https://fivmagazine.com/investment-risk-checklist-avoid-mistakes-when-investing-in-real-estate/ Wed, 18 Oct 2023 08:46:55 +0000 https://fivmagazine.de/investment-risk-checklist-avoid-mistakes-when-investing-in-real-estate/ 5 mistakes investors make – that you should avoid. If you want to be successful with your first investment, avoiding these 5 mistakes should be your top priority. Learn from the mistakes of others and become a real estate professional! Click here to return to the guide: Real estate as an investment.

5 mistakes! What to look out for when investing?

Your goal is financial freedom? Anyone can build wealth with real estate. Investments allow you to build up money over the long term. By investing, you can make your real estate work for you and benefit from interest, dividends and price gains over time. However, investing in real estate without any knowledge is too risky. You don’t have to reinvent the wheel. Every real estate professional has already made mistakes that you can benefit from. Stick to this checklist, avoid the 5 mistakes and minimize your risk of failure. Let’s go!

Risk checklist: What you should avoid

Stick to these points and nothing will stand in the way of your successful investment:

1. Don’t invest in real estate with too low a return
2. Designing financing for the long term instead of the short term
3. Bring in enough equity
4. Financing compared
5. Calculate net return not just gross return

Find out now what the 5 biggest mistakes are that you can make when investing.

Real estate as an investment: avoid mistakes

Investing in real estate as a capital investment can be a wise decision to achieve long-term income and asset growth. However, there are also risks and mistakes that should be avoided. Here are some tips from real professionals on how to avoid mistakes when using real estate as an investment.

1st error: yield below 9%

Why should the return on an investment be over 9%? When buying an investment, you shouldn’t just ask yourself the question: How much will the property earn me? You should also ask yourself: How much do I actually need to cover the costs? As a rule, you should assume a 2% repayment of the purchase price and 2% maintenance costs. After all, an investment property has to be paid off and rented out, which involves financial obligations. With the current 5 % interest rate, you then arrive at a return of 9 %, which the property must generate. So if the yield is currently below 9%, you are making a loss on the investment. It is better to stay away from such properties.

2nd error: short-term loan

Why should you choose long-term financing over short-term investments? In two words: Inflation and capital appreciation. When financing an investment and considering the impact of inflation, it is crucial to consider long-term strategies. Inflation leads to a loss in the purchasing power of money over time, which is why it is more favorable to finance long-term.

What are the advantages of long-term financing for you as an investor? Long-term loans usually have lower interest rates than short-term loans. This can significantly reduce the overall cost of the investment. Long-term financing offers stability and planning security. You know exactly what your monthly payments will be and can manage your budget better. Real estate generally increases in value over the long term. If you are buying real estate to benefit from the increase in value, long-term financing makes sense, as you need time to let the value of your property increase.

Long-term financing can also offer tax advantages, such as mortgage interest, which is tax-deductible in some countries. Long-term financing reduces the risk of interest rate changes. With short-term financing, you are more susceptible to interest rate increases that could increase your costs. Long-term financing can stabilize your monthly cash flow, as the installment payments are often lower than with short-term loans. This makes it easier to cover ongoing costs. Long-term financing offers flexibility. You can use your capital over the longer term and have the option of renting out the property, which can generate additional income.

The advantages of long-term financing at a glance:

• Lower interest rates
• Planning security
• Benefit from real estate appreciation
• Tax advantages
• Risk minimization
• Stable monthly cash flow
• Flexibility

3rd error: below 20 % equity ratio

Why should you use at least 20% equity to finance an investment? A higher equity base often leads to lower monthly repayments, which can improve the stability of your cash flow. This is especially important if you are using rental income to cover loan installments.

4th mistake: do not compare financing

Comparing financing is important to ensure a successful investment. Why? By comparing financing options, you can identify the most favorable loan terms, such as lower interest rates and lower fees. This helps to minimize the overall cost of the investment. Depending on your financial goals and investment timeframe, different financing options may be more suitable. A comparison will help you choose the one that best suits your goals.

