10Mon·

ECB interest rate cuts and trading opportunities:

Hello,

Today I want to show you an alternative to shares, especially for younger savers, namely real estate investments, because this alternative will come in the next few years with the interest rate cuts.

This is because it is important to find a good time to buy. In my opinion, this is the phase where the first interest rate cuts start to peak until the time when every layman has realized that interest rates are low. At the low point of interest rates, you won't be able to buy cheap apartments because the owners know this and demand high prices.

An example from me.

Apartment 73m2

Year of construction 1963

Purchase price 80k with additional costs 84k

ECB interest rate cuts started in 2009 and reached their lowest point in 2015.

I started looking for an apartment in 2010 and of course bought without an estate agent.

Borrowing 84k

Interest rate 2.8% approximately

Installment 672 euros with special repayment option

I paid it off in full within 5 years and then bought my next property in 2015.

Assuming I had repaid it over 10 years without unscheduled repayments:

Then I would have about 13,800 euros in interest expenses

Gross rental income for 10 years amounted to 93k

Service charges 37.5k

Renovations 4k

Net rental income 51k

minus interest 37k

In the case of this property, this means that a tenant helped me build up assets from zero to 100 with an average monthly installment of 37k / 120 = 308 euros.

If I had saved it with "MSCI World" as an alternative, for example, I would have had to save 700 euros from my monthly income for a savings rate of 700 euros.

But with this property, I only saved 700 - 300 = 400 euros.

Now let's simulate this further for 2015.

If I had saved it with MSCI World, I would have to liquidate this position when I buy a property later, as the bank won't accept it as collateral.

But if you already own an apartment, the bank will accept it as collateral. Professionals even negotiate with the bank to such an extent that the bank should take the market value into account so that better interest conditions are possible.

A second point:

The bank does not accept shares and their dividends as income.

Half of the rental income from the first apartment is included as income in the household calculation.

Many people will now come along and say that real estate is overvalued. I counter this with these arguments and additionally with the argument that "shares are even more overvalued".

Third point: the performance of real estate is much better in the long term than that of shares, as you can gradually build up your assets. (see performance comparison of the apartment above vs. MSCI World vs. Allianz).

According to Immoscout, the current market price is 250k.

The important thing is to build up strategies.

Of course, you then have to deal with the matter (purchase agreement, rental agreement, tenant, property management, etc.).

Change of tenant:

I had a total of 4x tenant changes from 2012 to 2024.

This is the point where you have to take care of the apartment the most. But you can manage that without any problems. This is also the time when you have the highest rent increases.

The current demand is so high that I pick the best tenants to the best of my knowledge and belief.

But the HUGE ADVANTAGE here is not only the arguments from above but also the PLANNING SECURITY. You can't say that about shares.

Furthermore, you definitely don't invest as much time as with shares, which are always volatile.

I hope this helps some of you to look at alternative investments.

If I ever have time, I will post a similar post on "fixed-interest bonds" and then on "emerging market bonds".

28 Comments

Markus@financial_genius_20

10Mon

Nice attempt at advertising with the usual omission of the negatives. Firstly: If real estate is such a no-brainer, why is Chemnitz, for example, so unpopular as a real estate investment, even though I can get a 1-2 room apartment from the post-war period there for the price of an entire house with 6 apartments in Munich? After all, Chemnitz is a university city with almost 1/4 million inhabitants. Individual properties have to be selected even more carefully than shares, otherwise you have a great money pit.
Secondly: Who claims such nonsense that shares and securities are not recognized as collateral? Have you ever heard of a simple bank pledge? But perhaps the sleepy German banks are simply not up to date and prefer to moan about it. When I think back to the look of amazement on the faces of the bank advisors when I bought my first apartment with a currency loan (CHF), secured by a British life insurance policy (GBP) and with a bullet repayment (=0% repayment, 100% repayment at the end of the term, with only minimal CHF interest in between), I still have to grin all the time. I'll probably never get a property that cheap again, but you can see what's possible behind the show backdrops and forest-and-meadow offers.
Thirdly, renting is always an expense and much more than trading an ETF or a few shares. In addition, there is the penalty tax on capital gains compared to lump-sum taxation.
More details may come later (when I have the time and inclination), but promoting real estate as a serious, equivalent alternative to movables is quite bold.

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FairValue@FairValue

10Mon

@financial_genius_20 The colleague also takes an estimate from Immoscout as the fair value of his property and then compares it with any stock and the MSCI to show that real estate supposedly performs better than stocks.
You can only shake your head.

Not a word about immobility and sometimes illiquidity either.

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newmoney@newmoney

10Mon

@FairValue Don't be so mean, he's read a book on the subject ☝🏼

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Step B.@risk_minister_211

10Mon

@financial_genius_20 why Chemnitz is unpopular as a real estate investment? The city lacks the dynamism to ensure that real estate steadily increases in value and rents do too. Investors don't get enough input for fantasy there.

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Scepp@Scepp

10Mon

How much work do you have to do as a landlord? I'm currently in a situation where I want to buy a house (last residence) and I'm about to sell the condominium I currently live in because I'm afraid to rent it out.

