Crowdinvesting: basics and rental yields

Invest in real estate instead of the next sneaker? Sounds strange, but that’s no longer a problem with crowdinvesting. Crowdinvestment means as much as real estate investment for everyone. But what exactly is crowdinvesting?

Here in short, before we go into details, the most important summarized on the subject of crowdinvestment:

• Many shares of a property divided to private individuals
• Only a small outlay of equity
• Loan is not paid to developer, but only participation in property

What does crowdinvestment mean exactly?

Crowdinvestments are very similar to a corporation that sells many company shares to private individuals and institutions in order to obtain the necessary financing for the company’s growth. So too, with crowdinvestments, individual shares of a property are sold to private investors. The advantage? You can invest in such real estate even with a small amount of equity and thus secure your pension.

• Comparison: stock corporation
• Many shares of a property divided to private individuals
• Only a small outlay of equity

How does crowdinvestment work in the first place?

Let’s stay with the example of the stock corporation. When a property is newly built or renovated, it is published on a special crowdinvestment platform. This is responsible for the distribution of the real estate shares to capital investors. Through the platforms, the owners are considerably relieved.

Differences from a normal investment:

• No targeted partners for financing, but division of the property by platform
• Loan is not paid to developer, but only participation in property
• Share is not used for personal use, one obtains the part of a yield

How do I find profitable real estate?

In order to know which property is worth investing in, one should know what the return on investment of the respective property is. Here you can use a simple formula to calculate this.

Formula Rental Yield:

Annual rent / investment x 100 = rental yield

If you want to know even more about rental yield, read our article Rental yield and purchase price factor here.

Financing real estate yourself? Equity

When you’re young, you often don’t have the equity directly available to invest in a property. Thus, equity probably plays the biggest role in real estate purchases for first-time investors. Many ask themselves the question, how much equity do you need at all for a regular property?

Equity depending on the situation

The answer is always related to the location of the property. If your property is in an A location such as Munich, Cologne or Hamburg, it is unaffordable for most people. In a B – location or good C- location, however, the prices fall. Depending on the micro-location, prices can also vary depending on how far into the city center you want to live.

• A- location (big city) extremely expensive
• B- location and good C- location moderate prices
• Microlocation is crucial

Equity investment depending on financing

No matter what the final purchase price of a property, the bank usually always requires an equity contribution of 15%, especially for first-time investors. In addition, one must always reckon with the addition of the ancillary purchase costs, brokerage costs (if commissioned) and the land transfer tax.

• 15% equity investment

Real estate as an investment: Provision for old age

Our pension is getting smaller and smaller and our money in the bank is subject to inflation in any case. So we are left with real estate as a good way to invest our money, as it neither loses its value due to inflation nor is it always in demand. Moreover, after a few years we benefit from the increase in value of the property.

The great advantage of a property as an investment is that it is rented out, unless you want to buy your property for your own use. The income from the rent generates a constant cash flow, with which the property and all costs incurred can be covered. By earning a high return at best, you build wealth on top of that. In addition, real estate always remains fairly constant on the market, which means that you minimize risk when you buy.

• Real estate is stable in value
• Real estate offers inflation protection
• Real estate provides constant cash flow
• Asset building

Crowdinvesting: Videos

To better illustrate crowdfunding, we have two videos here for you to illustrate the point.

What is crowdinvesting?

Here, crowdinvesting is explained to you with the help of graphics and drawings.

Rental yield: What is it actually?

When you finance your purchased property and rent it out, you generate income from the tenants. The rental yield puts your investment in relation to the potential rental income.

This simple formula makes it easy to calculate the rental yield:

• Annual rent /investment x 100 = rental yield

The rental yield factor can be used to determine whether the rental income covers the interest, repayment and ongoing operating costs and whether a surplus is left over at the end for asset accumulation. In addition, this is the best way to compare yield properties on offer.

Yield and location: Dependent factors

The location is particularly important for the yield of a property. In addition, it depends on the goal as an investor whether one wants to invest in an investment or yield property.

What does it depend on?

• Location of the property
• Investment strategy/return or investment real estate

Excursus: A – B- C- location and their yields

Here we have briefly summarized the potential return for the three location types:

A- Location:

• Low return
• Long-term value enhancement

B- Location:

• Good return
• Increases moderately but steadily in value

C- Location:

• Very good return
• No increase in value (+ greater risk of vacancy)

Rental yield: When is it worthwhile?

