Author: Thomas F. Pfeifle
Is the investment in real estate worth it?
Due to inflation, the value of money decreases annually between 1 and 1,5 percent. Practically speaking, by holding cash, you constantly loose your money over time.
A very feasible alternative to this is the investment into real estate. Not only rents and the advantages of tangible property make a real estate a good investment, but also important other advantages, which we will present and explain in the following.
It is not uncommon for real estate ownership, to be associated with wealth. And research has proven, that 9 out of 10 wealthy people, earned their income and wealth through the investment in real estates. To get a deeper insight the Materia, we analysed different factors and benefit, which make real estate’s such a good investment.
As already mentioned above, the investment in real estates protects your money from inflation. A house, flat or land does not loose value and often it is the case, that the value even increases over time. If you would have bought a real estate or piece of land in the centre of a European city like Munich 40 years ago, you would be a millionaire now! By investing in a real estate, your money is not affected by inflation and your income is fully protected from loosing its value furthermore the rent also can be adapted to the inflation rate, which provides another benefit.
By renting your property to third parties, you will receive constant cash flows from your investment. The rent performs like an interest to your investment and provides constant money inflows, which is for your disposal. Due to this, the rent provides a passive income in addition to your regular income which increases your wealth and financial position.
The tangibility of a real estate ensures the security and stableness of your investment. The value of a house or flat does not crash overnight, like it is possible with shares. A real estate is saved and secure and survives every crisis and inflation without losses.
In many countries the ownership of real estates has tax benefits and leads to reduced repayments of bank loans. The effects of the tax reduction depend on the individual country and its law and tax regulations. However, in Germany, real estates are very favourable for its owner when it comes to taxes, because of depreciation rules and disposal taxation.
For many, the goal of their investment is to ensure financial security in old age. Caused by the lack of future retirement payments and guaranteed financial stability whilst the retirement, many try their best to financially secure themselves and their families for an unknown future. Again, real estate provides a very feasible option for high protection. Not only have you received an additional passive income in form of rent, you always have a guaranteed place to live. Even if you lose your current home, you always have a backup plan.
As always, every investment has its downsides. Nevertheless, the ones for real estate are a very few. First, owning and renting real estate is an investment with people. You always must deal with tenants, property managers and facility managers. Humans often are a huge source of issues, when it comes to investments. Tenants destroy your property, claim to be mistreated or refuse to pay the rent. Owning a real estate is a second job. You must watch after your tenants, take care of repairs and be aware of the landlord and tenant law.
A second drawback is the moment of purchase. In case you’re extremely unlucky, you plan to purchase in a real estate bubble. It can occur once a decade, that real estate prices are heavily overvalued and the prices for housing turn into the unbelievable. Due to low interest rate for loans and long repayment periods, the prices for real estate rise and rise and the bubble bursts at some point. The key is, to find the right time and the right moment to invest. To find the perfect spot and opportunity, required years of experience and macro-economic knowledge.