Real estate is a popular investment choice for many reasons. It provides a tangible asset that can appreciate in value, generate rental income, and serve as a hedge against inflation. However, investing in traditional real estate can come with challenges such as lack of liquidity, high transaction costs, and the need for active management. Listed properties, on the other hand, offer a more accessible, cost-effective, and transparent way to invest in real estate.
Investors who are interested in listed properties may find it helpful to work with a qualified financial advisor, such as Marcel Keller at marcelkeller.com. A financial advisor can help investors develop a comprehensive investment strategy that takes into account their individual goals, risk tolerance, and other factors.
What are listed properties?
Listed properties, also known as real estate investment trusts (REITs), are companies that own and manage real estate properties. These companies are publicly traded on stock exchanges and allow investors to buy and sell shares in them. By investing in listed properties, investors can gain exposure to a diversified portfolio of real estate assets without the need for direct ownership or management.
Liquidity listed properties
One of the main advantages of listed properties is their liquidity. Unlike traditional real estate investments, which can take months to buy or sell, listed properties can be bought or sold with ease on stock exchanges. This makes it much easier for investors to adjust their portfolios as market conditions change or their investment objectives evolve.
Listed properties offer a high degree of diversification. By investing in a REIT, investors gain exposure to a diversified portfolio of properties across different geographic locations and asset classes, such as residential, commercial, and industrial real estate. This diversification can help reduce risk and enhance returns by smoothing out the volatility of individual properties.
Listed properties offer a high degree of transparency. As publicly traded companies, REITs are required to file regular financial reports with regulatory bodies, which provide investors with detailed information about their financial performance, portfolio composition, and management practices. This transparency makes it easier for investors to make informed decisions about their investments and hold REITs accountable for their actions.
Listed properties are highly accessible. Unlike traditional real estate investments, which require large amounts of capital and active management, REITs allow investors to buy shares with a relatively small amount of money and delegate the management of the properties to professional management teams. This accessibility makes it easier for a wider range of investors to participate in real estate investing.
Listed properties are professionally managed. REITs typically have experienced management teams that oversee the acquisition, development, and management of their properties. This professional management can help ensure that properties are well-maintained, leased to quality tenants, and generate stable cash flows for investors.
Listed properties are tax-efficient. REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This means that investors can benefit from a steady stream of income without incurring corporate-level taxation. Additionally, REIT dividends are often taxed at a lower rate than ordinary income, making them a more tax-efficient investment choice.
Listed properties have lower transaction costs than traditional real estate investments. Buying and selling shares in a REIT is typically cheaper and faster than buying and selling physical properties. Additionally, REITs benefit from economies of scale, which allow them to spread their operating costs across a large number of properties and investors. This can result in lower management fees and other expenses for investors.
Listed properties offer several advantages over traditional real estate investments, including liquidity, diversification, transparency, accessibility, professional management, tax efficiency, lower costs, and strong long-term performance. While there are risks and challenges associated with investing in REITs, these can be mitigated by diversifying across different types of properties and markets, conducting thorough due diligence, and working with a qualified financial advisor.
Build wealth with real estate
How can you make money with real estate? Real estate investments enjoy great popularity among the population and due to the high demand, the prices of the objects are constantly increasing. Since people always need a place to live, the demand for real estate will continue to exist in the future. Also, real estate protects your wealth from inflation because the value of real estate increases with inflation. Real estate is therefore a long-term opportunity to increase your money with little risk. It represents a long-term passive income.
If you want to increase your money with real estate and invest it profitably, there are various options:
Buy and rent property
Buying and renting out real estate is the most popular way for most people to build their wealth in real estate. Due to the currently low interest rates, you can borrow money cheaply from the bank and that makes investing in real estate very attractive. The subsequent rental of the property gives you a plannable cash flow through the rental income. Ideally, rental income will cover loan repayments, leaving money to set aside for repairs and other incidental expenses. After the loan has been repaid, you have an additional source of income through the rental income. This means that more capital is available for further investments or you can top up your pension. Are you interested in the topic?
Buy, renovate and sell real estate
Another way to build wealth with real estate is by renovating and selling real estate. The question often arises as to whether it should be a house or an apartment. Properties in need of renovation are bought at a good price because their condition is no longer optimal. The renovation increases the value. The difference between the acquisition and renovation costs at the selling price is the profit. However, you should wait a few years between buying and selling the property, as this way no taxes are due on sale. It makes sense to rent out the property in the meantime and thus generate additional income or to live in it yourself and thus not pay any rent yourself. I already know what is important to consider when selling real estate explained in this article!.
The best way to make money in real estate is to strike a balance between the two methods. After purchasing the property, it must be rented out for at least 10 years in order to sell it tax-free. So rent out the apartment or house for at least 10 years and then sell it for a higher price than you bought it. As a result, you have a constant and plannable cash flow over the rental period and then earn additional money when the property is sold.
Listed properties are particularly suitable for wealth accumulation. Monument properties are often in need of renovation. Due to their condition, they are available at a lower price, but are usually in a very good location. If you then want to rent out the monument property, you can deduct the acquisition costs from tax, which also applies to “normal” properties. In addition, however, the renovation costs for the monument property can also be deducted. Due to the good location, the rental demand is always there and you can sell it tax-free after 10 years. The good location also contributes to a constant increase in value. That’s why listed properties are an attractive way to save on taxes and build wealth with real estate. I have everything you need to know about heritage properties summarized in this guide!
