Secrets of success
Martin's answers to your questions...
Secrets of success
Banks play an important role in rented real estate and the creation of passive income. This is because banks finance real estate at extremely low interest rates, as real estate is a good security for banks and is a conservative investment. Through the loan you need less equity and can work with the leverage of financing. This is what experts call the leverage effect. In this way, you actually earn money with the loan. If, for example, you finance a rented property with a loan interest rate of 5%, you will pay - depending on your personal tax rate - only slightly more than half of the net interest after tax benefits. You borrow the money then for net maybe 2,7%, because the tax office participates with 2,3% in the interest. But the banks want the loan back without inflation compensation. For a loan of 200,000 EUR, you will pay back exactly 200,000 EUR as repayment over the years. Thus you become the inflation winner. Because if you borrow the money in this example net for 2,7%, but pay back the bank with e.g. 6% inflation in the course of the years each year repayment with a purchasing power and a value of 6% less, you have even borrowed the money for a real interest of plus 3,3%. You earn 3,3% per year with the loan. Of course, it is crucial that you can deduct the loan from your taxes (this is possible in case of a rented property) and that you invest the loan in a valuable and good asset. Because there the tenant also pays you an increasing, attractive rent and you additionally profit from an increase in value of the property.
For success with passive income, choosing the right location is very crucial. Who hasn't heard the saying "What are the three most important things in real estate? Location, location, location!"?
The location must be so good that, in the event of a change of tenant, immediate and seamless reletting is possible and the new tenants are also happy to accept rising rents in the process. The development of the property's value is also important.
What use is a cheap purchase price if the property is in the wrong location and the population figures there are declining sharply in the future? If population figures fall in the long term because, for example, hardly any new jobs are created in the region or the well-paid jobs in well-paid sectors are relocated to other regions, the rents and purchase prices of real estate are also likely to fall significantly in the medium and long term as a result. A capital investment property should therefore be located in a future and growth region, with rising population figures, thus increasing demand for living space and thus rising rents. The volume of new construction in the region must also be taken into account. It is important that housing remains in demand in the long term and that there is less supply of real estate than demand for properties. Then rents and prices will rise. For this, the property should be in a good micro-location. So in a quiet location, by a speed 30 zone, play street or Sachgasse for example. Not far from a forest, a lake or a park, so that the tenants live centrally, but are nevertheless fast with "the jogging shoes" in the green. Choosing the right location requires good expertise and outstanding research work. It pays to look for off-market properties here, because properties that everyone knows about and locations that everyone is focused on are usually properties that you can no longer make good money on.
The profit lies in the purchase. This is especially true for real estate. A favorable purchase price is important and helps enormously. A favorable purchase price differs very clearly from a cheap purchase price. A cheap object is cheap, because it stands at the wrong location, because it has lacks, because it is not ecological and thus in the medium term clear losses in value could be exposed, because it has wrong tenant clientele, because it has unfavorable layouts or the equipment and quality of the dwellings are not clearly above average. To be able to acquire a very good property at a reasonable price requires some kind of relationship. Good properties are rarely found on the internet or with the average realtor. When you buy investment properties through market leading specialists, you have a great opportunity to get properties that they have in their sales force due to their market power and sales strength. A leading provider is more likely to be able to push through more favorable prices, leverage greater purchasing power or provide access to attractive off-market properties. Objects, which are accessible otherwise only to large investors, which buy otherwise church municipalities, foundations, Family Office or fund companies, these objects also the private investors to make possible, this helps completely clearly more favorable and better real estates to get.