Investing in Real Estate
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 apartments, tenements and land is much more labour-intensive than investing in Stocks and Bonds.
The issue of real estate buying can be very emotionally occupied. Some real estate buyers dream of 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 in own work one would not want to hear anything negative about his house construction.
This may be the case with real estate investors who are already financing a multi-family home, have commercial real estate or see real estate more than one investment. The prerequisites to earn money with real estate have probably never been as good as today.
In Switzerland, bonds 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 less 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 ask ourself if these rules are still valid after years of money creation, declining population and massive real estate construction. Many investors simply do not remember the times of 8% or even 14% interest.
Even if you have finance your real estate 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 stone or durable materials. In cities such as Basel and Zurich or Vienna you can still admire the buildings from the 15th and 16th centuries.
In cities such as Frankfurt, Duesseldorf, Cologne or Berlin, it is rather the 70s buildings that partially shape the cityscape but are still in the best condition. The longevity of European buildings can be a significant problem for real estate investment, which we will discuss later.
In contrast to the construction in Central Europe, paper, cardboard and wood are often made in combination with insulation wool in the USA. 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 2008/2009 real estate crisis. Unlike in Europe, where stone houses may be 100 years old (and the tax-depreciation or tax-deduction of residential real estate in many European countries is over 100 years or 1% per year; while the US 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 the USA have also prevailed in the 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 purchases a property, rents it and charges a predicated 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. 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, taxes and everything related to his home. In the real world, the proprietor charges enough amounts which cover all his expenses.
Why do people invest their money in rental properties?
Nowadays the trend of investing in some rental property is becoming very popular. Investment in the rental property is substantially emancipating and quite visceral. One can find many financing strategies related to real estate investment.
People prefer to spend their money in some sort of rental investment work because they think it can save their time and efforts. In order to shield themselves from the heavy taxes, people consider it an excellent approach to invest their money in some real estate property.
If you are new to the investment market and do not have much information on hand then you might not know why people prefer to invest in real estate. To break things down for you, following are few reasons people choose real estate 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 residential house or a commercial property, the next thing that you need to do is rent it out.
You can either use your social circle to find a Tenant or take help from a real estate dealer. Once you have found a suitable Tenant, you can enjoy the income generated in the form of rent every month. You do not have to worry about the prices of commodities going up or down since, it is not going to change your flow of cash.
Inflation and Real Estate:
Currently Real Estate is still labour intensive, if labour cost increase the price of Real Estate goes up. This is the reason why during inflation, the prices of the property keeps on going up, even if the market gets slow.
Negative interest rates and money printed out of nothing like ever seen before in human history has trigger massive real estate development activities around the world. In many industrial countries the population is decreasing.
An oversupply of Real Estate combined with decreasing population could be a disaster for Real Estate price on the one hand - but on the other hand inflation, increasing labor cost and low interest can keep Real Estate market prices increase.
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