Social binding: What is it anyway?

For housing construction, social binding means that low-cost housing is subsidized by public funds. This means that there are low-interest loans or subsidies for investors in exchange for committing to affordable rents. The catch? Only people with a housing entitlement certificate are allowed to rent these apartments.

• Affordable housing through public funding
• Very good conditions for loans or grants
• Rent for persons with a certificate of eligibility for housing

Rebinding

Buyers are tied to social housing until the public loans have been repaid. However, due to the post-commitment period, one has to wait 10 more years after repayment until the social commitment ends.

• Commitment to social housing until loan is repaid

Limited rent

The cost rent slows down the maximum rental price of the apartments. The housing construction is therefore price-linked, which guarantees that only the cost rent can be demanded from the tenants. The rent may be increased in this period only every 3 years, according to the consumer price index.

• Maximum rental price limited by “cost rent

Social bond summarized

Here again everything you need to know about social binding!

• Affordable housing through public funding
• Very good conditions for loans or grants
• Obligation to rent to low-income persons
• Maximum rental price limited by “cost rent
• Post-commitment period ends only 10 years after full repayment of public loans

The next step: equity

Regardless of whether it is for personal use or as a capital investment, the first thing to think about for any type of real estate is the financing. Here, equity capital is an important topic, from the use of equity capital to the difference due to tax deductibility of the interest on the loan. The big question here is, how much equity do you need if you include all costs from the purchase price to the ancillary purchase costs? Here you will learn everything about financing and equity.

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

Buying real estate: What can I afford?

In order to buy a property of a certain value, it is usually necessary to take out a loan from the bank in addition to the equity capital. The bank determines the amount of credit it will pay out to certain people, which in turn is tied to factors.

Factors to narrow down the amount available:

• Credit rating & self-disclosure
• Mortgage lending value of the property
• Equity in relation to credit rating
• Monthly load

Step 1: Creditworthiness and self-disclosure

In order to finance a property, your creditworthiness should be established for the first time at the bank with the help of a structured self-disclosure.

Self-disclosure: decision support of the bank

The self-disclosure is an overview of your financial situation. It gives the bank an insight into your current financial situation and is therefore an important basis for decision-making. The amount of the loan and the conditions of the financing depend on it.

Creditworthiness: The company’s own assets

Creditworthiness must first be checked by the bank. For this purpose, assets and liabilities are compared. Important: The asset balance must always be positive! If this is the case, one is creditworthy. If this is not the case, it means that the lower the creditworthiness, the more equity capital must be raised.

Creditworthiness therefore means:

• The higher the credit rating, the lower the equity ratio
• The lower the credit rating, the higher the equity ratio

Step 2: The mortgage lending value of the property

There is a market value (market price) and a mortgage lending value (market value less 20%).

Market value

The market value describes the expected achievable sales price of a property, under the current market conditions.

Collateral value

The mortgage lending value is usually about 20% below the assessed market value. Banks value real estate deposited as collateral (financing) lower than the market price. Simply put, this is the amount the bank would get in any case in the event of a sale or even a forced auction.

Step 3: Equity in relation to credit rating

In principle, 20% equity is required when financing a property. The fact that creditworthiness and credit standing play an important role was made known in step 1. However, the 20% does not always apply, because the amount of equity primarily depends on the creditworthiness and the determined mortgage lending value.

• Standard is 20% equity
• Credit rating: reduces equity
• Purchase price: reduces equity (if below market price)

Step 4: Monthly charge

Here the bank is interested in your monthly income and expenses. The available income is crucial for the repayment of interest and principal. If this is too low and the expenses too high, this can lead to a poorer credit rating.

• Monthly income and expenses
• Decisive for repayment of interest and principal

Conclusion: How much real estate is it in the end?

As an employee with regular income and a well-structured self-disclosure, it should be no problem to come to an equity ratio of 10%. The amount of the purchase price then results from the following calculation:

• Equity x 10 = Purchase price of the property

Here you can find out even more about the maximum purchase price of a property/ Immobilien-Erfahrung.de

8 mistakes when buying real estate: location, owner-occupancy &resale value

Mistakes always like to creep into the purchase process of a property. Whether it’s a bad location of the property, reasons against self-interest or a purchase out of emotion – mistakes cost you a lot of money. In order to avoid this, we have put together a guide for you, with which you are guaranteed never to make a mistake again when buying your next property.

• Mistakes when buying real estate

The next step: rental yield and purchase price factor

How do I find good yield real estate? This question is mainly asked by capital investors, as they are mainly looking for positive and fastest possible cash flow. With a sufficient return, you are lucky that the tenant pays off the property you buy. Here you’ll learn all about how to earn the best rental return.

Self-disclosure for the bank: buy house & apartment

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!

• Self-disclosure

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.

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!