Real Estate as an Investment: Who It Is Worthwhile For
Whether a property is worthwhile as an investment can be answered in one word: "Yes!" However, the reality is more complex. The crucial factor is whether you find the right property and are financially able to finance it. It is not enough to simply buy any property. You must ensure that you receive an offer that aligns with your goals.
In this article, you will learn why real estate is an attractive investment and what to pay attention to in order to make a good investment decision.
The most important points at a glance
Real estate offers stable value appreciation and consistent rental income, making it an attractive investment.
Location, both micro-location and macro-location, plays a decisive role in the value retention and profitability of a property.
A realistic rent price multiplier and careful purchase price evaluation are essential to assess the profitability of the investment.
A thorough assessment of the property's condition as well as realistic financing plans are necessary to ensure the profitability of a real estate investment.
Can we skip this article?
We will consider all relevant factors that play a role in the decision-making process. From the attractiveness of the real estate market to the importance of location and the assessment of the property's condition – this article will help you make an informed decision. So let us dive deeper into the subject and highlight the key aspects of a real estate investment.
Why is real estate attractive as an investment?
Real estate is considered a safe and stable investment – especially in Germany, where the housing market is regarded as reliable and not very volatile.
Advantages:
· Attractive & consistent returns
· Long-term value development
· High demand: Over 15 million rental apartments in private ownership
The question of whether a property is worthwhile as an investment can often be answered positively. The combination of stability, return potential, and long-term value development makes real estate a very attractive investment for many investors.
When is it worthwhile to purchase an investment property?
A property purchase makes sense whenpurchase price, location, and conditionare right and the propertyis well rentable in the long term.What investors should pay attention to:
·
Realistic calculationof rental income and expenses for successful financing·
Future-proof location & substanceto minimize risks·
· Long-term investment horizonprotects against market fluctuations and provides a stable source of income
As an investment, a property is particularly worthwhile when return, stability, and risk are in a healthy balance.
The importance of location in real estate investments
The location of a property significantly influences its future value and the level of rental yield. It is essential to consider the location when purchasing an investment property for value appreciation and stable rental income. The demand for housing in many urban areas contributes to the security and potential value increase of properties.
Buyers should consider two factors when evaluating the location: micro-location and macro-location. The micro-location refers to the immediate surroundings of the property, while the macro-location encompasses the regional perspective. Both aspects play an important role in assessing the property and its future value development.
Macro-location: The location
Growth-oriented regions and prime locations often offer better opportunities for value appreciation. The perspective of the real estate market is often more favorable in large cities than in rural areas with little influence from infrastructure. In growth-oriented locations, the chances of quickly finding new tenants and thus achieving a constant rental yield are higher.
Investors should therefore consider both the current and future growth opportunities of the region when selecting the macro-location. The stronger the growth of the location, the better the prospects for value increase and stable rental income.
Micro-location: Influence of the immediate surroundings
A positive micro-location attracts tenants and can increase rental prices. The micro-location includes the immediate surroundings of a property, including the neighborhood, street, and residential area. Important aspects of the micro-location are the connection to public transport, accessibility to shops, and the appearance of the street.
The micro-location has a direct impact on the market value and thus also on the sale price of a property. Criteria such as the quality of infrastructure and the availability of recreational opportunities determine the attractiveness of the micro-location and should be considered when selecting the property.
Property condition: Fixer-upper or solid substance?
Before purchasing, buyers should thoroughly examine the condition of the property to identify any noticeable weaknesses. Here are some tips to pay attention to:
Moisture damage, which can become visible through crumbling joints or mold formation in the interior.
Cracks in walls or ceilings, which could indicate structural problems.
Thecondition of the windows and doors, to ensure they are well insulated.
Thequality of the heating and air conditioning systems, to estimate future costs.
The overallcleanliness and maintenance of the property, which can indicate the upkeep of the property.
Such damages can not only diminish the attractiveness of the property but also incur high renovation costs.
Another important aspect is the age of the heating system, as outdated systems can lead to high costs. Buyers should therefore ensure that the heating system is up to date. Avaluation and renovation reportcan help to determine the expected renovation costs and avoid unpleasant surprises.
The costs for extensive renovation work can amount to up to 1,200 euros per square meter of living space. Therefore, it is important to thoroughly examine the condition of the property before purchase to make an informed decision and ensure the profitability of the investment.
Purchase Price Assessment for Investment Properties
TheRent Price Multiplieris derived from:
Purchase Price (including additional costs) ÷ annual net rent
→ Shows how many annual rents are needed for refinancing.
Yield Calculation:
Annual rental income - ongoing costs =Net Yield– a central figure for assessing profitability.
A realistic rent price multiplier and a sound yield calculation help to determine thefair purchase priceand to plan investments securely.
Rent price multiplier and its significance
The rent price multiplier indicates how many times the annual net cold rent is included in the purchase price – and whether the price is reasonable.
Reference values:
· Ø Germany:20–25
· Prime locations:20 to 35
· Peripheral locations:approx. 15
The lower the multiplier, the more affordable the property in relation to rental income – and the better the potential return.
Yield and risk: A trade-off
A yield of2.5 to 4 %is considered standard for real estate investments. A net rental yield of at least 3.5 % is aimed for to ensure the profitability of an investment. The net rental yield provides a more accurate basis for decision-making than the gross rental yield, as it takes into account operating costs and ancillary costs of the acquisition.
The risk and return are heavily dependent on the location of the property. Investors in sought-after locations must expect higher purchase prices with lower returns. In B and C cities, comparable returns to those in A cities can be achieved despite lower purchase prices, but these locations are also considered riskier.
Financing of investment properties
The presence of equity, approximately 10% to 30% of the purchase price, is important for successful real estate financing. Investors should use equity to cover at least theancillary purchase costs . The existing, debt-free property can be used as collateral for construction financing.A cautious calculation is necessary to be prepared for changes in interest rates. It is important to plan the financing carefully and consider potential interest rate changes to secure the profitability of retirement savings and the investment.
Financing a second property is facilitated when the primary residence is already (partially) debt-free and a stable income is present. A debt-free property can serve as collateral and improve loan conditions.
It is important to carefully weigh the financial possibilities and risks before acquiring a second property.
Advantages of a property as an investment
Real estate is a stable investment and is often considered
inflation protection
, as rents usually increase with inflation. They also providepassive income sources, as rents usually increase with inflation. They also offerpassive Einkommensquellenthrough rental income, contributing to financial security and independence.
Real estate is an important building block for a balanced and crisis-proof investment portfolio.
Advantages and disadvantages of investment properties
Parts of Saarland, the Ruhr area, and many rural regions in East Germany, for example, are experiencing a rapid population decline. A concentration risk arises when a significant portion of wealth is invested in a single property, which limits risk diversification. However, careful selection and management of the property can minimize the potential risks of an investment.
Tax advantages, such as depreciation on acquisition costs, are a significant incentive for many investors to invest in real estate. Personal tax rates of 42% or more increase the attractiveness of real estate investments from a tax perspective.
How we can help
· Access to off-market properties at top conditions directly from the developer
· No brokerage fees
· Personal consultation by experts
We accompany you from property selection to financing and support you at every step to ensure your investment is successful.