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Window to Europe: why invest in residential property abroad

Окно в Европе: зачем вкладывать деньги в жилую недвижимость за границей

Housing in a good neighborhood of a big city in Europe or the United States is one of the world’s best tools to secure a comfortable old age and subsequently transmit it to their children

One client bought the apartment for renting in Germany and so explained his choice: “Our budget was very limited and small hotels are much more expensive. Commercial facilities we’ve ruled out because they require a lot of attention and time. We are constantly working, and in a completely different field, and are not willing to expend energy and resources on business management, especially abroad. In addition, commercial real estate although more profitable, but carries more risks.”

Many are guided by the same motive — to get passive income on a reliable market with investments of less than €1 million and lower risk.

Why residential real estate?

Housing is the most liquid asset (it is easier to sell than, for example, a hotel or shop) and the most in demand type of property. According to our research, 63% of polled realtors believe that among Russian speaking investors, the greatest demand is for apartments and houses for rent.

Residential real estate is a profitable investment in the long term. In 10-20 years the world will greatly change; new technologies, new software, distribution, robots, innovations in the logistics market, the introduction of 3D printers can dramatically affect the commercial real estate market. Owners of commercial real estate and logistics facilities will be forced to respond to new challenges, to restructure the business and to adapt to new realities. This, of course, will not lead to the fact that commercial real estate will cease to be in demand, but still in the segment of residential facilities such difficulties will not be and risks will be lower, as people always will need somewhere to live — and in a crisis, and changing market conditions.

Unfortunately, due to the high demand of residential properties have low yields (about 3-4% per year from the invested funds). Everything is interconnected: what most people buy, is expensive, and therefore gives a lower yield. On the other hand, the high demand ensures a lower risk, as demand of an object will not be empty, and objects in locations with low risks and profitability are characterized by a large increase in value. Therefore the one who invests in residential real estate, may earn less on rental stream, but compensates the low yield due to the growth of capitalization.

Housing in a good neighborhood of a big European or American city brings 3-4% rental yield plus the projected growth of capitalization in 2-3% gives about 5-6% per year in currency is one of the world’s best tools to secure a comfortable old age and subsequently transmit it to their children.

Many Europeans do the same, because the deposits today give zero or negative profitability, and high-quality bonds — a little more.

The most competent and active investors in real estate trying to increase profitability through effective management — to buy objects for passing short or medium-term rental 3-6 months. This approach offers several additional advantages:

— rental yield increases to 4-5 %;

— there is an opportunity to use the apartment for your stay;

— indexation of the lease in proportion to the growth of the market (long-term rent restrictions, for example, in Berlin the rent be increased a maximum of 10 % of the value of the average rental in the area);

— there is no problem with the eviction of a tenant (in Europe it is difficult to evict a tenant without his consent, and sometimes it can be a hassle for the owner).

Where to buy

In the long term, attractive residential properties in large European and American cities, among them Berlin and cities in Western Germany (Hamburg, düsseldorf, Cologne, Munich, Frankfurt, Stuttgart), as well as Vienna, London and new York. For long term rentals especially promising Berlin because 85 % of the inhabitants of this city are renting.

The growth of the population of large German cities is by 1% per year.

After 20 years of such metropolises as Berlin, will remind a modern Tokyo where most people live in small apartments and not have enough real estate for everyone.

According to the forecasts of the Main Department for urban development and environment Berlin (Senatsverwaltung für Stadtentwicklung und Umwelt), the population of Germany’s capital will grow from 3.6 million in 2014 to 3.8 million by 2030, it is worth considering that in recent years population growth has outpaced projections in half. This will provide an even greater demand for residential meters.

When clients ask us to invest €100 000 – €500 000, we offer them to buy a small apartment in a nice area of a major European city with a year-round tourist and business flow, good universities and infrastructure, preferably near the center.

The advantages of such investment:

— Stable income in foreign currency. When investing in European housing in a good area, surrendering in a long-term lease, you can get €9000 – €15 000 € per year. Income will be stable because, on average, Europeans rarely change their place of residence (for example, in Germany the apartment is rented by the same family usually at least 12 years). Such investments will not only protect savings from the risks of the Russian (in particular, from the falling ruble), but also will increase the capital.

— The price growth potential. Locations with low risks and profitability (a prestigious and Central areas of major cities) are rising in price faster than those that have higher risks and high returns. So, in the Central area of the city where housing is worth 2% per annum, the potential for price increases may be about 5% per year, and at the periphery, where the yield reaches 10%, the property can rise by only 3%, with risks of falling prices will be higher.

— High liquidity at the exit of the project. Apartments in good areas of European cities sold out instantly. In the vicinity of the kurfürstendamm in Berlin shelter sometimes finds the buyer within three hours after the publication of the advertisement. Sometimes one apartment apply at once to four customers.

Buy quality tenement apartment in a nice area of a major European city and if there €50 000 if you use your credit.

For example, in Germany you can get a loan in the amount of 50% of the market value of the object under 2% per annum.

We don’t even have to fly to Germany and make a deal remotely and just get a monthly income — you can buy the property through a Trustee. But we still suggest that you go to the country at least once to understand how your property looks, compare different markets and for subsequent purchases it is easy to estimate the capacity and liquidity for new acquisitions.

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