Düsseldorf The real estate investment is a “totally logical thing”, says Jens Rautenberg. The founder and boss of the Cologne company Conversio should know. Together with his team, he prepares around 200 analyzes of the quality of real estate for private investors every year. Most of the clients are financial service providers, but now some property developers have their projects checked for their suitability as an investment property in advance of marketing. The result of the analysis is sobering: “From our point of view, only 20 percent of the offers examined last year were unreservedly suitable for capital investments,” says Rautenberg.
Buyers will also have bought the rest of the way – because the demand for investment apartments is still high. “The corona crisis has not had any measurable changes in our business – on the contrary,” says the Conversio boss. “Financial service providers tend to expand their involvement in direct investments in real estate.”
Above all, the low level of interest rates has made the property more attractive as a financial investment over the past ten years. The proportion of investors who finance rented property has more than doubled since 2010, from twelve percent in 2010 to 25 percent today.
This was the result of an evaluation of more than 600,000 real estate financings between 2010 and the end of June 2020, which the broker for private construction financing, Interhyp, recently introduced. “The low interest rate environment of the last decade has fueled the demand for real estate,” says Jörg Utecht, CEO of Interhyp.
The historically low level of interest rates makes real estate more attractive to investors in terms of both returns and financing. In times when banks and savings banks charge fees for savings, real estate investors are happy to accept returns of around three percent for residential property.
In addition, investments can be financed cheaply at the bank: The interest rate for building loans is only around a quarter of the usual conditions ten years ago.
Avoid typical mistakes
Jens Rautenberg is convinced that buying a property for capital investment in German growth regions makes sense in principle. “However, it is not uncommon for buyers to make a chain of completely unnecessary wrong decisions,” warns the real estate expert.
In order to assess whether real estate projects are suitable for capital investors or not, the Conversio analysts essentially consider four areas: the provider, the location of the property, its management and finally the properties of the property. If you go looking for an investment apartment on your own, you can learn a lot from the testing standards of the professionals.
So – point one – the property should be designed for investors, not for owner-occupiers. “If 35 of the 40 units in a homeowners association were sold to buyers who live there themselves, I would not get involved as an investor,” says Rautenberg.
His argument: owner-occupiers and investors have different interests. This inevitably leads to conflicts when, for example, decisions about investing in common property have to be made.
When assessing the location criteria, Rautenberg recommends strictly adopting the tenant’s point of view: Conversio distributes minus points for residential areas in which a car is absolutely necessary. Good connections to trains and buses, car sharing offers, diverse shopping opportunities, proximity to schools and doctors, on the other hand, are on the positive list.
Finally, Rautenberg believes that one of the cardinal errors is the assumption that many inexperienced private apartment landlords can take care of the administration and management of their property themselves. “It is simply not possible for a private investor to check and select a tenant or to make a legally secure service charge statement.” This is much better with an experienced property manager.
“Only when we can give the green light for these three points do we look at the actual object,” says Rautenberg, explaining the final test step. There he sees the apartment size as the most critical point.
The tendency is for investors to buy apartments that are too large – with the ulterior motive of being able to use the apartment themselves. “Although the vast majority of investors would rightly say that apartments of 60 to 80 square meters are best rented out, in the end the 100 square meter apartment is bought.”
A finding that Ditmar Rompf, director of the bank-independent finance broker Hüttig & Rompf, confirms. On average, capital investors finance apartments with 97 square meters of living space through the nationwide Frankfurt company, explains Rompf. “For owner-occupiers, whom we advise, it is 130 square meters.”
Rautenberg therefore advises investors to buy two apartments with 50 or 60 square meters rather than one with 100 or 120 square meters. “The less living space, the higher the return tends to be.”
Anyone who then pays attention to solid, but by no means luxurious, furnishings and chooses floor plans that are attractive for many tenant constellations can be certain that their investment will pay off in the long term. “In any case, the risks can be minimized through sober analysis and cool decisions,” says Rautenberg.
More: German property developers remain optimistic despite the corona crisis.
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