Return vs. investment property: cash flow or appreciation – advantages and disadvantages

Yield vs. investment property – You have decided: Finally buy your first own property! But am I buying an income property or an investment property? But what is it anyway? What is the basic difference between these two types of investment? And what exactly is an A, B or C location? The most important thing is that both types of investment generate profit for you. In which form, you can read here. Here you can find out everything you need to know about the yield and the investment of a property.

Yield or investment property: the difference lies in the goal

The direct difference between the two forms of investment lies in their objectives. Depending on how you would like to invest your money, both forms bring you profit. In short, through the return through rent you get a direct cash flow, through an investment property an increase in value takes place in the long term. But what do the terms mean in detail?

Return on property: Constant cash flow

Yield Real estate generates a high rental yield. This means that after all deductions, such as repayment, interest and management, a surplus remains which you can credit to your own pocket. The goal when buying a yield property should always be in front of your eyes:

  • Primary: Direct profit through surplus from rentals
  • Corresponding rental yield should be guaranteed >6%.
  • Properties are located in C+ (higher risks) to B+ (hardly any risk) locations

Investment property: long-term value enhancement

When buying investment real estate, one keeps the goal of value enhancement in mind. The profitable sale of the property at a profit is the main focus, not the income from the rent. The goal when buying an investment property is therefore the following:

  • Primary: Increase in value of the property with profit from the sale
  • Real estate should be located in A- locations

Advantage yield real estate: Top profit in B and C locations

Investment property requires a lot of capital, since there is no immediate income from renting – ergo no immediate cash flow. It therefore takes years before the property can be sold again at a profit.

Fragrance Tip! by FIV

What is worthwhile here for the beginning to enter significantly more, are yield real estate.

Yield real estate: advantages

An investment property offers many advantages. We have listed them for you here.

  • Instant source of income
  • Surpluses can offset other properties with shortfalls

Yield real estate: Disadvantages

However, we also have to note disadvantages here, even if this is the best way for beginners. What they are, read here yourself:

  • Surpluses are subject to taxation, tax burden increases
  • Higher yield comes at the expense of value enhancement
  • Not to be found in A- locations

Excursus A- B- and C- position: Alternatives

You can’t find a yield property for you in an A- location like Berlin or Hamburg? Our tip: Look for properties in B- or C- locations, this will make your search easier.

B- and C- position – Why?

  • Real estate search is less complicated
  • Moderate prices
  • The supply of yield properties is greater here

Here you can learn more about A- B- and C- locations./

Next step: self-disclosure for the bank

You want to buy your first apartment or house and the bank wants a self-disclosure from you? Learn here what a self-disclosure is, what it says and download a free PDF template that you can use to convince your bank!