Property as a capital investment – Many people come to the point at some point in their lives where they wonder whether it might make sense to invest in a property. As a layman it is sometimes quite difficult to find your way around the topics of real estate. We have interviewed an expert for you to answer all your open questions.
Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.
Is real estate a sensible capital investment?
Nobody will be surprised that I, as a broker, answer this question with a clear “yes”. But it depends on the reason! When buying real estate as a capital investment – and it doesn’t matter whether it’s a house, a plot of land or an apartment – everyone likes to talk about “concrete gold”. There is a reason for this: real estate has indeed grown steadily in value over the past years and decades. Generally speaking, anyway. As with gold, you also have to endure times with worse performance or even a downward trend in real estate.
FIV: Then I’d rather invest in gold right away. After all, do I never have to “renovate” gold or worry about tenant issues?
At first glance, that is correct. But at a second glance it quickly becomes clear: if you do your real estate right, you can achieve gains in value in periods and heights that gold investors only dream of. I’m talking about the “leverage effect” of buying real estate. In short: The capital used for the purchase experiences already after ten years with sales of the real estate a value increase in the tidy two to three-digit range. No gold in the world can do that!
No gold in the world can do that!
However, with gold it doesn’t matter where it is located – the main thing is a secure safe at a bank. With a real estate it is not indifferent. In addition to the state of construction, the location plays a decisive role in value development.
invest money in Frankfurt & Rhine-Main area
FIV: What does that look like in the Rhine-Main area? Which regions are in demand?
The Frankfurt am Main, Wiesbaden and Mainz area is known to be at the top of the scale when it comes to demand for real estate. You only have to drive on the relevant motorways once in the morning and after work to know that many people work and live here. The urban agglomeration is interesting for many people to shorten the distances to work.
But of course there are also differences in the intensity of demand and thus in the development of prices. It is really expensive wherever people have good connections to buses, trains and roads. The Rhine rail to Bingen, for example, is therefore very good, or the surrounding area from Frankfurt to Butzbach, Hanau etc..
Real estate as a capital investment fits perfectly into these locations of the Rhine-Main area!
However, the locations in the Middle Rhine Valley or in the rear Main-Taunus district are a little less good. There, real estate is sold rather than bought. Basically, the purchase prices decrease with the distance to the large centers. This is interesting for investors because although the purchase prices for real estate in the periphery are often lower, the rental income to be achieved is not. This has a noticeably positive effect on the yield of the property.
Brexit and real estate prices?
Question: Do you think that Brexit plays a role in real estate prices in the Rhine-Main area?
Yes! I’m sure of it!! Since the decision to resign was made, many companies have relocated their headquarters to continental Europe. Frankfurt is one of the first addresses in the world for banking and financial services, so that some companies from this sector have already come to Frankfurt. Others will follow. Compared to the rents and purchase prices in London and the surrounding area, our prices seem rather moderate to the bankers.
Which areas in the Rhine-Main area benefit from the influx of exiled Brexit victims, however, cannot be said so clearly. For example, even greater pressure on the housing market was predicted for the inner city of Frankfurt than it already is. However, this has not happened so far. Many prospective customers are now looking for a house or apartment in the surrounding area. The Rhine-Main conurbation is much more manageable in its dimensions than Greater London. The journey by train or car to work in Frankfurt is obviously acceptable for many prospective buyers. Real estate buyers in more distant areas can also profit from this development. The corresponding properties and locations only have to be professionally marketed to the target group of interested parties. The Rhine-Main area is becoming more and more expensive, so that locations that were considered moderate yesterday are interesting today as capital investments. This includes Rheinhessen, for example.
3 tips for investing in real estate
Question: What three tips would you give our readers if they wanted to buy a property as an investment?
- Tip 1: Have the courage to get money from the bank for buying a property as an investment.
- Tip 2: For the beginning tut´s also ne chic 2-Zimmer-Wohnung in desired situation, in order to enter into the plant business with real estates.
- Tip 3: When buying, also listen to your “gut feeling” and not only to the advertising slogans of the realtor.
Question: How high are the real estate prices in Frankfurt and the surrounding area? Which parts of the city are currently particularly in demand among buyers and investors?