Advantages and disadvantages of building wealth with real estate
Building wealth with real estate is an attractive way to invest your money profitably. As everywhere, there are advantages and disadvantages that speak for and against this method. Decide for yourself whether this type of investing is right for you and weigh the advantages and disadvantages for you personally. Wealth with real estate can be built up over the long term.
Plannable cash flow: If the property is rented out after purchase, you generate a plannable and constant monthly rental income in addition to your income.
Attractive tax advantages: When renting out the property, you benefit from attractive tax advantages and can, for example, write off 100% of the purchase costs of the property from the tax. In the case of monument properties, also possible renovation costs.
Safe investment: The demand for living space will not change in the next few years and therefore the demand for real estate will also remain. In addition, you benefit from the increase in value of the property due to the high demand.
Protection against inflation: Due to inflation, your money in the account loses purchasing power. The value of a property is adjusted for inflation and increases at the same rate. Any rental income can also be adjusted for inflation.
Long-term capital commitment: Real estate is a long-term investment and only pays off after a few years. So keep in mind that you will not get your invested money back so quickly and should rent the property for at least 10 years in order to take advantage of all the tax advantages.
Cluster risk: There is a cluster risk with real estate, since many people invest their savings in one property. Since an investment is always associated with a certain risk, it is possible that you lose the entire investment sum. Even if the risk is much lower than with other types of investment, care should still be taken to spread the risk.
High investment threshold: In order to make money with real estate, you also have to bring a lot of equity with you in order to get a decent loan. If you only have a few hundred euros at your disposal, you cannot invest in real estate. As a rule of thumb, 20% of the total cost should be available as equity.
Long-term letting: There is also a risk if the property is vacant. The loss of rent can lead to money problems, since the loan installments are due even without rental income. A good location of the property greatly reduces this risk.
Listed properties as a small exception
There are different types of objects to make building wealth with real estate safe. Interesting are listed objects, which differ in many respects from normal or modern real estate. Not only the historic building fabric, but the funding programs are extremely interesting. The subsidy programs save you money and you can boost wealth accumulation with real estate. This is how you can make money with real estate.
KfW funding: You should observe these requirements
Historic houses may have a maximum of 60 percent lower energy requirements than modern properties. It gets interesting when it comes to adaptation: The energy requirement is adapted to the building structure. This facilitates the subsequent funding requirements. It’s easier to explain with an example. A new building has an energy requirement of 100 kilowatt hours per year. For a listed building, 160 kilowatt hours are enough. However, you are committed to reducing heat loss. This requirement can be expensive depending on the building. Consider such points before you start building your wealth with real estate. Check out my article if you are interested in buying heritage properties .
5 tips for successfully building wealth with real estate
Especially for newcomers, a few things should be considered when building wealth with real estate in order to start as well as possible. You should definitely consider these 5 tips for building wealth:
Build a solid base
Before you can start accumulating wealth, you must have a sufficient foundation. You should have a buffer of approx. 3 net monthly salaries in order to be able to absorb short-term, unforeseeable costs such as car repairs, etc. You will also have to pay off any loans and debts you may have, as in most cases the interest is higher than the return on the investment.
Only invest money in real estate that you don’t need
Before you start building wealth, you need to be clear about how much money you have. Only capital that you can do without should be used for investing. So it makes little sense to invest all your money and then have no money for the monthly living expenses. Since every investment is associated with a certain risk and, in the worst case, a total loss can occur, money should only be invested where it is manageable to lose everything. Putting your entire savings on one card is therefore not recommended.
choice of investment
Not every investment is right for you. Real estate and stocks tend to be long-term investments and are associated with manageable risk. Investing in real estate is lucrative in the long run. If you want to make a lot of money in the short term and have a gambler mentality, cryptocurrencies are probably the better solution, but they also involve a very high level of risk. Especially for long-term investments, it is important that you are convinced of the investment. If you have restless nights and constantly doubt your investment, this leads to panic selling and you even lose money instead of earning it.
In addition, one must also be aware that the invested money is not available for a long time and one does not have access to it. So before you invest money in real estate, you should think about what the personal requirements are and how you want to invest in order not to end your investment prematurely and possibly make a loss.
Spread your risk
Investments are always associated with a certain risk and the higher the expected return, the higher the expected risk in most cases. Investing in different assets can minimize this risk. When you invest in stocks, it is very easy to invest in different assets and spread your risk. When it comes to real estate, it is not easy for many to invest in several properties, especially at the beginning, because there is not enough capital. For example, if you owned 3-4 properties and one property was vacant, the other properties would absorb the loss of rental income. When building wealth with real estate, it is also advisable not to invest all your money in real estate and to use other investment opportunities to spread the risk.
Good preparation is essential, especially if you want to make money with real estate. When looking for a suitable property, you should take enough time in advance to conscientiously evaluate all the criteria. What is the location of the property? What is the condition of the property? These questions and others must be carefully considered in order not to lose money unnecessarily. If unplanned costs for renovations are added after the purchase of the property, this also reduces the return. So take enough time to search and view the property so that you really have a good basis for deciding whether the property is suitable for you.
If you want to invest your money sensibly and build up a fortune, real estate is very suitable for you. By renting out the purchased property, you get paid returns right from the start and if you decide to sell, you benefit from the increase in value of the property. But you should think carefully beforehand about whether real estate is the personally right way to invest your money. Since you can only sell tax-free after 10 years of rental and the sale can sometimes take a few months, you should not invest any money that will be needed in the near future.