The question of which capital investment is the most lucrative cannot be answered in general terms. Depending on the investment volume and personal goals, the search for the best investments can be more or less difficult. Fact is however that the correct investment with a suitable net yield brings a worthwhile increase in value with itself and has many advantages for the investor. Find out everything about capital investment and which one is suitable for your individual capital.
Investment money sensibly – which investments are really worthwhile themselves
Many things can be considered as capital investments, but most of them are only profitable for a certain amount of capital invested. From real estate and life insurance to gold and diamonds, there is a wide range of investment projects suitable for investors.
Real estate as capital investment – houses and properties in the comparison
Using real estate as a capital investment is currently a trend and for good reason. Interest rates are currently at an all-time low, which has a negative impact not only on the profitability of traditional investments such as government bonds or equities, but also on the conditions for loans. These are very attractive due to the low interest rates, which means that home buyers can take out loans at very advantageous conditions from banks. But also the development of the real estate market speaks for the investment in a real estate. The prices for investment real estates rise constantly, particularly in announced areas, like Berlin, Hamburg or Munich which is reflected in a high net yield.
Real estate as a capital investment can be used in three different ways. First of all by the self-use. A real estate is bought and the owner lives even in this, saves thus renting costs and uses its investment. Of course, the property can also be rented. Thus the capital investment is used to take monthly rents and to increase so its own capital funds. In addition, the money can also be invested indirectly in real estate through real estate shares or funds. A lucrative method for investors of smaller capital or such, which shy the administrative expenditure of their own real estate. However, it should be clearly mentioned that a property is a long-term investment and is not suitable or profitable for short-term investments.
The 9 most important key figures – real estate as investments
- Purchase price – The purchase price should always be set in relation to the annual cold rent. Check here whether the ratio is usual for the location. A factor of 20-25 tends to be favourable and common in most locations, but from a factor of 30 it gets expensive.
- Ancillary costs – In your calculation, pay attention in any case to the land transfer tax, the notary costs and the broker commission, as these can make up a considerable amount
- Lifetime – A property is a long-term investment. The desired useful life should always be known in advance, also in order to evaluate the lucrativeness of the property.
- Income – What is the range of square metre costs in your region? And what rental income can be expected? Consider also the case, if the real estate stands empty and a new tenant must be found and associated rent losses.
- Administrative costs – What are the administrative costs of the property?
- Maintenance effort – How old is the property and is it possible to incur future costs for renovation, refurbishment, etc.?
- Taxes – How high is the depreciation and the marginal tax rate and what effects can this have on the property as an investment?
- Financing – Do you need financing to acquire the property as an investment? Pay attention to the monthly repayment rates and whether a property as an investment is still worthwhile for you.
- Resale – What influences the performance of your property and how can you sell it profitably in the future?
One-family house as capital investment – rental, owner-occupation or as holiday home
Investing in a detached house has many advantages. For the investment in a house a considerable capital is presupposed first of all natural. By letting the invested capital can grow however and the real estate pays off in the long term. A single-family house offers the advantages compared with other investment properties that it can be offered depending on location and quality at a high rent rate and the investment pays off after a shorter time and produces success. Single-family homes are also very popular with young families in particular. Of course, a single-family house can also be used for one’s own purposes or made available to one’s own children or family members. Single-family houses are also suitable as holiday homes in the right areas and can be rented as such temporarily.
land as investment – clever businessmen attentive
The acquisition of land as an investment can be very profitable if certain things are taken into account. On the one hand, due to steadily rising population rates, it can be assumed that land will no longer lose value in the future. In addition, buyers have the advantage that the additional proceeds that arise after the sale of the property become tax-free after a holding period of at least 10 years. During the holding period, the capital employed can also be increased by rental or leasing income. An additional possibility is the rental of very small rental spaces, such as garages, parking spaces, parking lots, storage containers, but also the rental of space for advertising, vending machines or clothing collection boxes is possible. A trick that clever businessmen use again and again is the purchase of very large areas of arable land. This land is then divided into smaller sections and resold for the construction of detached houses, for example. Large plots are usually relatively inexpensive compared to smaller plots, which makes the sale of several divided small plots profitable.
Investing in land also has some advantages over investing in real estate. The holding costs are comparatively lower. In addition, a property has a lower risk of damage to the building or rental nomads, for example.
Two-family & multiple dwelling as an investment – much responsibility for investors
First and foremost, two-family houses or apartment buildings have the advantage that they generate regular rental income from several tenants instead of just one rental income per month, as is the case with single-family houses. The security of the capital increase is therefore comparatively high with multi-family houses, whereby it must also be noted that the capital contribution must also be higher than with a single-family house or a property. A further risk is possible loss of rent or expensive repairs that have to be carried out on the house. Investing in a multi-family house involves a lot of responsibility and in the worst case can mean a lot of work, but the capital investment can also be very profitable and have many advantages.
Condominium apartment as capital investment – small starting capital, high capital maximization
A condominium as a capital investment offers great opportunities to maximize the capital invested. The possibilities are somewhat limited compared to a house as an investment, but the risk is lower. The rental of the condominium brings a monthly rent, which expands the invested capital. As a condition however a lower starting capital is necessary than with purchase of a house, which is extremely advantageous for many buyers. The risk of loss of rent also exists with this capital investment, but the risk of damage is much lower than with a house. The condominium can also be used as a holiday home and can be rented to tenants for a short period of time or used for one’s own purposes.
