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Property as a capital investment

Real estate has always been considered a promising capital investment. It is considered to be stable in terms of value and resistant to crises. Especially in times of zero and negative interest rates, an investment in real estate is a promising alternative to classic savings accounts. Compared to shares and cryptocurrencies, real estate investments enjoy a comparatively high level of security and few price fluctuations.

Types of real estate investments: an overview

However, buying and re-renting a condominium or apartment building is not the only way to grow money with real estate. There are various forms of investment that also allow small investors to make real estate investments.

Before making an investment, investors should study the various options in detail in order to find the perfect investment for themselves and their own needs.

Security, profitability and liquidity

When looking for the ideal financial investment, one should ask oneself the following question: What is most important to me? An investment with a high return? An investment that is liquid? Or should it be as safe as possible? The magic triangle of financial investments defines precisely this tension. Are you pursuing the goal of a high return? Then you have to accept a higher risk in your investment. Do you attach great importance to high security? Then you must not expect too high a return, because there is a tension between security and profitability in the magic triangle.

The advantages of real estate

The leverage effect of rental real estate

Purchasing a property often requires more capital than one has available. The real estate is thus usually financed with the help of a loan from the bank, which must be repaid over time. The regular rental income that one earns as a landlord covers the repayment of this loan. Even if you usually want to avoid debt, it can be worthwhile in this case. You pay back your debts to the bank with other people’s money. However, the leverage effect only occurs when the rental income exceeds the cost of the loan.

Regular rental income

As soon as you have paid back your loan, you generate a passive income through the rental income every month. So, the sooner you start investing in real estate, the sooner you will benefit from your return!

Rental income and the profits that can be generated from it are also easy to forecast using rent tables and sample calculations, which is not the case with profits on the stock market, for example.

Demand for residential and commercial space is rising

Another reason why real estate is considered a safe investment is the continuing demand for residential and commercial space. This becomes even clearer if you take the Corona crisis as an example. Even in times of crisis like this, where markets collapse, jobs are lost and uncertainty grows, there will still always be a demand for a home.

Increasing the value of property

Furthermore, despite limited housing space, we are faced with constant population growth in Europe due to various economic and political reasons.

Since there will always be a demand for housing despite limited space, we can assume that property prices will always rise. Of course, prices can fall in the short term. But even after crises, such as the financial crisis in 2007, it has been shown that prices have recovered and risen.

Apart from the regular rental income, you as an investor also benefit from the increase in value of the property. If you invest in a property today, you will be able to sell it at a later date at a higher price. In addition, you can also increase your rental prices due to the increase in value of your property. This increases your return on investment.

Properties are protected against inflation

Do you know what happens in the event of inflation? The money you put into an account loses value. That means you make big losses in the long run! The question now is how you can protect your money from inflation, and the answer is this: an investment in real estate. Just like tangible assets, the price of real estate rises with inflation. Money, on the other hand, loses purchasing power, i.e. its value.

What exactly does this mean for you as a real estate investor? In the event of inflation, your property will increase in value, which means that the rental costs may also increase. On the other hand, you benefit when paying off your debts, because the nominal value of the loan capital you used for the property remains the same. Due to the decreasing depreciation of money, your loan amount loses value, while the value of your property increases.

Security and stability in times of crisis

All this indicates that real estate is considered a very safe and stable investment. Profits that can be achieved are predictable and calculable, the demand for real estate will always exist and time and again real estate has proven to be relatively stable in crises. Real estate has a material value, a real value that hardly changes. In contrast to stock markets or currency trading, extreme price fluctuations are not to be expected with real estate.

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