Real estate investment: your path to financial freedom

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Real estate investment: your path to financial freedom

Does investing in real estate sound complicated, risky and fundamentally too uncertain for you? Then you should urgently take a closer look at the topic, because real estate investment is a highly recommended investment in the long term. We explain everything you need to know to successfully enter the world of real estate investment!

Start a successful real estate investment with the right mindset

Building up another income stream, improving your finances and offering your loved ones a carefree life, giving your family a roof over their heads: there are numerous reasons to start a real estate investment. But anyone planning to invest in residential property needs one thing above all: courage. Investments of any kind always involve a certain degree of risk. It is therefore important to weigh up the benefits and risks at the outset.

Be aware that you are investing a lot of money, and this is not just about the purchase price itself. Repairs may be due after the purchase. Not forgetting the maintenance of the home over the years, to name just a few examples of the extent of the financial burden.

There is also the possibility of a loss of rental income if you want to invest in real estate to build up an additional income. At times when your rental property is empty, you will not receive the corresponding income. The same applies if your current tenants suddenly stop paying. In such cases, you should urgently plan for a sufficient financial buffer so that you can survive financial lean periods without any problems.

Be brave but realistic

If you want to start a real estate investment, you should not only keep the financial factor in mind, but also the fact that you will spend a lot of time preparing the purchase and managing it later. Furthermore, no one can promise you whether your investment will be a stroke of luck or not. This is precisely why it takes a lot of courage, but also willpower, optimism and drive to make a real estate investment a success.

But as we all know, nothing comes from nothing. So take heart and dare! But don't act hastily and rashly. First check thoroughly what your financial and time capacities allow and make a well-considered and sensible decision on this basis

real estate investments

Overview of different types of real estate investment

If you want to start a real estate investment, there are various options available to you. You can buy a property, invest in a real estate fund or shares or opt for real estate bonds, to name just a few examples. We provide you with an overview of the most common types of real estate investments.

The classic real estate investment: buying a property

Have you always dreamed of owning your own home? Then you must have thought about buying a property a few times, right? It's not a bad idea at all, as owning your own home has been considered an essential part of comprehensive retirement provision for decades. At the same time, it is a sensible investment in inflationary times. Real estate is a tangible asset that is considered quite stable compared to cash assets. And don't forget that you can generate a respectable cash flow if you rent out the property you buy. And that's always a good thing, isn't it?

However, bear in mind that real estate prices are currently quite high. Anyone looking for bargains with the desire to make a sensible real estate investment will probably be disappointed. Nevertheless, it is still a good time to buy a property, as prices will continue to rise. The value of the property you buy now is therefore very likely to increase in the future. Of course, it is also crucial that you keep the property you buy in good condition.

Due to the high prices, buying a property is particularly suitable for wealthy investors. If you do not have sufficient equity for such a real estate investment, you can take out a real estate loan from your bank. Bear in mind that you may also incur high ancillary purchase costs for maintenance and administration, among other things. New environmental regulations can also have a financial impact.

A direct comparison of open-end and closed-end real estate funds

Funds collect money from investors and invest it in a broadly diversified manner on the financial markets - that is the general definition. In terms of real estate investments, the money is of course not spread across the financial market, but across a variety of different properties. These include, for example

  • Office building
  • Shopping centers
  • Hotels
  • Construction projects that are still under development

If you opt for an open-ended real estate fund, the fund management buys various properties. This spreads the risk of loss over several points and does not concentrate on just one property, as is the case with a traditional real estate purchase. This approach allows you to benefit from the development of the real estate market without having made a direct real estate investment yourself. You don't need the immense capital investment required for a purchase with this option. The whole thing works like the stock market. You can sell or buy back a share of the fund at any time.

This is not possible with closed-end real estate funds. This type of real estate investment is limited in time. This means that after a certain period of time, the so-called subscription phase, the fund is closed again and you return it. During the term, it is generally almost impossible to return units or the entire fund. It is also important to know that a closed-end real estate fund invests in significantly fewer properties than an open-end fund. This means that this option is more suitable for investors who have already invested their money in a wide range of other investments and for whom losses would not immediately mean bankruptcy.

Your real estate investment in shares

The handling of real estate shares is similar to that of closed-end real estate funds. Here, too, you invest in a broadly diversified portfolio and therefore indirectly in several properties at the same time. Unlike real estate funds, however, you can hold shares for as long as you like. You can sell when you want and add to your portfolio whenever you like. The entry amount is also usually lower. Basically, you only need one share to get started and you can buy it for around 50 euros, depending on the current market situation. With funds, you always invest in several properties, which therefore requires a higher initial capital. The amounts here are often in four figures.

Real estate bonds and loans to companies

If you buy real estate bonds, you are effectively acting as a lender for the company in question. In this way, the company receives fresh capital and can use it to cover the costs of new real estate projects. What do you get? What do you get out of it? Quite a lot, because in return you receive regular interest payments. As soon as the term has expired, you will of course also get all your invested capital back.

How high the interest rates are depends on the one hand on the creditworthiness of the real estate company in question. As with all other types of real estate investments, the development of the market is of course also a very important factor here. It can also happen that your bond issuer becomes insolvent. If this happens, it will no longer be able to pay you interest and, in the worst case, the capital you initially invested will also be lost.

investment real estate

Start your real estate investment: What you should look out for

  1. Choose the right location: Macro and micro locations are equally important. The macro location refers to the larger environment and includes factors such as the number of inhabitants, population development, labor market, attractiveness of the residential area and climate. The micro location looks at the immediate surroundings of the property, for example traffic volume, noise, nearby schools and daycare centers,...
  2. Check the floor plan: Spacious rooms, preferably without passageways, are particularly popular with tenants and make it easier to find prospective tenants.
  3. Inspect the building fabric: Take a closer look at the external appearance of the property and look out for obvious structural defects. A surveyor will help you discover even small defects that could prove very costly later on.
  4. Pay attention to energy efficiency: be sure to ask for an energy performance certificate. Poor insulation causes high energy costs and makes renting more difficult.

Your start in the world of real estate investments

Safe investments that yield high returns - that's what we're all looking for, isn't it? Investing in real estate always involves a certain amount of risk, but it is a very valuable investment. In the long term, the loss in value is significantly lower than that of cash. At the same time, you generate a passive incomeif you rent out your property. Real estate is also a recommended investment for retirement provision. Either a beautiful home that is tailored to your needs is waiting for you in old age, or you can sell it when you retire and enjoy your retirement thanks to the profit.


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Reviewed by Dr. med. Stefan Frädrich

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