Whether an investment makes sense or not basically depends on the question of whether your assets increase or decrease. This is also the case with a flat as a capital investment. Does an investment in a property make sense? Our "Apartment as a capital investment example calculation", which you can find below, provides information on this.
If we take a look at the current interest rate level, the answer is quite clear: basically yes! Because as we can see on our financing comparison page, interest rates are in the basement in October 2021. Bad for savers with overnight money. Good for investors in a flat as a capital investment.
We are in a low-interest phase. When there is hardly any interest, call money, bonds or the good old savings book are not exactly recommendable. The interest rate is currently below the rate of inflation, so your assets keep decreasing. Shares are still too risky for most Germans, that's why more and more people are asking themselves:
"Is real estate worthwhile as an investment?"
To answer this question, we would like to show you right away, using an example calculation,when a property makes sense as a capital investment.
The equity capital you bring in should generally cover the ancillary purchase costs - in this way you optimise the return on equity and at the same time do not have to bring in too much of your own money.
The bank loan - consisting of interest and repayment - is paid off monthly
But your tenant also pays his rent every month, so he basically pays off your loan instalments and thus your property
The rent is more or less a transitory item until the loan is paid off and the flat is yours - without much financial effort on your part.
The above investment example shows a representative income property as purchased by one of our clients. The bottom line is that it helps to calculate the cash flow of the property to find out what is left each month after deducting all costs.
We would be happy to introduce you to a currently available income property in an information session, e.g. via Google Meet. Simply arrange an appointment. Appointment.
Calculation real estate capital investment
To calculate the cash flow of a property, only the expenses are deducted from the income.
The expenses include above all the financing costs, i.e. interest and repayment. Here it is interesting to see how your monthly payments to the bank are made up. The rate is the same every month, but at the beginning it consists mainly of interest payments, while very little of the loan is repaid. Year after year, however, the interest decreases, because the interest rate always applies only to the remaining amount of the loan. And so, over time, your instalments serve more and more for repayment and less for interest payments.
Example calculation for an income property
In addition to interest and repayment, the non-apportionable ancillary costs in the form of maintenance reserves and administration costs must be deducted from the income. You can find out which administrations are important for you in this article.
The income that opposes the above-mentioned expenses is your rental income. This should cover all the above-mentioned costs (financing instalments + non-apportionable costs). The surplus generated must be declared as part of your income tax return. After deducting the tax, you will then have the cash flow of your property.
But now we would like to explain this to you with a concrete numerical example.
Let's assume that you want to buy an apartment in Nuremberg for a purchase price ofe would like to purchase a flat in Nuremberg at a purchase price of 170,000 euros. The flat has 70 sqm.
The ancillary purchase costs amount to 8,755 euros, consisting of 3.5 % land transfer tax (in Bavaria) and 1.65 % notary and land registry costs. The land transfer tax varies from federal state to federal state, the average is around 5 %.
This means a total investment of 178,755 euros, of which you provide 8,755 euros as equity and finance 170,000 euros through a bank.
The rental income amounts to 7,152.01 euros annually (net annual cold rent).
less interest on loan (at an interest rate of 1.4 %)
less maintenance reserves
less administrative costs
Surplus before redemption and taxes
less redemption (2 %)
Yield after redemption (per year)
This is a sample calculation. Of course, most items will vary. The interest rate, for example, is a variable that depends on your credit rating and equity situation. The better your credit rating, the lower the interest rate.
The administration costs may also be different in your case. It depends here on which administration you need or want to make use of. Not every administration is obligatory. In our numerical example, we have used our 360° package because it includes all three types of management (WEG, condominium and rental management).
What has not been taken into account in the above calculation are Taxes and a possible change in the value of the property.
This would go beyond the scope of this article. However, you are welcome to Contact personally.
But very briefly: We always calculate cautiously; for this we have four different ways of looking at things.
Is the property losing value?
Does the value remain constant?
What would be an average performance?
When would the performance be very good?
Our credo: A property as an investmentmust be worthwhile even if the property does not increase in value. No one can look into the future. That is why we always approach our calculations conservatively, so that there are no negative surprises.
When is an investment property worthwhile?
To keep it short: An investment property is worthwhile when the Rental yield is right. You can see how this is made up in the following "Property as an investment calculator":
Calculation of the gross rental yield
In the numerical example above, this results in a gross rental yield of 4.2%:
Example calculation of gross rental yield
This corresponds to a value that can usually already generate a neutral to slightly positive cash flow.
However, in order to achieve such a rental yield, certain conditions must be met. The Property Location Valuation plays a very important role, but also the rentability of the property as well as suitable credit conditions.
In any case, your goal should always be to achieve a positive or at most slightly negative cash flow.
If you have any questions about the calculation or about Cash flow real estate you are welcome to ask them in our community, on Facebook or in a personal conversation. We will then go through the individual items with you step by step and advise you without obligation and free of charge.