Basically, the higher the return, the less I have to pay myself and the more I get paid off. Ideally, there is even a monthly surplus that can be used to build up direct assets.

Here are a couple examples of possible returns:

A-Layers:

• Top A-location like Munich Ø Yield ~ 3 %
• A-location like Frankfurt Ø yield ~ 4 %

B-Layers:

• Good B-location like Dresden Ø Yield ~ 5%
• B-location like Nuremberg Ø yield ~ 6 %

C-layers:

• Good C-location like Wuppertal Ø Yield ~ 7%
• C-location like Chemnitz Ø yield ~ 8 %
• Poor C-location like Krefeld Ø Yield ~10%

The next step: existing or new building

When buying a home, in addition to the question of owner-occupancy or capital investment and return or investment property, one wonders whether to invest in existing or new construction. Both forms have their advantages and disadvantages. In this article, you will learn what they are.

The right location: owner-occupier or capital investment?

Where exactly should I buy my first property? Owner-occupiers and capital investors, as well as yield properties or investors with the goal of value appreciation, accordingly, the decision of the perfect location is different. Here we go into the analysis again to help you find the best location for your goals!

• The right location

Owner-occupiers: what matters to me?

Real estate for personal use is often associated with an emotional value, you have to like it. Accordingly, the property is preferred to the locality. Factors such as the route to work or kindergarten then take priority; in short, the micro-location becomes decisive.

Here again in short:

• Property that pleases personally
• Proximity to work/ kindergarten/ school/ …
• Micro location/quality of life is priority

Resale value: location is decisive

However, you should always keep in mind that it could still be that you have to sell your dream property again later. Reasons for this can be age justice, job change or the growth of the family. Therefore, one should always have a look at the location of the property when buying, because this determines the resale value.

C-location: The dream of the country

If you want to buy your dream property in the countryside, in a C-location, you have to expect possible losses. Here, briefly, the factors that are responsible for a decrease in property value.

• Declining population figures
• Negative development of the economy
• Tight local market, little demand

Capital investment: yield and investment property in comparison

Capital investors always choose the location with the goal of investment or yield property in mind.

Yield real estate as an investment

The aim here is to generate direct cash flow through rental income. This is achieved through low purchase prices and a high rental yield, which covers the costs incurred such as repayment, interest and operating costs. It is best suited as a B or C location here.

• Direct cash flow
• B- or C- position

Investment real estate as a capital investment

Investment properties pursue the goal of value appreciation in the long term. This is usually only found in A- locations or even less in good B- locations. The reason: The purchase prices are enormously high, so the running costs cannot be covered by the rental income.

• Value enhancement in the long term
• A- Location

The next step: Determine maximum purchase price

How much real estate can I afford at all? This question is asked at the beginning of the process of buying what may be your first home and depends on many factors. These include your creditworthiness and self-disclosure, in terms of assets, the monthly asset balance (repayment), the equity capital and the mortgage lending value of the property to be financed. Here you will learn everything you need to know to determine the maximum purchase price.

Macro, meso, micro: from the city to the neighborhood

The macro, meso and micro location is a size comparison of locations where exactly a property is to be purchased. In doing so, it goes deeper and deeper, from the question of which city? (macro), to which district? (meso), to the exact location, i.e. the immediate neighborhood (micro).

Here is a brief overview of the layer types:

• Macro- location: (A-, B- and C-location, i.e. where in the country / which city?)
• Meso location: which district
• Micro- location: exact location/ neighborhood

Macro- location: First decision – The city

This is mainly about deciding at which location you want to invest roughly in the country. You have already learned what A, B and C locations are all about in our article on location types. Here again in short the location types explained, which offer in principle a comparison of places:

• A-location (simply: metropolis)
• B-location (simple: large city / city with positive development)
• C-location (simple: small town / country in stagnation)

Meso location: Second decision – The district

The meso location goes one step deeper in the analysis and describes the specific district in which your property should be located. This is important because many influencing factors, such as infrastructure, educational institutions or proximity to public transportation, are decisive. Thus, each district has its individual advantages and disadvantages that need to be differentiated.

Here again is a brief overview of the meso situation:

• Infrastructure such as road and rail links, educational facilities, doctors, airport, etc.
• Economic situation
• General attractiveness of the location
• Environmental factors such as flooding, etc.

Micro- location: Third decision – The neighborhood

Here we look at the immediate surroundings. Parking spaces, doctors, supermarkets, parks and the background noise in the neighborhood. Depending on the destination, you have to decide what is most important to you.

