people prefer to invest in real estate.
To break things down for you, following are few reasons investors prefers real estate over other forms of investment:
Good Cash Flow:
There is no single investor who is not fond of good cash flow, which is why investing in real estate is their safest bet. Once you have bought a property, the next thing that you need to do is to rent it out.
You can either use your social circle to find a tenant or can hire a real estate broker. Once you found a suitable tenant, you can enjoy the revenue generated in form of rental income every month.
You do not have to worry about the prices of real estate commodities going up or down since it is not going to change your cash flow.
Inflation and Real Estate:
Currently, Real Estate is still labour intensive if labour cost increases, i.e., if the price of real estate goes up. This is the reason why during inflation, the prices of the property keep on going up even if the property market gets slow.
Negative interest rates and money printed out of nothing like ever seen before in history has triggered massive property development activities around the world.
In many industrial countries, the population is decreasing. An oversupply of property combined with decreasing population could be a disaster for real estate price on the one hand - but on the other hand, inflation, increasing labour cost and low interest can keep the property price high.
||Real Estate Price today
||5 years later
||10 years later
||20 years later
||30 years later