The prices for real estates are usually indicated gladly per square meter. In Frankfurt they are between € 3,500 and around € 8,000 for existing properties and between € 5,000 and over € 11,000 for new buildings. Now I have also looked at apartments and houses together. You can get a good first overview from the page wohnlagenkarte.de.
square meter price between 3,500 and 8,000 Euro in inventory
square meter price between 5.000 and 11.000 Euro for new building
How high the price is then really, decides not only on the age of the property. The state of refurbishment, equipment, location in relation to public facilities and local suppliers also play a decisive role. As mentioned above, the accessibility of public transport and good roads is also very important with regard to the purchase price.
Which districts – not only in Frankfurt – are particularly in demand depends on many local conditions. In addition, the ranking of “in districts” is very variable. Who would have thought in Frankfurt that the Ostend would one day become a really sought-after district? Before the decision to rebuild the ECB (European Central Bank) there, the Ostend was almost like the city’s dump. This has now changed and an end to the positive development for Ostend is not in sight.
Sure. Bockenheim, Westend and Sachsenhausen are still the first choice for Frankfurt. The Gallus district has also done the right thing.
Wherever, for example, old industrial plants are turned into versatile quarter complexes with cultural and shopping facilities, where industrial wastelands are built over with well thought-out new buildings, a district becomes a preferred place to live and thus also a lucrative investment location for real estate buyers.
New building in good location – what do you say?
Question: If I now invest in a new building in a very good location, am I on the safe side?
There gibt´s from me a clear “Jain”! A yes because with a properly executed new building there is first of all peace and quiet before renovation work. Perhaps also because for the tenant, whom I want to win as an investor, a new building usually seems more attractive than moving into an existing property.
The NO, for example, applies to the fact that the investment in new buildings is usually significantly higher than in existing properties. Then the rent to be achieved must be so much higher that my yield from the rental income is so high with existing properties. The real estate as capital investment is not only interesting because of the regular rental income. Ultimately, the return is achieved when I sell the property again sometime. In good locations, the value of the object will then continue to rise. However, anyone who has already made a very high price entry when buying a new building must experience a stable and very steep performance in order to make the investment work.
The purchase of an existing property – naturally also in a correspondingly good location – can function much better and safer as an investment. You have to calculate all this with your banker, but also with a qualified broker.
Should you sell your property now?
Question: Conversely, do sellers benefit from the current trend?
But absolutely! Because everything I said from the perspective of the buyer also applies to the seller. Above all, of course, with regard to the selling price to be achieved. But watch out! There are initial signs that the upward price spiral is slowing down. Some are already warning of a real estate bubble. Because in the past years with the favorable interest rates and the strong interest in real estates it showed up also that for houses and dwellings partly genuine fantasy prices are called. Many a salesman thinks he can now do the business of his life.
But after all: especially if you want to sell your property quickly or even have to – for example in the event of death, insolvency or something like that, the seller today still achieves significantly higher prices than a few years ago.
However, I would really warn against assuming that the upward trend in prices will continue in the distant future. And even if real estate prices continue to rise, interest rates will eventually become more expensive again. Then many will shy away from buying a property and the market will cool down.
Price development for real estate and square meters
Question: What are the prices like in the so-called bacon belt of Frankfurt? How have demand and real estate prices developed?
The so-called “Speckgürtel” now stretches from Frankfurt far west towards the Rhine, north to the Giessen area. In the east geht´s to about Gelnhausen in the Main-Kinzig district and in the south far down the Bergstrasse.
The closer area around Frankfurt is still everything in the front Taunus from Hofheim to Bad Homburg. But Friedberg can also be counted among them. I recommend that you just take the S-Bahn ticket with the terminal stops. This gives a reasonably suitable radius for the narrower bacon belt around Frankfurt. Since the demand here is correspondingly high and the connections to the center are good, the real estate prices in the surrounding area unfortunately often play in the same league as in the city center.
Last question on that: If you have the money, you should buy in 2019 or not?
Even if you don’t have the money, you can still think about buying! Nobody expects the purchase price to be paid completely out of equity and if possible in cash. In most cases, a little money of one’s own in relation to the total price is sufficient as equity capital. In addition, the banks currently still offer attractive interest rates! That’s the beauty of capital accumulation with real estate: you don’t have to bring a fortune with you, you can earn it with real estate!
Thank you very much for the interview!
Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.