Here again the micro situation at a glance:

• Public transport like train, bus, cab
• Parking facilities from public to carport and underground garage
• Shopping facilities such as supermarket and other stores
• Parks and playgrounds

For examples and more details read here more about the location analysis/ Immobilien-Erfahrung.de

Next step: The right location

Where exactly should I buy my first property? Owner-occupiers and capital investors, as well as yield properties or investors with the goal of value appreciation, accordingly, the decision of the perfect location is different. Here we go into the analysis again to help you find the best location for your goals!

Return vs. investment property: cash flow or value enhancement

Yield vs. investment property – 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 yield a 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.

A- B- C- position: (basic) positions

The classification into A-, B- and C- location is a great help in identifying cities and regions where real estate is offered for sale. The different location types thus compare areas. Higher yields go hand in hand with lower appreciation. Therefore, depending on the location, one chooses between yield or investment property.

Here in short:

• A-location (simply: metropolis)
• B-location (simple: large city / city with positive development)
• C-location (simple: small town / country in stagnation)

A- Location: Germany’s metropolises

Properties in desirable metropolitan locations, with high purchase prices and low returns, in short, this is where you will find investment properties.

Investment property: high costs, low return

If you want to buy a property in A-location, you need to have a good starting capital available, because real estate in A-location is expensive. Investment properties bring no or almost no cash flow through rental income, because the square meter prices are enormously high. Although the value of the property will increase in the long run, the increase in value of the property can only be assumed through speculation.

Here briefly summarized the advantages and disadvantages of a property in A- location:

• Very expensive
• High square meter prices as well as operating costs cannot be covered by rental income
• No immediate cash flow from rental income
• Value appreciation very speculative
• But: Value of the property increases in the long term, because A-locations are in demand.

A-locations in Germany

Which cities generally count as A-locations? Here according to population:

• Berlin
• Hamburg
• Munich
• Cologne
• Frankfurt on the Main
• Stuttgart
• Düsseldorf

Here you can find more information to Lagearten/ Immobilien-Erfahrung.de

B- Location: Germany’s best pieces

Properties in B-location are called properties in cities that are close to metropolitan locations and / or cities of regional importance, with moderate purchase price and good yield, in short, here you will find yield properties.

Real estate yield: steady cash flow, moderate prices

These are cities close to metropolitan areas (A locations), such as Bonn for Cologne or Essen for Düsseldorf, as well as cities of regional importance. Moderate purchase prices and good rental yields can be found here. This means that you can cover all your costs, be it repayment, operating costs or reserves, through the rents without any problems. Again, tenants and tax office pay off the property almost without your intervention!

Here is a brief overview of properties in B- location:

• Moderate purchase prices
• Rental income covers costs, ideally with surplus
• Lower increase in value than properties in A-location
• Direct cash flow from rental income

B location in Germany

B locations include:

• Leipzig
• Dortmund
• Food
• Bremen
• Hanover
• Nuremberg
• Wuppertal
• …

C- Location: Small but fine – It becomes rural

C-location properties describe real estate in cities, close to metropolitan locations, with moderate purchase price and good yield, which means yield properties with higher risk.

Real estate returns: higher risk due to vacancies

C-locations are cities with a weak structure and / or cities and towns in rural areas. Nowadays, many people move to the big cities, which is why the risk of vacancy is significantly higher for a property in a C-location. The increase in value of the property is also more difficult to calculate in the long term.

Here briefly summarized real estate in C- location:

• Low purchase price
• Rental income covers all costs
• Risk of vacancy and dilapidation
• “Good bargains”

A- B- C- position in comparison: How much is in it for me?

On this infographic you can easily see a summary of the three types of locations. Properties in A- location bring the least return, but have the lowest risk and the highest appreciation. B- Location properties are in the middle, with an acceptable return, low risk, and medium appreciation. C-location properties, on the other hand, pay the highest return, but have a very high risk and a high loss in value.

More about A- B- C – Location/ Immobilien-Erfahrung.de

In the end, you decide what is the most profitable location for your real estate purchase!

Next step: Macro- Meso- Micro- Location

You are already fully in the topic of buying your first own apartment? Great, because once you’ve made a rough choice between A-, B- or C-location, you now move on to the analysis of the location. This involves comparing city districts and the specific neighborhood. You want to know how this works? Then you’ve come to the right place!

Return vs. investment real estate

Yield vs. investment property – 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 yield a 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.

• Return vs. investment real estate

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.

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./ Immobilien-Erfahrung.de

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!