Is real estate an attractive form of investment as a capital investment?

Is real estate an attractive form of investment as a capital investment?

What options are there for long-term asset accumulation?

Interest rates on the international capital markets have been at historic lows for several years. At the moment it is also not foreseeable that anything will change in this overall situation.

Well-known forms of long-term wealth accumulation include:

  • Fixed Income Securities
  • Home loan and savings contracts
  • Capital life insurance
  • shares
  • Investment certificates and fund investments
  • Precious metals such as gold
  • Properties that are rented out on a long-term basis

But which of these alternatives is best for a long-term investment?


An alternative to interest-bearing investments is an investment in tangible assets in order to be able to build up greater wealth over the long term.


Pro tip

What are the prospects for interest-bearing securities as a long-term investment?

This form of capital investment includes:

  • Fixed Income Securities
  • Home loan and savings contracts
  • Capital life insurance

Fixed-income securities
The phase of low interest rates on the capital markets, which has been around the world for several years, has resulted in hardly any income from investing in fixed-income securities. Depending on the credit rating, the return is almost zero. In addition, the interest income must also be taxed, so that there is hardly any positive result for the investor.

Home loan and savings contracts
Here, too, the same applies as for fixed-income securities. Anyone who sees their home loan and savings contract as a pure investment will be more likely to be disappointed with the result. It is a different matter if the building society loan agreement is later used to buy a property. Here the favorable loan interest can be used later for long-term real estate financing. However, since the prospects for rising interest rates are judged cautiously, the advantages of the cheap building society loan are currently negligible.

Capital life insurance
The return on capital life insurance has also deteriorated significantly in recent years, in view of the ongoing low interest rate policy of the international central banks. Both the guaranteed interest rate and the profit shares from surpluses fell significantly. Those who want to limit the biological risk for themselves and their families are well advised to take out term life insurance with significantly less capital outlay.

What are the prospects of investing in tangible assets without real estate?

An alternative to interest-bearing investments is an investment in tangible assets in order to be able to build up greater wealth over the long term.

These investments include:

  • shares
  • Investment certificates and fund investments
  • Precious metals such as gold

Shares
Investments in shares have been a worthwhile investment in the past few years after the financial market crisis about 10 years ago. In addition to the price gains, you could also earn a dividend in profitable stock corporations. Some of the global stock markets are currently at historic highs. At this level, risks cannot be completely ruled out.

Investment certificates and fund investments
Those who prefer to spread their risk more broadly than invest in individual stocks can take advantage of these types of investments in tangible assets. The same statements apply to certificates and fund investments based on equity values ​​in particular as to equities as a whole.

Precious metals such as gold The gold price has also developed quite positively in the recent past. A gold investment is always recommended as a hedge against turbulent times on the financial markets. When investing in precious metals such as gold, it must be taken into account that no current income is generated here, but primarily price gains.

What advantages does a long-term investment in real estate offer as an investment property?

The Investment in Property has always been an interesting alternative. The following thoughts are in the foreground with this form of investment:

  • safety
  • Increase in value
  • Current income in the form of rent
  • Tax benefits
  • Possibility of personal use

Security
In the vernacular, real estate is often referred to as “concrete gold”. This designation is justified because real estate represents lasting values. If, in times of crisis, share price gains often vanish into thin air and fixed-income securities have also led to high losses, the property can still be touched in times of crisis. Of course, there are also market price fluctuations in real estate. But a total loss actually only occurred in times of war through destruction.

Increase in value
In recent years, real estate prices have increased significantly, especially in major German cities. Price increases were possible here, which often exceeded 10 percent per year. The boom in the real estate sector is sustained and an end does not seem to be in sight at the moment.

Current income in the form of rents
In contrast to many other financial investments, the potential for returns in the form of increasing rents is noteworthy. Income here has increased significantly in recent years, which is why an investment in real estate is still particularly attractive now.

Tax benefits
In the case of rented real estate, an investor can also take into account expenses that serve to maintain and improve the building fabric for tax purposes. The same goes for financing costs. A tax advisor can determine for each investor how high these advantages are in individual cases.

Possibility of own use
Investors often buy a property in order to initially generate income from renting out to third parties. In the course of the years the situation in life can change and new decisions become necessary. In this case, a property that was originally rented to someone else can later be used as a retirement home or for members of the family.

Conclusion

Investing in real estate is one of the most attractive forms of long-term investment. It offers the investor great security with ongoing good income in the form of regular rental income. In addition, there are high increases in value, especially for properties in preferred inner-city locations and selected areas.

The property is suitable both as a capital investment to generate rental income and, in old age, as a retreat for self-use for the investor himself or his family. Investing in real estate is particularly attractive against the current backdrop of historically favorable capital market rates. External financing of the property purchase can, under certain circumstances, already be repaid from the current rental income.

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