ᐅ Multi-family residential building as an investment property in a city with an aging population

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!

Good morning,

MaxPower90 schrieb:

I have looked at every population forecast I could find online, and Herne is aging above average and is expected to lose up to 10% of its residents by 2040.

That may be true, but young newcomers (from the University of Bochum and Dortmund) come in through the students. I don’t find Herne boring, but rather quite colorful.

MaxPower90 schrieb:

Now my question to you: Is investing in such a city 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 right (shopping options, public transport, parks...) and you possibly retrofit the building to be barrier-free in the medium term? Especially considering the attractive rental yield and the fact that retirees, in my opinion, could be “good” tenants.

It depends on your objective.

If you rent affordably to students, you will have high turnover – but they will appreciate it. If you rent to seniors, you need to buy a property that is at least minimally prepared for the needs of this age group (elevator). You will then have to retrofit the rest – making all apartments barrier-free. If the condominiums are already designed for retirees, the return will likely be lower.

Overall, I see it this way: Herne is certainly changing, but housing demand will always exist.

Regards,
Bauexperte

First, you should buy residential property for your own use and not an investment property with risk. This is also discouraged if you have only a small amount of equity.

Assuming there will eventually be some rental vacancy, a prime location won’t necessarily generate significantly higher returns than a less desirable one. Most people prefer to accept a less favorable location in order to save some money.

Targeting students is not a bad strategy. They generally pay a relatively good price per square meter. Most students are also less likely to insist on a consistently high standard of the apartment. This means that if a window isn’t completely sealed or a faucet drips, you won’t immediately have a problem tenant. And if you do, you can usually buy some time, since most will move out after a few years and the next tenant might not mind minor flaws.

For a student apartment, the cheapest options are usually sufficient. You should also generally expect that students won’t treat the apartment with great care.

HilfeHilfe schrieb:
First, you should buy residential property for your own use and not an investment with risk. Limited equity also argues against this.

I am very interested in the reasoning behind this statement.

With an owner-occupied property, for example, the risk of vacancy is eliminated since you are essentially renting to yourself. The risk of problematic tenants is also removed. If a major repair is needed, such as a damaged steel-enameled bathtub, and you don’t have the funds, as the owner you can decide to save for six months for a new tub (using the shower during that time). If you were renting out the property, you would hardly be able to make your tenant wait six months. When it’s your own home, you are more likely to ensure there is no mold or damage caused.