If you don’t feel like putting your money at the bank’s disposal for meager interest rates and you’re looking for a profitable alternative, a real estate investment might be just the thing for you. A real estate investment is a long-term investment and probably the best way to build up a large fortune at a young age with comparatively little equity. In contrast to the stock market, where average returns of 6 – 8 % are achievable, a real estate investment often enables returns of 15 % and more on the capital invested.
What is a real estate investment?
But let’s take a step back and ask ourselves what a real estate investment is. I often hear from friends and acquaintances that they now want to build their own home, because this is the best investment in retirement provision.
In fact, there is a big difference between building your own home and investing in real estate. Although an investment is basically only about the use of capital for a specific purpose, a car purchase could also be considered an investment. However, as long as you are not an entrepreneur who sends a sales representative to catch customers with this car, nobody expects a return flow from it. We therefore regard the concept of investment as the use of our own resources to achieve a positive return.
With this definition in mind, it quickly becomes clear why building your own home is not actually an investment. If you build your own home to have something for old age and to see your children grow up in it, as well as to settle in to the neighborhood, one point becomes increasingly unrealistic over time: the realization. In other words, the sale of the property. There is a lot of capital in the property. In order to profit from a possible increase in value, the property would have to be sold. As a rule, however, the home is not sold. Very few people want to shrink as soon as the children have moved out. In addition, one has long befriended the neighbors and has become a part of the community.
Why a real estate investment can make sense right now
Why should you even make a real estate investment? If we look at the current economic environment, it quickly becomes clear that conventional forms of investment are no longer worthwhile. On overnight money accounts there is usually not even 1% interest. If we oppose this with an inflation rate of 2%, the capital saved is devalued by 1% annually. Let us assume that we would invest € 5,000 at these conditions if it were only worth € 4,500 after 10 years. Although there may be €5,500 in the account, purchasing power fell by €1,000 in real terms. The low interest rate environment has thus made many classic forms of investment uninteresting. Other investment forms profit again from this circumstance and become thereby only interesting for the private investor. This includes above all the acquisition of investment properties.
Unique opportunity for a real estate investment
If we take the same example, but only apply an interest rate of 2% to the loan of €150,000, there would be an additional monthly charge of €250, setting the monthly rate at €500. The potential borrower would thus only have to earn an income of 1,150 € plus 500 €, i.e. a total of 1,650 € net. This amount is much easier for many people to achieve than € 2,150.
Bank loans without own capital funds for your real estate investment
It offers itself to cover your real estate investment to 100 % by a loan, without letting own capital funds flow in also, thus a so-called purchase price financing. The ancillary purchase costs are excluded as they do not represent any value and are not secured by the bank. The real estate investment throws more net yield on the invested own capital funds off, if the portion of the bank loan is higher.
What you have to pay attention to when investing in real estate
I can understand you very well if you would like to get started with your real estate investment right now. But first I would like to show you again what is important for a real estate investment.
Why is it so important who you buy your real estate investment from? It makes a big difference whether you buy the property from an owner-occupier or from an investor. Because apartment buildings always have a community of owners that votes on renovation work and general decisions about the property, the relationship between investors and owner-occupiers is important. The needs of an owner-occupier are usually not the needs of an investor.
Why the location is essential
In order for your real estate investment to yield a long-term return, you need to pay attention to a good location. Only three cities have made it through our complex review process.
These cities have strong growth, low debt, large educational institutions and a wide range of industries and employers. These three cities are Berlin, Leipzig and Dresden. I would like to go into Dresden in more detail in the following, because the reports have almost turned up in the last few weeks. One thing is certain: Dresden is booming.
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