Real estate as a retirement plan? A question of lifestyle and personal priorities

When it comes to making provisions for old age, buying or renting a property only makes sense in certain cases. The fundamental question is much more important: How do you want to shape your life? It is less about a purely financial decision and more about the personal lifestyle, your own wishes and dreams. The topic “Rent or Buy”is therefore less a question of money, but rather a decision that is strongly influenced by the individual attitude to life. You can do so many calculations and experiment with different tools, but ultimately it is an emotional decision to make. Are you the guy who likes to walk barefoot over your own parquet floor in the morning, the scent of theenjoying fresh flowers in the garden or loves the idea of building a terrace without having to worry about the consent of a landlord? Do you dream of a life project where you can make changes without constantly having to take into account third parties? If you recognize yourself with a clear yes with all these questions, you probably have the right feeling for themdecision. You don’t have to justify them with complex cost accounting, because it is above all your personal feeling that counts. But even with this emotional decision, there are some important aspects that you should consider so that your desire for a home does not become a financial nightmare.

Long-term investment or spontaneous desire?

Buying a property is often a decision for life. It is an investment that binds your savings over many years and where it is not clear at the beginning whether the financial commitment is really paying off. Risks and uncertainties play a major role here. Do you have enough reserves for unforeseen expenses? you can make sure you have the monthlyCredit installments can still be paid if your professional situation changes, for example through a temporary part-time job or a long-term illness?

Will the financing still run if you retire?

Will the financing still run if you retire? If you are willing to answer all these questions honestly and be prepared for the associated obligations, it is worth starting planning early. This means that consistently build up equity and regularly put back money in order to pay the additional costs and a share ofto be able to pay at least 20 to 30 percent of the purchase price out of your own pocket. It is advisable to go patiently and choose the right object carefully. It should not only please now, but also fit your plans in the long term. Many people also choose to buy real estate for strategic reasons: You want to create a facility that will be a futureyields. They think that they can cover the running costs through the rental income and at the same time build up assets. In some regions, the performance of recent years has shown that real estate can be an interesting investment. Especially in metropolitan regions such as Munich or Berlin, the prices for apartments and houses have been in recent yearsincreased significantly, which gives the impression that real estate is a safe investment. In addition, property ownership offers tax advantages: Expenditure on maintenance, property costs, depreciation and interest can be deducted for tax purposes. That sounds like a safe investment, but the reality is often more complex. There are numerous risks that should not be ignoredmay.

Risks and challenges when buying real estate

The so-called lump risk is one of the greatest dangers in real estate investments. Buying a single property you rent can lead to significant losses in the worst case. This is not a big problem for large investors who own hundreds or thousands of real estate, as they rely on a wide range. For private investors, things are very different. If onlyIf a property is in the portfolio, the risk of unforeseen events – such as sudden repairs, vacancies or unexpected costs – can severely affect the financial balance. In the worst case, the loss of the entire investment is threatened.

Renting a property no relaxed part-time job

In addition, renting out a property is not a relaxed part-time job that you can do on the side. Rather, it is a second profession that requires a lot of time, commitment and expertise. The rental means: create advertisements, meet potential tenants, coordinate ongoing repairs, attend owners’ meetings, bill for ancillary costs and sometimes also become active in crafts.All of this binds resources and can be nerve-wracking. It is not a passive source of income that can be used without any effort.

Security of rental income is not a matter of course

The security of the rental income is also not a matter of course. It is rather the exception that a property is rented out well for decades. Market developments, regional changes or unexpected events can lead to vacancies. If the rental income is lost or lower than planned, the financing will falter. The banks are interestedhowever, little for these problems. They demand the loan installments and expect punctual repayments, regardless of any difficulties in renting.

Assumption that real estate is always increasing in value?

Another point is performance. While real estate prices have risen significantly in some large cities in recent years, long-term development is unpredictable. Real estate prices are fluctuating, and in many regions they have developed little or even negatively in recent decades. The assumption that real estate is always increasing in value is therefore deceptive.Seen over the last 50 years, the average annual increase in value in Germany is rather low. This means that you can’t automatically count on high profits. Especially in less popular cities or regions, real estate has partially lost value in recent years. The price development depends on many factors that no one can predict exactly.

actual costs of maintenance hardly calculable

In addition, the actual costs of maintenance are hardly calculable. Repairs, renovations, modernizations – all of this brings unpredictable expenses. In addition, you can never know exactly how carefully the tenants are with the apartments, which affects the condition of the property. Poor care, improper use or unforeseen damage candamage value and drive up the running costs.

Political developments and the real estate market in transition

Last but not least, political changes can have a significant impact on the real estate market. New laws, tax regulations or tenancy law regulations can significantly reduce the return or even make it impossible. The latest example is the Berlin rent cap, which – although it was ultimately overturned – took away the planning security for many owners and prompted them toto take out of the market. Likewise, tax privileges that apply today may be restricted or lifted again in the future. The competition in the real estate market is also great. Large housing groups that own hundreds or thousands of apartments can maintain their properties more cheaply, finance them more cheaply and thus also offer them at lower rents. For private landlordsDoes that mean that in the fight for tenants, they often have to compete with the professionals who take advantage of the bulk, experience and professional management. This makes it difficult to gain a foothold with low rental prices or good conditions.

Alternative ways of real estate investment

If you don’t want to invest your money directly in a single property, you have alternative options. Buying direct is the obvious option, but it involves many risks. However, there are indirect forms of investment where you can invest your capital in real estate without putting everything on a card. These include, for example, real estate funds atwhich the money of many investors is bundled to invest in a wide range of objects. Crowdfunding models that involve small projects or stocks of real estate companies also offer lower-risk alternatives. These approaches allow diversification, reduce the risk of clumps and reduce the need to manage the ongoing management of thereal estate to take care of. This allows the chances of a return to be used without the many pitfalls of direct purchase and self-administration.