ᐅ Multi-family residential building as an investment property in a city with an aging population
Created on: 2 Oct 2016 12:08
M
MaxPower90
Hello everyone, my concern is not directly related to building a house, but maybe some of you will find it interesting and want to join the discussion, which I would appreciate. Given the low interest rates and the fact that I have saved some equity, I am planning to buy 3 to 4 smaller condominiums to rent out, or even better, a small multi-family building.
I come from the Ruhr area and want to buy in this region as well. Of course, with a property, just like with a nice vacation, I want good value for money. At first glance, for example in Herne, you can find properties without maintenance backlog yielding around 7% net annual rental return. In my opinion, this high return is linked to the fact that Herne is not an attractive city for any age group. I have reviewed all the population forecasts I could find online, and Herne is aging faster than average and is projected to lose up to 10% of its inhabitants by 2040.
My question to you is: Is investing in a city like this likely to be a losing strategy due to falling property prices and probable vacancies? Or could it also be an opportunity if the micro-location is good (shopping facilities, public transport, parks, etc.) and the building could potentially be converted to be barrier-free in the medium term? Especially considering the attractive rental yield and the fact that retirees, whom I imagine to be “good” tenants, might be the main target group.
I have never bought residential property before and find it really difficult to assess. I look forward to your opinions!
I come from the Ruhr area and want to buy in this region as well. Of course, with a property, just like with a nice vacation, I want good value for money. At first glance, for example in Herne, you can find properties without maintenance backlog yielding around 7% net annual rental return. In my opinion, this high return is linked to the fact that Herne is not an attractive city for any age group. I have reviewed all the population forecasts I could find online, and Herne is aging faster than average and is projected to lose up to 10% of its inhabitants by 2040.
My question to you is: Is investing in a city like this likely to be a losing strategy due to falling property prices and probable vacancies? Or could it also be an opportunity if the micro-location is good (shopping facilities, public transport, parks, etc.) and the building could potentially be converted to be barrier-free in the medium term? Especially considering the attractive rental yield and the fact that retirees, whom I imagine to be “good” tenants, might be the main target group.
I have never bought residential property before and find it really difficult to assess. I look forward to your opinions!
H
HilfeHilfe4 Oct 2016 09:20Musketier schrieb:
If you follow the line of thought from @HilfeHilfe, that would mean someone without their own house shouldn’t have larger stock portfolios, options, or similar investments either.
Why? That’s comparing apples and oranges. With stocks and options, you can lose your entire investment without any additional financial obligation. Ignoring CFDs for now.
In real estate investment with little or no equity, the worst-case scenario is having a tenant who doesn’t pay rent and whom you have to evict (which is expensive), clear out the property (costly and requires the landlord’s permission), and possibly renovate.
To me, that’s a different kind of “building wealth.” And yes, I had investment portfolios and was very risk-taking, even leveraging on credit; I owned a condominium to rent out and eventually sold everything. I broke even (thankfully), but it did cost me some nerves.
I feel more comfortable with owner-occupied property. But it’s true, in both the stock market and rental business, there are only winners—I always smile when I hear those stories.
Musketier schrieb:
With a good return, I can leverage my equity in a rental property, which I can’t do with an owner-occupied home. That’s true, owner-occupied properties are now typically financed with 100 percent equity.
Grym schrieb:
That’s right, owner-occupied properties are now financed with 100 percent equity.Read the second subordinate clause you quoted, not just the first. You also continue to imply that the same rules and assumptions apply to owner-occupied housing and rental properties. That is not the case, even though I am repeating myself. These are two completely different matters, apples and oranges.
H
HilfeHilfe4 Oct 2016 09:30Alex85 schrieb:
Read the second subordinate clause you quoted, not just the first one.
Also, your statement still implies that the same rules and assumptions apply to owner-occupied and rental properties. This is not the case, even if I repeat myself. They are two different things, apples and oranges.I’m not sure if you’re addressing me? However, when it comes to owner-occupied properties, regardless of the loan-to-value ratio, there is one crucial factor: you are in full control of the repayment. You are not dependent on anyone else.
HilfeHilfe schrieb:
I’m not sure if you meant me? However, with owner-occupied properties, regardless of the loan-to-value ratio, there is one crucial factor: you control your own repayment. You are not dependent.I meant grym, as I quoted him.
Owner-occupied properties and rental properties have different risk profiles. Some risks overlap, others do not.
That is no valid reason to generally prioritize one (in terms of timing) over the other. That’s what this is about (and I’ve finally reached that conclusion, since it only leads to repetition).
The basic principle is the same in both cases when looking at it abstractly. An owner-occupied property also has a net return, which is the rent saved.
If the rent would be 1,500 euros, but instead there is a loan repayment of 1,000 euros, I make a 500-euro profit AFTER taxes plus or minus the asset accumulation from the property (value gains, value losses, inflation, principal repayment, depreciation, etc.).
Here as well, I can vary the equity portion and the principal repayment, resulting in different net after-tax returns...
If the rent would be 1,500 euros, but instead there is a loan repayment of 1,000 euros, I make a 500-euro profit AFTER taxes plus or minus the asset accumulation from the property (value gains, value losses, inflation, principal repayment, depreciation, etc.).
Here as well, I can vary the equity portion and the principal repayment, resulting in different net after-tax returns...