Is there risk in investment real estate?

We answer these and many other questions in our video blog editions.

Here is the transcript of episode 26 to read:

The basic question is: Is there any risk in investing in real estate?

First of all, I would like to emphasize that, in my opinion, there is no investment in the world that is completely free of risks. But I always ask myself: where is the greater risk - buying a property or not buying one? I think it's far more risky to try to get by in life without passive income. After all, if you're trying to build wealth by saving on your own and no one else is paying for you, that's much harder than getting help to do it.

What risks could occur? Sooner or later, the apartment will probably need repairs. Maybe something will break after ten or twelve years. Let's assume, for example, that you rent out an apartment with a built-in kitchen. It is almost certain that after 14 or 16 years the refrigerator or the stove will give up the ghost. Then the management will have a new stove or refrigerator installed. What does a refrigerator cost? About 400 to 500 €. The administration will send you an invoice for 500 €. You can deduct this amount completely from your taxes and pay perhaps only 250, 280 or 300 € net for a new refrigerator including installation.

When something like this happens to you, I always wonder how much rent your tenant has already paid in the past 14 years. Let's say your tenant pays €800 a month, that's €9,600 a year. In ten years that would be €96,000 and in 14 years about €120,000 to €130,000 in rental income. If I then receive a bill for a refrigerator for which I pay only 300 to 400 € after taxes, the question arises: Man, you have taken in 140,000 € in rent over the last 14 years. Now you're investing €250, €300 or €400 - that's something I can live with.

If you then say that this is an incalculable risk, leave real estate alone. But I think realistically between the two of us: Better you deal with real estate, take this small risk that maybe in the end, if the property costs €400,000 and you plan to pay 80,000 for it over the entire years. Maybe you get an additional bill two, three or four times in the 30 years and end up paying not €80,000 but €83,000.

I can tell you, even in this case it will be one of the best investments in your life. But basically I can only say: There is no investment without a small, minimal residual risk.

Keywords:
Risk, investment, real estate, wealth, passive income, repair, rental income