New building VS old building – care and maintenance of the investment
The question of a new building or an old building is not always easy, because both captivate with their own advantages. A new building has the decisive advantage that the property can be designed entirely according to the wishes of the client. This applies both to the property itself and to the choice of location. If a house is newly built, the latest technology is always used. Both in terms of security and theft protection as well as energy efficiency. The latest insulation and thermal insulation not only helps the environment, but also reduces heating costs. But a building also has one or two disadvantages. Building a house can be very strenuous and exhausting, as the client always has to keep control over the building site and the work required. In case of problems with the developer, the client always gets the short end of the stick, as the money invested is usually lost. In addition, construction errors are only noticed very late in a new building, usually after a few years. In addition, a new building is more expensive than an old one because everything has to be made new. With an old building, on the other hand, the stressful planning and construction phase is eliminated and the move-in can be started immediately. The old building also has the advantage that it can be inspected and checked for construction errors in advance. Since there are no costs for the public development, old buildings are usually cheaper than a new building, even if with an old building often still renovation and redevelopment costs result. In order to avoid these costs as much as possible, a detailed appraisal of the building should be made in advance to avoid any negative surprises. A further disadvantage of the old building is that conversion measures are often only limitedly possible due to the building structure or a monument protection.
5 Tipps for buyers – a real estate as investment
- Tip 1: Clarify budget early
The amount of equity capital is the most important indicator that future real estate owners should deal with. This key figure is not only important for the calculation, but also for the repayment of the possible loan and interest. How much budget is available is therefore decisive for the purchase decision process and has the greatest influence on it.
- Tip 2: erase as high as possible
The initial redemption should be at least two percent, so that you also have something of your property in the long term. This plays an important role, especially in periods of low interest rates, as the repayment portion of the rate increases more slowly with low interest rates than with high ones.
- Tip 3: Estimate prices correctly
In order not to buy a property above the market price, important parameters should always be compared in advance. Points such as location, price development, environment and equipment or the size of the house should be compared with the individual market of the environment.
- Tip 4: Hedging interest rates
Choosing a long borrowing rate commitment is essential for real estate buyers, because if the market interest rate has risen at the end of the borrowing rate commitment, the credit rates automatically become expensive. A low-interest phase should therefore be exploited in order to secure the best interest rates for the entire term if possible. Full planning security is provided by full repayment loans that are fully paid off at the end of the fixed interest period.
- Tip 5: Always keep calm
Even if market pressure prevails, the decision to invest in real estate should not be made prematurely. It means keeping calm and always rethinking the decision well. Always consider the rental income in relation to the yields of other investments when making this decision.
Savings deposits as capital investment – little effort and hardly any obligations
In the case of savings algae, the capital is held in a savings account on which interest is calculated. The amount of interest income depends on the situation on the current financial market, which is subject to constant fluctuations. Even if the savings account was opened at a time with advantageously high interest rates, these can slide in the next months to lowest values. The savings deposits are invested for an indefinite period and cannot be used for normal payment transactions during this period. In order to dispose of the money, the savings account must be presented at the bank and a limited amount can thus be paid out per month. Savings deposits are usually subject to three months’ notice. However, the interest earned is not credited to the account until 31.12. of the calendar year. A capital investment in the form of a savings deposit therefore has many advantages. This type of investment is very easy for the investor, as there are hardly any obligations and the money multiplies by itself. Unfortunately the disadvantages are not to be forgotten, since the quantity of the capital growth is very inaccurate due to interest fluctuations and depending upon situation more or less lucrative.
Life insurances as investment – long running time and a secured profit
Life insurance serves to save money and at the same time to increase and for the future, mostly to provide for the pension. When taking out a endowment life insurance policy, a fixed amount is paid in by the insured person monthly or annually over a certain period of usually 12 years. From these payments, the insurance company charges a fee for administration and risk protection. The remaining amount is invested by the insurance company in other forms of investment, such as real estate, shares or bonds. The insurance company has a guaranteed interest rate, which it must adhere to, which is usually 0.9 percent. The insured person thus receives at least 0.9 percent more money back at the end of the contract term than he has paid in over the years. At the end of the contract term, the insured receives the money that he has paid in over the entire term again and additionally the surpluses that the insurance has earned over the years. Depending on this, one receives more or less money through interest again, but at least 0.9 percent interest income.
This possibility of the investments is very uncomplicated, since the investor does not have to do much. However the investor with a life insurance buys the cat in the Sack′ so to speak, because the exact net yield becomes really apparent only at the end of the contract running time. The expenditure is very small for it, since only the contribution must be paid and at the end more money waits for the investor, than it deposited.
Shares represent shares in a company that has issued them and trades on the stock exchange. Depending on the value and number of shares, the buyer is co-owner of a certain percentage of the company and participates in the company’s success. The company sells certain company shares in order to increase its equity. If the company generates profits, the value of the share increases and the share buyers also receive a portion of the profit. In such a case one speaks of the dividend. In the best case the share buyer profits from a rising share value and the dividend and thus increases the invested capital. The risk, however, is to buy the stock of a company that does not make a profit. In this case, the share loses value and there is no dividend for the share buyer.
A share as an investment therefore carries a high risk, as the success of the own capital is linked to the success of the company. Even in crisis-proof companies, there is always a risk that can lead to losses. A scandal, an accident, a bad decision by the company management or similar are sufficient to turn a safe share into a risk share. On the other hand, however, shares can also experience high flights of fancy and provide the share buyer with undreamt-of high returns. Shares as an investment are therefore particularly suitable for investors who are familiar with the sector and can financially cope with possible losses. It is important not to bet everything on one horse, but to invest in shares of several potential companies and to keep the chances of profit as high as possible.