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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HilfeHilfe4 Oct 2016 09:47Sorry, for me renting out property carries a much higher risk due to the unknown tenant(s), often nomadic. This significantly reduces my return on investment.
This risk does not apply to owner-occupied properties. Job loss or personal hardships are the same whether the property is owner-occupied or rented out.
I’m just repeating myself in circles here. Based on my experience within my circle of acquaintances, those who become landlords usually have the necessary capital (a good income, owner-occupied property, and are willing to take the risk), inherit property (a house from parents), or are self-employed individuals building their retirement assets through renting.
But maybe I just know the wrong people.
This risk does not apply to owner-occupied properties. Job loss or personal hardships are the same whether the property is owner-occupied or rented out.
I’m just repeating myself in circles here. Based on my experience within my circle of acquaintances, those who become landlords usually have the necessary capital (a good income, owner-occupied property, and are willing to take the risk), inherit property (a house from parents), or are self-employed individuals building their retirement assets through renting.
But maybe I just know the wrong people.
MaxPower90 schrieb:
I am from the Ruhr area and want to buy property around here. Of course, just like with a great vacation, I want a good price-performance ratio when buying real estate. At first glance, for example in Herne, you can find properties without deferred maintenance offering a net annual rental yield of around 7%. In my opinion, this excellent yield is related to the fact that Herne is not an attractive city for any age group. I have looked at all population forecasts I could find online, and Herne is aging faster than average and is projected to lose up to 10% of its residents by 2040.
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I have never bought residential property before and really find it hard to judge. I look forward to your opinions!Let me put it this way: if you have correctly calculated the net yield and accurately assessed the repair backlog or condition of the property/properties, then you should buy it immediately. However, the 7% yield does not align with your other information — such yields are only achievable in prime locations, if at all. If Herne is indeed experiencing population decline, demand will decrease as well. What matters is where exactly in the city this decline occurs, where your specific micro-location is, and how this compares to other neighborhoods.
Best regards,
Dirk Grafe
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Bieber08154 Oct 2016 15:09MaxPower90 schrieb:
You can find properties there without maintenance backlog, easily yielding around 7% net annual rental return.What are you waiting for? Go for it! Grym schrieb:
For owner-occupied property ... this is consumption and should not be confused with an investment property.
MaxPower904 Oct 2016 17:39Thank you for your participation, but it’s a pity that my thread turned into a general discussion about the value of real estate investments. For me, they make sense, even though I am renting.
I would say you are wrong here. I read the following in a real estate book, which my yield research has confirmed: in top cities and/or prime locations, you actually have lower net yields than in less desirable areas! Why? Because of the enormous purchase prices! Rents do not rise in line with property prices! You also pay the high purchase prices in prime locations like central Düsseldorf because the property has potential for value appreciation. You don’t have that on the outskirts of Herne. You buy the high (currently still existing) rental yield with the risk that the value of your property and rents might decrease.
And that’s exactly what I find very difficult to predict, no matter the city.
Dirk Grafe schrieb:
Let me put it this way: if you calculate the net yield correctly and accurately assess the backlog of repairs and the condition of the property/properties, then you should buy immediately. But the 7% doesn’t match your other information – such a return is only achievable in prime locations, if at all.
I would say you are wrong here. I read the following in a real estate book, which my yield research has confirmed: in top cities and/or prime locations, you actually have lower net yields than in less desirable areas! Why? Because of the enormous purchase prices! Rents do not rise in line with property prices! You also pay the high purchase prices in prime locations like central Düsseldorf because the property has potential for value appreciation. You don’t have that on the outskirts of Herne. You buy the high (currently still existing) rental yield with the risk that the value of your property and rents might decrease.
Dirk Grafe schrieb:
If Herne is actually shrinking, then demand will fall as well. The crucial point is where exactly the city is shrinking, what your micro-location is, and how it compares to other neighborhoods.
And that’s exactly what I find very difficult to predict, no matter the city.
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Bieber08154 Oct 2016 21:37MaxPower90 schrieb:
In top cities and/or prime locations, you get less net yield than in less desirable areas! This matches my limited knowledge. However, I also know that a 7% return today only comes with considerable risk.