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Immo_Investor@Immoinvestor1981

10Mon

@Scepp Not much for the individual apartments, as these are managed by a property management company. But my parents have several apartment buildings. I take care of those too. These are more expensive and more profitable as there is no property management or janitor service. My father does the small jobs.

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Marcel@Mcl1991

10Mon

@Scepp I would probably give renting out a try first. You could always sell after a year, for example, if you don't like renting or find it too stressful.

Your advantage is that you know the apartment. You probably know well what renovation work will be necessary in the coming years or what kind of support your tenant would require due to the condition of the apartment, etc.

So you already have more security than someone who is buying someone else's property

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Dividendenopi👴@Dividendenopi

10Mon

@Mcl1991 The problem with selling after one year is that speculation tax is payable on any profit. You can only sell at a profit tax-free after 10 years. So it's a bit like buy and hold 😉

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Marcel@Mcl1991

10Mon

@trader64 but he has already lived in the condominium himself. Doesn't that then fall away with the speculation period?

"The temporary or complete owner-occupation of a property also reduces the tax burden. In this case, you must have lived in the property exclusively yourself since the end of construction or purchase or have used it for yourself for at least the two calendar years before the year of sale and this year."

Source: https://www.vermietet.de/blog/wohnung-verkaufen-steuer/

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Dividendenopi👴@Dividendenopi

10Mon

@Mcl1991 Of course you're right and I read too quickly and interpreted it as a 2-family house with a rented apartment 🤭😔 I was thinking about my rented property. Sorry for the wrong message

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TaxesAreTheft@TaxesAreTheft

10Mon

@Scepp It all depends on the condition of the property and how uncomplicated the tenants are. Accounting and service charge billing is sometimes annoying but definitely manageable. But with a single apartment, it's even more relaxed if it's handled by a property management company.

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Scepp@Scepp

10Mon

Thanks 🙏🏼 I'll ask the administration what the costs might be!

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Manuel@Ghoscht

10Mon

Unfortunately, this does not correspond to reality in my area of the Rhine-Neckar region.
I currently had one in mind. However, I quickly discarded it.

74 m2 built in 1999 at a purchase price of €279,000 + estate agent + tax.
Achievable rent between €11 and €13 per m2. House money still just under 300€.

I'd be a very, very old man by the time that number was paid. I can see from your user name that you are 2 years older than me.

Apparently I simply live in an unfavorable environment for a real estate investment. And, or simply came up with the idea far too late.

Currently home ownership, paid off. Cash would therefore be free due to the lack of loans or rental expenses. There's a big reserve for renovations (shrunk considerably last year due to a heating replacement and solar system)

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Immo_Investor@Immoinvestor1981

10Mon

@Ghoscht Your statement seems to be correct. Everyone has to calculate this for themselves. Everyone has a different situation (income, age, place of residence) and goals.

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Sven@Nevs1848

10Mon

@Ghoscht But the apartment doesn't have to be paid for. Why would you want that?

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Marcel@Mcl1991

10Mon

Thanks for the article! Very interesting! I'm also interested in real estate myself. So far, my income hasn't given me the financial security I needed, so no bank would have approved a loan for me. That's why I never made any enquiries.

I have a few questions to help me understand:

1. special repayment option is something I have read about most real estate investors so far. Should you always take out this option? But doesn't that also mean that the bank can simply demand higher repayment amounts on its own initiative?

2. you wrote that with the monthly installment of 672€ you will have repaid the loan after 5 years. But €672 x 12 months = €8,064 x 5 years = €40,320. That's just under half of €84k. So you still need to pay off half of the loan or am I making a mistake?

3. have you/your parents ever had experience with rental nomads/messies? How do you protect yourself from them?

4. would you recommend looking for loans on e.g. Check24 or should you ask the banks in your area yourself?

5. on the point that you have to liquidate the msci world position in order to deposit capital as collateral with the bank:
Doesn't this vary from bank to bank? I have read several times that there are banks that also accept equity portfolios as a reserve.

6. what would be your advice for someone who wants to buy their very first property, what should they pay particular attention to with the property or the loan or other things?

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Immo_Investor@Immoinvestor1981

10Mon

@Mcl1991
1. 5% unscheduled repayment option is usually free of charge. Many banks charge a surcharge of 0.2% interest for a 10% unscheduled repayment. But unscheduled repayments increase "flexibility" if you want to reach your goal faster and have the financial means to do so.

2. your calculation is correct, but I think I have agreed a special repayment and a fixed interest rate of 8 years. I made full use of the unscheduled repayments and paid off the remaining debt in full at the end of the fixed interest period.

3 I didn't have rental nomads, but my parents did. My parents don't protect themselves at all because their rental income is very high and their tax burden is very high. Tenant nomads are simply handed over to a specialist lawyer and the costs for the lawyer/court and loss of rent are a tax blessing for my parents. I took out loss of rent insurance with R+V for my first two apartments. After I got to know the people involved in renting, I canceled this insurance. I now know roughly who I'm renting to and which nationalities.

