Why invest in real estate

Why invest in real estate? It’s a question I get asked a lot. Whether you’re are looking for a stable, regular cash income or to grow a nest egg for retirement, real estate is a great option.

As an experienced real estate investor, I should know.

Over the years, I’ve seen great returns from my many investments in European commercial and residential real estate – Austria and Germany in particular. So, here are my thoughts on why real estate is such a good investment choice.

Why invest in real estate?

 

Reason 1: Real estate offers good returns, for lower risks

In my experience, real estate usually delivers a good return over time, for relatively low levels of risk. Compared to stocks and shares, the returns from real estate might be lower – but so are the risks. In addition, stock values tend to be highly volatile, at least compared to the generally steadily rising value of real estate.

And, thanks to inflation, property investment almost always benefits those investors who hold on to their assets over the longer-term.

 

Reason 2: Real estate rates of return are steady and predictable

Everything is relative, of course, but real estate investment generally offers steady and predictable rates of return over time. If you’re prepared to be in it for the long haul, putting your money into real estate is a great strategy for steadily building up wealth.

In commercial real estate (where leases tend to be longer), landlords enjoy a steady flow of rental income. And, once the time comes to sell, the value of your property will almost certainly have risen naturally.

 

Reason 3: Real estate investment is a great way of making natural inflation work to your advantage

What is driving this steady accumulation of wealth that we see with real estate? Inflation.

Global inflation rates tend to be positive, rather than negative. Where living costs rise, rents follow, increasing your regular monthly income. And if banks then decide to push interest rates down to stimulate further borrowing, it’s another winning scenario for those of us who already own real estate. Lower rates mean lower repayments, and a chance to increase your monthly income further.

The bottom line is this: both house prices, and the cost of living in general, are heading up. Just take a market like Germany’s as an example, where house prices grew 4.6 % year on year in 2018. The previous quarter was even more impressive, with rises of 5.1 % year on year.

 

Reason 4: Property is an asset you can add value to

Sure, property can take a lot of management (and even further financial investment) to maintain and improve. This is where finding the right people to maintain the property and look after your tenants is so important. But one of the biggest attractions of real estate investment – at least for those who have the capital to spend – is the opportunity to add value yourself.

 

Reason 5: It is (relatively) easy to borrow to invest in real estate

Imagine trying to borrow capital to invest on the stock market. For the average investor, that’s a tricky proposition. Real estate, in contrast, is one area of investment where it is relatively easy for anyone to borrow to invest.

That initial capital outlay is substantial, for sure – but you’re still likely to be lent money to buy a property. Providing you have the means to pay it back, of course.

 

I want to make a final point too, for those of you with reservations about the size of the commitment that investing directly in real estate involves. One great alternative option is investing indirectly, via a real estate investment trust (REIT).

Investing in real estate in this way means you can buy and sell your shares in the REIT quickly, just like stocks and shares on the financial markets. It’s also a great way to have a diverse range of real estate investments, as REIT portfolios usually have properties in a range of sectors. So, it’s well worth considering.

The bottom line? If you’re able to raise the capital, and make the repayments, then real estate is as close to a sure thing as you get in investment circles.

 

Avner Motaev manages several companies in the real estate and telecommunications industries. He is the founder and CEO of mobile2business and lives and works in Vienna.

How finding the ideal real estate location can help boost your investment returns | Avner Motaev

Location is everything. It affects the rents you can charge, to the yield rates and any appreciation you enjoy. But how do you identify the ideal location to give you the best returns?

Here are my thoughts on narrowing your search:

• Identify your investment strategy
• Get to know your target market
• Leverage demographic data
• Understand appreciation and yield rates
• Doing your real estate investment groundwork.

Here’s why each of these is so important:

 

Knowing what you want to achieve helps to narrow your choices

How do you know if a location is the right one? It is always the one that delivers the objectives of your overall investment strategy.

If you’re trying to build regular income from rental properties, then you will need to find locations that help you to do this. Certain areas are popular with tenants. Others aren’t.

Alternatively, if you want to add value to a property through improvements, then again, certain areas will offer you more opportunity. And if you want to buy a property and watch its value appreciate, find an underpriced area that is on the up.

It might seem obvious. But when you have a clear idea of your goals, you can narrow your search for new properties and see which offer the best potential returns.

Key takeaway: Define your financial goals first, even before you look for properties.

 

Find the people who will provide the return on your investment

Who are you buying the property for? A common mistake among novice investors is buying properties they like, but their target market doesn’t. So, think about who these people are. They’re providing the return on your investment – so who are they, and where do they live?

Once you know the kind of people you want to appeal to, you can begin to narrow down the areas where these kinds of people might want to buy or rent.

Key takeaway: Knowing your target market helps with the location search.

 

Demographic data helps to narrow your location search

The best way of understanding this is to crunch the available demographic data. For example, in Austria the STATISTIK AUSTRIA website and the German equivalent, the government’s GENESIS-Online database, are both useful sources of information. For more general European demographic information the Eurostat publication ‘People in the EU: who are we and how do we live? is also helpful.

