Can the cost and profit factors of my investment property change over time?
In today's edition of our video blog, you'll learn if the cost and profit factors of my investment property can change over time.
Start the video here:
Frequently, capital investors ask themselves
We answer these and many other questions in our video blog editions.
Here is the transcript of episode 29 to read:
Can the costs change in the next few years? That's a very interesting question. And I can tell you, not only can they change, but the cost of a rented property is guaranteed to change, if only because of inflation. I'll give you an example with management. If we approach this sensibly, we will install a professional management that will take care of all the work, so you don't have to deal with it.
Imagine you have a tenant who reports that the light bulb in the stairwell is flickering. Instead of someone contacting you, a professional takes care of the tenant on site. The annual service charge statement, the collection of the rent, the monthly forwarding of the rent to you - the management takes care of all that. A good management costs about 15-20€ net per month, and this is a worthwhile investment, because you have absolute professionals who take care of your property.
Now let's assume that you believe that costs can never change. This would mean that the administration would always charge the same amount of 15€ or 20€ net per month for the next 10, 20 or 30 years. However, this is not realistic, because if there is inflation, in five to eight years at the latest the administration will say: "Dear customer, dear investor, dear property owner, postage has become more expensive, so we will send you a statement every year. Our qualified employee earns a little bit more now, so we have to adjust the cost by 1-2€ every three to four years." So, it is quite normal that the administration occasionally proposes to increase the costs by one euro, in order to calculate this seriously.
For example, if you contact our team at Real Estate Income, we will prepare a long-term calculation and plan for your property. In this calculation we take into account a basic inflation of 1.5 percent. Over many years, there will always be some inflation, so we continually adjust all costs for inflation over the years to make sure everything is accounted for.
Of course, the income also develops with inflation. You know yourself that the administration sends the tenant a rent increase when there is inflation, and thus your income also increases.
So the answer to the question of whether costs can increase is: Yes, costs will increase over the years, especially due to inflation. But that's exactly why you invest in tangible assets, because you will be one of the winners. You profit proportionally more, because the rental income, for example, is 700€ and the management costs are 20€. You can imagine what happens if the income at 700€ increases due to inflation and the costs at 20€ as well.
So this will be a good deal for you. If someone advises you, make sure that the calculations are fair. You must also assume that costs will rise in the coming years. Nevertheless, an investment property will be worthwhile for you if you approach it sensibly.
Costs, real estate, management, inflation, income, tangible assets, tenant, rent increase, advice