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Investing in real estate: 4 strategies for success

Buy or Rent?

If you want to invest in real estate, you have to clarify a fundamental question in advance: Do you use the property as a pure capital investment or do you want to live in your own home yourself?

With this principle, the real value of real estate objects becomes clear. Because especially in comparison with shares, the investment properties also have a practical utility: You can live in a property as well as rent it out.

To decide which usage strategy is more lucrative for you, you can, for example, calculate the rental price multiplier. This value indicates how many annual rents you would have to pay for a property.

Monthly rental costs of 1,500 euros mean 18,000 euros per year

For the apartment you would have to invest 400,000 euros when buying it.

Purchase price (400,000 euros): Annual rent (18,000 euros) = 22.2 years

The rental price multiplier for the property is 22.2.

Values ​​above 20 usually indicate high property prices. At the same time, however, a high value signals high demand, so that an increase in the value of the attractive property can be assumed. A high multiplier doesn't always have to be negative. You can find a practical online tool for a more precise assessment at the Immowelt real estate marketplace.

Investing in real estate as an investor - but how?

In order to invest successfully in real estate, the right strategy is crucial. But what ways and methods are there anyway?

  1. Buy and Hold: Buy a property and keep it for a long time.
  2. Fix and Flip: Upgrade a run-down property and sell it "quickly".
  3. 1/3/10 Strategy: This path combines the above and is more suitable for more experienced investors - more on that later.

The “buy and hold” strategy is particularly suitable for newcomers to the real estate market, as it requires the least amount of prior knowledge in comparison. In this way you can slowly gain important experience with your first object.

Strategy 1: Buy, hold and benefit from a property

As the English term “buy and hold” suggests, this strategy is about keeping a property for a long time. So you acquire your dream property and use it as a rental property over a long period of time.

It is important that the property is in a good location so that you can benefit to a greater extent from its increase in value. Ideally, the value of the property increases year after year. In this way, you not only benefit from regular rental income, but can also sell the property at a profit after many years.

The highlight: after 10 years, you can sell your property tax-free and benefit fully from the profit. After this holding period, the so-called speculation tax does not apply and you can reap the full profits yourself.

Strategy 2: Refurbish a property and sell it on at a high price

The second strategy with which you invest in real estate, on the other hand, is a bit more complex and requires further knowledge. The "fix and flip" investment is about upgrading properties in need of renovation through various measures.

With these revaluations you in turn increase the value of the property enormously - and can thus benefit from short-term and strong profits (depending on the funds used).

This strategy of real estate investment has only one disadvantage: You have to pay tax on your profits, as you usually do not want to keep upgraded properties in your portfolio for 10 years. In addition, as a private investor, you will be classified as a commercial investor by the tax authorities if you sell more than five properties within three years.

It is therefore advisable to set up a GmbH for this real estate strategy. The objects are traded through the company, which also pays the taxes. Ideally, get in touch with a tax advisor before getting started with your fix and flip investing.

Strategy 3: The mixture of both worlds

"The 1/3/10 strategy is a strategy that, if used correctly, can lead to high sustainable returns," writes Chris, blogger for "rent yourself rich". The aim of the investment strategy is to combine the best of the two methods mentioned above.

The profits are created by skillfully exploiting the tax limits. In the first three years, you only carry out the most necessary renovations on the property and deduct these fully from the tax. The background: You can claim a maximum of 15 percent of the purchase price for tax purposes during this period.

In the years to come, you can now invest larger amounts in the renovation of the property in order to increase its value. You benefit twice from this: Not only can you claim the expenses as advertising expenses, but also increase the rental income and the sales price of the property through the revaluation.

The latter will benefit you after the tenth year. Because, as mentioned with the “buy and hold” strategy, you can now sell the property tax-free.

Strategy 4: Invest in real estate without equity

If you want to avoid the high capital commitment in real estate investment, crowdinvesting in real estate is a lucrative alternative. With crowdinvesting, you do not buy a single property, but participate as an investor in the financing of construction projects.

It is possible to start crowdinvesting with amounts from 500 euros - so you can easily spread your investment over several projects and benefit from a return of between 5 and 7 percent p.a. You can find more background information on the topic in our crowdinvesting guide.