Demographics covers everything from the gender, occupations, age, spending power and education to the income of your target market.

It helps in trying to narrow down your location search because underlying demographic trends in different areas can give you a sense of the way the market is moving.

As is always the case with any kind of data, it is useless if you don’t know how to use it to your advantage.

Take one demographic trend in Europe as an example – the increasingly ageing population. This trend could have implications for the locations you look at. Some areas may

see more demand for homes for older tenants. Others meanwhile may see an increase in demand for properties that are popular with younger workers – who in turn may have migrated into the area from other markets.

Key takeaway: Use all the data available to buy the right property, for the right customer, in the right location, at the right time.

 

Get a sense of how prices are moving, as well as yield rates

Yield rates and appreciation figures are invaluable.

Using them, you can narrow down the areas you’re looking at and make comparisons between similar properties in different locations.

Yield rates give you an idea of the rental income you are likely to see from a particular property expressed as a percentage of the price you pay for it. This takes into account both the cost of the property and the expected rental income.

This helps you to have a more realistic sense of the value for money a particular property in a particular location represents. Where the yield rates are highest, you will potentially get the most rental income for the smallest investment.

If you’re looking longer term, then it is all about appreciation. This is the value that you can hope to add to the property over time.

So, look at what property prices have historically been in the area you’re looking at. Get a feel for what the upper limits might be before you invest.

Key takeaway: Use yield rates and appreciation values to get a sense of which areas represent the best value for money.

 

Walk the streets to find the best locations

Location is actually made up of a number of different elements, including the two we’ve covered above:

• Demographics – data on the people who live and work in the area
• Local market performance – including yield and appreciation figures.

But there’s more – namely the physical infrastructure and built environment itself.

This covers factors such as:

• Transport links
• The proximity to places where people work, relax and spend their money
• Environmental factors like levels of pollution, and how many open green spaces there are.

Ultimately, these factors have a huge impact on the desirability of any location you are looking at. They also have a direct relationship with the demographics and economic health of an area.

So, our advice is to do your research – read the reports and assess the available data.

But also it is crucial that you get out there and get a firsthand feel for the area – experiencing the place for yourself before you consider investing your money.

Avner Motaev

What will shape real estate in 2019? | Avner Motaev

What are the real estate investment trends for the rest of 2019?

Here are my thoughts to help you make better, more informed real estate investment decisions in 2019.

Uncertainty continues to shape the real estate market

Brexit is the big unknown of course, but in Europe there are also concerns about the viability of the governing coalition in Germany and the political situation in Italy. Globally, let’s keep an eye on the renegotiations around the North American Free Trade Agreement (NAFTA), and the trade war between the US and China. Both are affecting market confidence.

A safe bet for 2019 is that none of these disruptors will settle any time soon.

I think that real estate investors may well benefit from an interesting side effect from the saga that is Brexit though, and that’s the return of up to 132,000 EU workers from jobs in the UK to their home countries – an opportunity for the economies of places like Hungary and Poland, which could result in a boost in their domestic rental markets.

 

High demand and low supply signals potential problems ahead for real estate markets

There is another key trend that will impact real estate prices in most European markets, and potentially dampen activity – a lack of availability of suitable assets.

Demand for properties is gradually rising, pushing prices and rents up as a consequence. Which is great, for anyone who has already invested and is now enjoying higher returns. However it’s not so good for any potential new investors, who may find they’re priced out of entering an overheated market.

Low availability combined with potential changes in monetary policy (including higher interest rates) and low yield levels, could all add up to a cooling of the market this year.

In the US, we’re already seeing what happens in a market where building isn’t keeping pace with demand. It’s creating an affordability problem, with over half the real estate properties in the US’s top 50 markets seen as overvalued.

Responding to this trend requires potential investors to be innovative– looking at less traditional real estate sectors as an alternative investment. As always, finding value in a tight market is key to getting a good return.

The tech revolution comes to real estate

Real estate is a sector that is ripe for technological innovation – but businesses have traditionally invested little in this area. Recent research shows the percentage of investment in tech innovation among European real estate business struggled to rise above one hundredth of one per cent of total production.

Proptech start-ups will shake up the market. In 2019 we’ll see how tech can deliver innovative financing solutions for the industry, as well as tech (such as blockchain) that will make transactions more secure and efficient. According to the experts at Forbes, in 2018 around $5.2 billion was put into property technology start ups. We’re seeing the impact of that now, in 2019.

Digital infrastructure offers a new opportunity for real estate investors

As the digital economy continues to grow we will also see more and more investment in the infrastructure required to support it.

This means big opportunities for investors, as long as you’re prepared to look beyond traditional assets and broaden your portfolio to include everything from data centres to 5G network infrastructure.

