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Building wealth by renting out your property as an investment
In times of low interest rates, alternatives to conventional savings accounts are increasingly being sought. One option is to not purchase a property for personal use, but to use it as part of wealth accumulation. The monthly rental income can be an important pillar for the pension in retirement after the repayment of a possible loan. Professional support on this topic is very important to avoid possible problems. Especially because real estate only makes sense as a capital investment if it does not cause any major additional effort and therefore no opportunity costs.
4 reasons why it makes sense to use a property as an investment
1. Reason
There are various reasons why it is advisable to purchase real estate as an investment. Above all, real estate is a tangible asset, in contrast to the monetary value of a savings account, for example. While a monetary value reduces the actual return due to inflation, real estate as a real asset compensates for the depreciation of money through rising prices.
2. Reason
Another feature that makes real estate attractive as an investment is the stable payouts. The regular rental income ensures a high level of planning security and makes the property a suitable investment for retirement planning.
3. Reason
In addition, we are currently in a situation in Germany in which more properties are disappearing from the housing market every year than new ones are being built. The number of one-person households is also increasing year after year, despite a slightly growing population. This inevitably leads to a severe shortage, which results in higher rents and ultimately also higher real estate prices. Politicians have now also recognized that this fact exists. However, since a short-term change in this shortage is not possible, property owners will continue to benefit from this development.
4. Reason
It is also important to take the tax aspect into account: for example, for a rented historic home, 2% of the purchase cost can be deducted each year as depreciation over a period of 50 years. The renovation costs of listed buildings can even be tax deductible over a short period of twelve years. In addition, the interest costs for the loan can also be deducted from the tax. Significant tax advantages can thus be achieved. How do you see it – does real estate make sense for you as an investment?
5 possible pitfalls that you have to consider when investing in real estate
1. Pitfall
If the property purchased as an investment is not in your own place of residence, considerable costs can be incurred, especially for the investor. Because if the tenant has difficulties with the property, it is up to you as the owner to take care of it.
2. Pitfall
Even if there is a change of tenants, you as an investor have to be on site and actively seek a new tenant.
3. Pitfall
Attending owners meetings and preparing utility bills will also take up your time and patience.
4. Pitfall
If your property is vacant at any point, be it for a month or two, your returns will be significantly reduced. A tenant who fails to pay rent or damages the home can likely ruin any return on investment.
5. Pitfall
There are also other important factors to consider when investing in real estate. For example, the location of the property is a crucial factor. It is also important to know how to find a suitable property and whether it makes sense to hire an agent. You should also think about how much equity you need and what financing options are available.
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