ᐅ Multi-family residential building as an investment property in a city with an aging population
Created on: 2 Oct 2016 12:08
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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!
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Bieber081511 Oct 2016 06:55MaxPower90 schrieb:
Of course, taxes come into play as well Are you going to handle everything yourself, or will you need an accountant?
MaxPower90 schrieb:
where likely not much investment will be needed in the coming years MaxPower90 schrieb:
At least that’s what I assume, since apart from a maintenance reserve, not much will be spent.I think that’s a bit contradictory. Of course, you can leave apartments unrenovated or unimproved. But as soon as a tenant moves out, you will need to carry out work.
Even in the Ruhr area, a lot of new buildings are being constructed. I believe if you’re unwilling to invest, you could end up in serious trouble.
And your maintenance reserve will mostly be used for the building itself, not the individual apartments. Heating system, roof, windows...
MaxPower90 schrieb:
Net cold rent minus 1%. Are you referring to 1% of the rent? If so, that would probably be far too little.
MaxPower9011 Oct 2016 18:34Bieber0815 schrieb:
Are you going to do all of this yourself or will you need an accountant?I feel confident doing it myself using the Wiso tax software. Although, I’ll probably need to take a week off work each year for the first three years, and then a week of vacation after finishing the tax return.
Musketier schrieb:
Are you referring to 1% of the rent? Then that would be far too low.I probably didn’t explain myself clearly. I meant 1 percentage point. So if I have a 7% net cold rent (net rent excluding utilities) yield, I calculate with 6% net rental income before taxes because I account for the 1 percentage point as a maintenance reserve.
As long as there is no specific property with a purchase price and the corresponding refinancing/financing as an example, this is all purely theoretical. However, 6% is unrealistic, and 1% for maintenance is far too low and does not cover all the costs that still need to be deducted.
Best regards
Dirk Grafe
Best regards
Dirk Grafe
MaxPower9013 Oct 2016 22:56Then I would like to use this property as an example. I am not planning to buy it, but it caught my attention:
Link removed... Four-family house for €245,000 (about $265,000) on eBay Classifieds
Assuming the information about the net cold rent is correct and that quite a bit of maintenance has already been done in recent years. And assuming you could buy the house including ancillary purchase costs for €265,000 (about $287,000). Then you would initially have a net cold rent of 8% of the acquisition cost, of course before taxes.
Then I would also set aside 2% of the acquisition price annually as a maintenance reserve (for common areas of the building as well as the apartments themselves). In my opinion, I have no further costs because I manage the property myself.
That leaves me with a 6% net rental yield, of course before taxes. Or am I mistaken? Again?
Link removed... Four-family house for €245,000 (about $265,000) on eBay Classifieds
Assuming the information about the net cold rent is correct and that quite a bit of maintenance has already been done in recent years. And assuming you could buy the house including ancillary purchase costs for €265,000 (about $287,000). Then you would initially have a net cold rent of 8% of the acquisition cost, of course before taxes.
Dirk Grafe schrieb:
1% maintenance is also far too low or not all costs to be deducted are included.
Then I would also set aside 2% of the acquisition price annually as a maintenance reserve (for common areas of the building as well as the apartments themselves). In my opinion, I have no further costs because I manage the property myself.
That leaves me with a 6% net rental yield, of course before taxes. Or am I mistaken? Again?
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