Data centres are set to be an area of real opportunity. The experts at CBRE suggest that much of this growth will be driven by Chinese tech and telecom companies. It’s clear that where investors once put their money into rail or utilities, in 2019 we’ll see a rise in investment in the infrastructure that supports the digital revolution.

Our advice for anyone looking to get into real estate investment in 2019 is that it still represents an excellent investment option, both for short term rental returns and the longer term.

But we do add the caveat that the market may be cooling off a little this year – be prepared for potentially sudden interest rate rises and continuing geopolitical surprises that could shake confidence in the markets.

There are still plenty of great opportunities out there however, particularly in some central European markets. And technology will be the transforming influence – it is going to be fascinating to see how it finally changes the industry in 2019.

Avner Motaev

Avner Motaev on how to make a start in real estate investment

Are you thinking about investing in real estate? It’s a good time to do so because the German and Austrian property markets are in good shape. The Oesterreichische National Bank reports the Austrian residential property price index was up by 7.97% in late 2018, while the experts at Deutsche Bank also expect German real estate prices to continue to rise throughout 2019.

But how do you make a start in real estate? Here is my advice.

How to make a start in real estate investment

Have a clear vision of what you want to achieve – it will be fundamental to your success. As you formulate your plan, consider your own financial capabilities, the level of risk you’re willing to take and your financial goals.

They’re all crucial: without a clear understanding of your own financial spending power you can’t develop a clear idea of your risk appetite. And without an idea of your investment goals, you can’t formulate a clear plan of what kind of real estate you need to purchase to achieve them. So, what might these goals look like?

• Regular rental income.

Pros: regular, reliable income, with a return on your investment now.

Cons: You may need to spend time as a landlord managing the properties however.

• A return over the longer term, by adding value to them over time and eventually selling them at a profit.

Pros: If the market goes up, so does your investment. Cons: If the market falls, you could be left with negative equity.

Clearly, these two approaches to buying real estate aren’t mutually exclusive, and you may even be able to build a portfolio that delivers both over time.

Take advantage of the data

From estimated operating expenses to market projections and existing vacancy rates, the amount of information available to potential investors of any kind is huge. An overview of the European real estate market as whole, such as PwC’s regular Emerging Trends in Real Estate® report is a handy starting point.

The key to success for any new investor is understanding how these figures impact your projected income (or final return). To succeed as real estate investors, we need to understand these figures in terms of the practical, real-world impact they will have on our own finances.

Take the average square metre rental figures for Berlin over the last three years. They rose from 12.5 Euros per sq metre in 2017 to 13.2 Euros per sq metre in 2019, as developers create more and more new apartments in a popular market. They’re superficially encouraging for anyone looking at investing in a buy-to-let property in Berlin. But the backstory is that the pace of this rise may slow as more new apartments are completed and availability improves.

So, rental prices might continue to grow in an increasingly healthy residential property market in Berlin. But there is also a good chance you’ll see a slow down in the rental growth rate – one which could directly impact your own monthly cash flow.

Always build value across your portfolio

Real estate is unique, as we can add value to the investment ourselves. We might spend money on improving a property and then sell it on quickly – or buying and hold it over the longer term.

But it is important to keep an eye on your monthly figures. Watch your yield rates, your mortgage repayments and maintenance costs. If your mortgage repayments are rapidly outgrowing the amount of rental income you receive, then it is time to reassess the rates you charge, or even sell up.

Watch your debt levels as well – it can be easy to lose track of expensive debt building up, hidden within your portfolio of properties. Choose your financing method wisely – these might include:

• Releasing equity by selling an existing property in your portfolio. You aren’t adding to your debt, but you are also taking potential value out of your portfolio.

 

• Take out another mortgage or get a loan secured against existing equity. Relatively simple, but you are increasing your debt liability, and exposure to fluctuating interest rates.

 

• Consider an alternative source of funding, such as crowdsourcing. There are a number of online crowdsourcing platforms that allow you to invest alongside other investors. These allow you to diversify easily, spread the risk and enjoy consistent investment performance. On the flip side, you’re relying on other people’s judgement – in contrast, Real Estate Investment Trusts (REIT) portfolios are usually managed by real estate investment experts.

The bottom line

Both the German and Austrian property markets are in a good place right now, but there’s no need to rush in.

The key to success is to think about every new purchase in terms of how it adds value to your portfolio. Each new property brings new financial liabilities – so how do these stack up against the potential returns you’re likely to enjoy?

As a final point, it’s also worth saying that a passion for property helps when you’re starting out too. This might seem obvious, but property is a big, long term financial commitment, and you need to be enthusiastic about what you’re putting your money into. Investing in real estate can be time consuming and complex – you need to have genuine enthusiasm for your assets.

So, find a property sector you enjoy working in, research it thoroughly, and build your investment patiently over time.

 

Avner Motaev manages several companies in the real estate and telecommunications industries. He is the founder and CEO of mobile2business and lives and works in Vienna.

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