5th mistake: relying solely on gross return

The gross return merely serves as a basic measure for initial considerations and decisions. It provides a rough overview of the profitability of a capital investment. It can be helpful for quick orientation. However, the net return is the more meaningful indicator. Its importance lies in the fact that it is more comprehensive and precise, as it includes all actual income and expenses. This includes expenses such as taxes, insurance, maintenance, administration and financing costs. By taking this into account, the net yield provides a more realistic assessment of the actual return on your investment.

Tips: become successful with a capital investment

More tips from experts on becoming successful with an investment in this informative video.

Real estate as an investment for beginners: Guide

Want to get started with real estate now? Read one article, that’s all you need for the most important basics of investing in capital assets. Start your career in real estate now with the investor’s guide.

• Guide for beginners

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Rent, buy, live in Bochum

Real Estate Urban lead a dynamic and experienced company that specializes in brokering, selling and renting real estate in Bochum. FIV Magazine has talked to the real estate agent team from Bochum in an interview about attractive districts, financing options and the Bochum real estate market. Here you can learn everything about buying your first home, different types of houses and apartments.

Overview of Bochum and surrounding cities:

Bochum from close up:

Rent: Contract & Settlement

After the successful purchase of the property and the execution of the purchase contract, you naturally want to furnish your newly acquired property according to your individual needs. From the living room furnishings, to the garden design, nothing stands in their way of your creative imagination.

Buy: Return on investment through real estate

In our interview you will learn everything about real estate and returns in Bochum. Should you buy a property in Bochum or is it more worthwhile to buy nearby, for example in Witten or Herne?

Real estate agent interview about real estate in Bochum

The first condominium or real estate as an investment? In this interview you will learn the most important tips & tricks. Buy, rent, live in Bochum but also tips for capital investments. We ask the questions, he provides the answers.

Urban real estate: Real estate agent in Bochum

FIV: Before we talk about Bochum and its real estate market and your recommendations for tenants and buyers, we would like to know a little more about your agency Immobilien Urban. Could you briefly summarize for our readers what your agency does and what you specialize in?

Immobilien Urban: I founded Immobilien Urban GmbH almost five years ago as a young and innovative real estate agency. We have specialized in the sale of residential real estate. We would like to set ourselves apart from old-established brokers in Bochum and the surrounding area with our service and our open and communicative manner. Technical means, such as drone photography, professional object photos, visualizations of exterior and interior spaces, as well as homestaging raise the brokering to a new level. It is our claim to inspire not only the seller, but also the prospective buyer.

Buying a property: emotional decision

Despite all the possibilities offered by technology, the purchase of a future home is “fortunately” still a very emotional decision. The communication with prospective buyers and a personal inspection as well as consultation are therefore essential. Our greatest ambition is to present the property perfectly and to accompany buyers as well as sellers in the best possible way during the buying or selling process.

Hallway in a luxury property in Bochum:

Real estate mediation

FIV: As an agent in Bochum, which properties do you personally prefer to broker?

Urban Real Estate: I prefer to broker the classic single-family home. Here it is primarily about emotional decisions and not about a rational return. On the one hand, I try to pick up on the seller’s personal connection to the property and incorporate it into our exposé. It is often an emotional moment for our clients to decide to sell their home.

The only thing that helps is a close exchange of ideas and a response to the seller’s personal wishes. On the other hand, prospective buyers are in the process of fulfilling their dream of owning their own home, and it is a pleasure to be able to accompany this process in most cases. Especially the handing over of the keys and the anticipation of the buyers for the object motivate me for further tasks. I help people with an important step in their lives and this task I take very seriously with pleasure.

Districts with future opportunities: Stiepel & Altenbochum

FIV: Neighborhoods for Singles, Families & Co. – For those who don’t live in Bochum yet and want to move to Bochum, which neighborhoods have a future? Where should you move to in Bochum if you want to live nicely?

Urban real estate: Bochum is on the whole a very beautiful and green city. Often as a gray mouse in the shadow of the big ones, Essen as well as Dortmund, Bochum offers singles and families very much quality of life. The complete south over Weitmar, Altenbochum as well as Stiepel, in order to name only the largest districts, offers families short ways and a large leisure offer. As a university city, it also offers singles many small apartments in and around the city center.

