In our new article, you’ll learn how American investors benefit from real estate and how location and energy efficiency affect returns.
When it comes to real estate, most people in Germany seem to have two main options in mind: buying a property—that is, becoming a homeowner—or renting one. Regardless of whether it involves buying a house or an apartment, there’s no question that purchasing a home requires a certain level of financial resources. However, if the financial resources are available, there are far more options than simply purchasing a property and living in it yourself for a long period of time—perhaps even for a lifetime: In the U.S., significantly more private individuals are taking a step that real estate companies take for granted—they invest in real estate and sell it again after some time.
Following the American Model: Private Investors Focus on Location
When private real estate buyers think like investors—as is more often the case in America—this already influences their choice of property. The property does not necessarily have to (only) suit their own preferences, but should be located in an area that is experiencing positive demographic and economic growth—because then an increase in value can likely be expected. They also ensure that the property is situated and laid out in a way that makes it practical for tenants; all in all, they make a purchase decision based more on rationality than on emotion.
Advantages of Resale: Save on Rent and Benefit from Appreciation
In the U.S., it is also common for private individuals to buy a property, live in it, and then resell it at a profit after ten to fifteen years. This allows them to save on rent and finance their next property, which is usually of a higher standard. This approach would also make sense in Germany, as real estate is considered a safe investment here as well. This is particularly true for residential real estate, given the high demand and simultaneous shortage of housing. Additionally, the money is invested securely and protected from the effects of potential inflation.
Consider ESG Factors When Selecting a Property
ESG considerations should be taken very seriously when selecting a property, as the energy efficiency rating now has a significant impact on a property’s value. Those who bring a property up to the latest energy standards—for example, by insulating the exterior facade or installing a new heating system—can improve its energy efficiency and thereby significantly increase the property’s value. The better a property’s energy efficiency, the higher the base rent the owner can charge, since tenants have lower utility costs.
Property Value Depends on Energy Efficiency Class
An analysis by the real estate platform ImmoScout24 shows how asking prices for properties have changed year-over-year depending on energy efficiency class: Properties in classes A and B have remained nearly stable in price in the independent cities. Asking prices for properties in energy efficiency classes C and D have fallen by 8 percent in these cities. In classes E through H, the price decline was 5 percent. Conclusion: Unrenovated properties are being offered on the market at significantly lower prices than energy-efficient ones.
The Building Energy Act and the EU directives on energy efficiency in buildings are leading to a shift in the real estate market. According to ImmoScout24, the fear of being unable to bear the high costs of complying with environmental regulations is even causing nearly a quarter of prospective buyers to refrain from purchasing a property—as revealed by a recent survey conducted by ImmoScout24, immoverkauf24, and YouGov. Yet this is precisely where the opportunities lie—not only for real estate companies but also for private investors: Those who familiarize themselves with the new laws can acquire unrenovated properties at low prices, revitalize them, and put them back on the market at a higher price.
Secure Returns Through (Rising) Rents
For traditional owner-occupiers, the conditions for purchasing a home have generally become more difficult, but those with sufficient equity can take advantage of the negative price trends of recent months to benefit from expected increases in value. A further rise in interest rates is unlikely, so it may also be worthwhile for private individuals to purchase a multi-family home or a condominium, rent it out, and thus generate a profit over the years.
In very simple terms, the return on investment can be calculated as follows:
Gross rental yield = Annual rent / Purchase price × 100
However, this calculation is only a rough guide, as it does not yet take into account all other costs, such as those for property maintenance.
Conclusion: Following the U.S. Example—Private Investors Should Seize Market Opportunities
Real estate is considered a safe investment. Private investors who want to benefit from the opportunities the market currently offers should follow the American example. If their assets are not unlimited, private individuals should, of course, invest wisely—for example, by seeking comprehensive advice on property valuation, comparing the property with similar properties, and considering ESG criteria. All in all, however, the German market also offers great opportunities for individual investors. They shouldn’t leave it solely to companies to use real estate as an investment and profit from its appreciation.