4 I would do the construction financing with the bank where you have your account. I also made a comparison for my first apartment and received an offer from Deutsche Bank with an interest rate of 2.3%. After a verbal agreement, this was rejected shortly before the notary appointment. I found out the reason after several angry phone calls. It was "the apartment is on a street with a socially disadvantaged population in our system". I was beside myself with rage. Then I went to my house bank "Volkssbank" and there it was settled in 1-2 days for 2.8%. After that I always went to my house bank and also paid the extra price compared to the market average of 0.2%, because everything can be done directly without much effort.

5. that's new to me, maybe I'm not sure.

6. when interest rates are high, as they are now, I always recommend negotiating well with the seller and reducing the price. Alternatively, watch auctions on "zvg-portal.de" to get a feeling. This is because zvg-portal not only lists auctions but also their appraisals. In high-interest phases, you should also have 20%-30% equity so that the interest rate and the installment are lower. Otherwise, talk to relatives and friends to find properties that are being sold without an estate agent. Because these are exactly the gold mines. That's how I bought my house. The market value was much higher than my purchase price of 330k, because the owners were selling the house to finance their mother's care home. I advised the sellers to have a court appraisal done. Then 3 people from the local court came and valued the property at 300k. As a professional, it was clear to me that the property alone was worth 500k. I immediately made an offer of 330k. Now the house is easily worth 650k - 700k, as the plot is over 1000 m2.
In the low-interest phase or with a good income, you can also buy without equity and agree longer fixed-interest periods. You have to plan all this in an Excel spreadsheet.
My biggest piece of advice to you is to keep a budget book in Excel. I've been doing this since 2005. I can see all my expenses and income and can also see the next 10 years (forecasts). PLANNING SECURITY is the most important thing.

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Alex@AlexG82

9Mon

I am also a property owner, but planning security? Unexpected loss of rent, in extreme cases rental nomads with repair costs, uncertainty with regard to energy measures, interest rates after fixed interest rates, etc. etc. -> Where there is return, there is also risk ;-)

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Dividenden-Penner@Dividenden-Penner

10Mon

Rental income is income that is taxed. Has this been taken into account in your calculation?

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Immo_Investor@Immoinvestor1981

10Mon

@Dividenden-Penner I will add this topic later in the post. There are more options with real estate than with shares.

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newmoney@newmoney

10Mon

Nice thought experiment, but somehow not really realistic. 80k for an apartment of just under 80 square meters? Where can you get that? Further away would generate additional opportunity costs and thus lower the return

Planning security is also not really an argument, especially not with our government. Constantly new regulations etc. require investments

Real estate can be a good option if the individual framework conditions are right. General comparisons with a world ETF are cheese

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Immo_Investor@Immoinvestor1981

10Mon

@newmoney Everyone has to calculate and decide for themselves. I have posted my values here. Whether you believe in them or not is up to you. But you seem to have no idea about the matter and the effect of LEITZINSEN. I also refer to the coming interest rate cuts which will provide an investment opportunity in the near future to entice attention. I therefore recommend that you read a few books by Günter Wöhe - perhaps that will be a start.

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newmoney@newmoney

10Mon

@Immoinvestor1981 the nice thing about math is that it has nothing to do with faith. You post old figures without context. And just because it suits you, you claim that real estate is generally better than ETFs.

Btw, there are enough books that advise against real estate as an investment because it yields less on average than ETFs or individual shares, cf. e.g. Kommer.

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Sven@Nevs1848

10Mon

@newmoney Books or not. For many, this is also a question of faith. Real estate investors are not going to praise shares and ETFs to the skies and, conversely, a commercial investor is not going to do the same with real estate.
However, I do think that rented real estate should also be part of the capital investment and especially the diversification of assets.
ETFs are simpler and more time-saving without any ifs and buts.

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Immo_Investor@Immoinvestor1981

10Mon

@Nevs1848 That's how I see it too. But in my post, I'm not trying to make real estate attractive to everyone, but rather that there are cycles in which smart real estate purchases can become an optimal investment through suitable financing. I don't try to find cheap real estate every day, but also look at the stock and ETF market in parallel. What I would like to say here, however, is that the next interest rate reduction cycles will begin and may present an opportunity for one or the other, if the general conditions of the individual fit.

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Sven@Nevs1848

9Mon

@Immoinvestor1981 I tend to look around now, interest rates are no longer historically low and the seller's market no longer exists. Especially with properties in need of renovation, you have a good negotiating position here.

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M47@Jiyanask

10Mon

2014 was just before the real estate boom, when 100% appreciation was the rule until today....today +10 years later I don't see 100% appreciation simply because, firstly, interest rates are high and prices are relatively expensive.....

What has worked in the past cannot be copied and pasted into the future.

At the moment I'm being forced to renovate a lot after buying, despite KfW the laws for tenants are abnormal they can't pay you rent and have to sue you out first with bad luck it takes years and with more bad luck they are allowed to stay because of social hardship

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Till@Tillmatic

10Mon

I just say location, location, location

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