Real estate agent Peter Urban:

Ehrenfeld as a popular district

Especially the Ehrenfeld district, south of the city center, has grown in recent years into a very popular hotspot for young people on the one hand, but also for wealthy families for whom the short distance to the city center is important. This continues to spread in the direction of Springerplatz. Every Friday afternoon, for example, the Moltkemarkt takes place on Springerplatz, this offers special culinary experiences from merchants from the Bochum area. Here, especially in nice weather, many families with children meet and start the weekend with pleasure.

Young people and singles of all ages then find their way to the Bermuda Triangle. There are countless restaurants and pubs there.
But Bochum also has many beautiful neighborhoods to offer for families with lower incomes. It is particularly pleasing that there are no social hotspots in Bochum. Most of the neighborhoods have a very balanced population and that is what makes Bochum so special.

Development of rental prices in Bochum

FIV: Rents are a big topic, all over Germany. How has the real estate market and rental prices in Bochum developed in recent years and how will they develop in the future?

Urban real estate: In Bochum, too, purchase prices and rents have risen sharply in recent years, to be honest. However, with the exception of a few districts, we are still far from the prices in Düsseldorf, Cologne or Münster. Bochum offers sufficient living space for families of all income levels, even if the search for a single-family home is becoming more and more of a waiting game. Due to the many former miners’ settlements, however, there are also many alternatives to new construction.

The houses are somewhat older, but have large garden plots and offer a lot of potential. The purchase prices are much more affordable than a new construction project. In the future, the market will remain tight and will depend on interest rate policies. If these remain at the current level, owning a home is a perfect alternative to renting. For an investor, the investment in multi-family housing remains a perfect alternative to a savings account.

The office of Urban Real Estate:

Rent or buy as a young couple/ single person

FIV: In Germany, more people rent than buy. What would you recommend to a young couple or even a single person, renting or buying in Bochum?

Immobilien Urban: This is not an easy question to answer, because many personal factors of the seekers play a big role here. How flexible do I want to remain, how do I envision my future. Quitting a rented apartment often doesn’t require an emotional decision, which is likely to be much more difficult with a home of one’s own. We recommend taking one step at a time. Real estate has always been a stable value investment, so we always tend to buy, but it must fit into the life situation of the seeker.

Typical mistakes when buying real estate: tips for first-time buyers

FIV: Anyone who rents in Bochum is relatively flexible and can move if necessary. Anyone who buys a property, whether a home or a condominium, is at least tied to the property in the long term by the loan or financing. What are typical first-time buyer mistakes from your experience as a real estate agent and how can you avoid them?

Immobilien Urban: Many first-time buyers are inexperienced in terms of the buying process and the liabilities that a property entails. We can only recommend to everyone to get many opinions, to compare the market and not to make any hasty actions. The purchase should be well considered and fit into the medium-term life planning. In recent years, however, a purchase has rarely turned out to be a mistake, because even if your own use is no longer an option, an apartment or even a house can be rented out well.

The long-term nature of financing a property should, of course, always be linked to life planning. If you are planning to buy or even build something, always seek advice from an external expert. Both in terms of the condition of the property, but also on the financing of the object and on tax issues.

• Get many opinions
• No rash purchases
• Linking financing to life planning
• Broker advice the be-all and end-all
• Condition check of the object
• Financing & Taxes

Incidental expenses and taxes of a real estate

FIV: The purchase price of a property is one thing, but what ancillary costs and taxes must buyers in Bochum expect?

Urban real estate: In addition to the purchase price, the buyer has to pay the so-called ancillary purchase costs. First and foremost and the largest part is the land transfer tax. Here relatively briskly after the notarial authentication 6.5% of the purchase price become due to the tax office. Furthermore, the buyer bears the costs of the notarization at the notary, about 1% of the purchase price, as well as all costs that have to do with the processing of the purchase contract, for example, all entries in the land register. Here, too, you have to calculate with about one percent. Thus, the incidental purchase costs amount to about 8.5%.

Incidental costs at a glance:

• 6.5% of the purchase price to the tax office
• 1% Notary
• 1% Land register
• 8.5% Incidental purchase costs

Another important point is the brokerage fees. Here, the federal government has created a novelty. The buyer’s costs may not exceed the seller’s costs. This means nothing other than that the seller must either pay the entire brokerage fee or can pass on a maximum of half of it to the buyer. This must be clearly evident in the exposé for the prospective buyer. However, this regulation only applies to the purchase of condominiums as well as detached and semi-detached houses.

The modern office building from the inside:

Capital investment Bochum: Most future opportunities

FIV: Bochum neighborhoods for real estate investment – Let’s move on to real estate as an investment in Bochum, for those who want to buy and rent. If our*r reader*in decides for the purchase, with following letting: Which 2 districts or satellites around Bochum would you recommend to a buyer for their capital investment in Bochum? In your opinion as an expert, where do the most future opportunities lie?

Urban real estate: When investing in real estate, I would always recommend paying attention to the infrastructure. Apartment sizes must fit the location of the building. There is no point in owning small apartments outside the city, it will be just as difficult to rent out family-sized apartments in the city center. A good investment is also characterized by the ratio of the purchase price and the rental income, this should be balanced and be able to guarantee a long-term planned rent. The choice of the district depends solely on the willingness of the buyer to take risks. For the beginning with a manageable risk, districts such as Altenbochum, Weitmar or Riemke are perfectly suitable.

Objects in which to invest

FIV: In your opinion, what type of real estate has a future in Bochum, what should one invest in? Small, large, existing, new construction?

Urban real estate: This question cannot be answered so sweepingly. Bochum is a university town, small apartments for students are essential. The campus around the university continues to expand every year and there is a need for more housing for students and university employees. Small age-appropriate apartments are also needed and built for older city residents. On the other hand, Bochum has a great need for family-friendly apartments that are affordable for everyone. We often have well over one hundred inquiries for an advertised 4.5 room apartment, which speaks for little choice in the area. I prefer a healthy mix.

What’s wrong with building houses with different apartment sizes, mixing families with students and seniors?

Private investors are very important for the real estate industry in Germany. In addition to looking at returns, they must also look at the efficiency of buildings. CO2-neutral construction will certainly be a major topic in the future. It is important that the higher construction costs are offset by subsidies and support from the state and do not necessarily have to have an impact on rents. Real estate must remain an attractive investment in order to create more living space for all age groups and social classes.

Sell house or apartment in Bochum

FIV: Lastly, one more question – you had mentioned the typical mistakes buying a property. Many buy, but some also want to sell. As an experienced real estate agent in Bochum, what tips can you give to those who are selling a property for the first time? What are the first steps and how to sell a property in Bochum successfuly?

Immobilien Urban: Of course, we can only advise every seller to hire a real estate expert. It starts with the determination of the selling price, continues with the compilation of all necessary documents and the preparation of suitable photographs as well as an exposé. Often, these things are underestimated and the search begins after the first visits. We offer a property only when all the necessary documents have been compiled. As a more experienced real estate agent, I have a good eye for a possible target group of interested parties.

This is important for the presentation of the property in the exposé. Our real estate agency also has a large database of searchers. This has the advantage that specifically selected interested parties can be adressed directly. We have enormous success with this and often find the suitable buyer after only a few viewing appointments. Also in negotiations about the purchase price, it is always easier if you can communicate your ideas to a third party, without a lot of emotion. It is then my task to implement these in the sense of the seller. Bochum has the advantage that there are many good real estate agencies, but to stand out from many others is a task that I gladly accept.

Avoid mistakes with these steps:

• Determination of the sales price
• Compilation of all documents
• Creation of suitable photographs
• Council: to hire a real estate agent

Thanks to Immobilien Urban for the interview!

Buying your first apartment: Owner occupation or capital investment

You want to realize the dream of the first own property, but do not know where to start? Learn everything about the first home and the most important steps in our article.

• Buy first apartment

Rent, buy, live in Bochum

For the realization of their dream of the first home, whether you rent with or buy, and how to achieve the maximum return in Frankfurt, you can learn in our article about realtors in Frankfurt.

• Real estate agent in Bochum