WHY INVEST IN REAL ESTATE?
Real Estate Performance
From an investment perspective, it often happens that an investor underestimates the performance of real estate assets. Indeed, from 1870 until today, it has been proven that real estate is the most efficient investment, far superior to all other assets.
Currently, residential real estate achieves the best performance of all investments with rent-based returns as high as 7.05%. While the median return on stocks is less than 2.89%, on bonds 2.5% and on currencies 1%.
On the other hand, cyclical fluctuations in the real estate sector are less pronounced and much shorter than those that characterize the stock market. In general, real estate prices fluctuate between -4% and 16% while stocks are often subject to stock market crashes. A fact that goes against the logic that income is a reward for risk taken.
Unlike stocks, the risk of real estate investments remains very low, while their returns are higher. This makes real estate the safest and most efficient investment. To diversify portfolio risk, investing in stone offers a better alternative.
Current Real Estate Investment Situation
Interest rates are currently at the lowest levels, which allows you to buy real estate on favorable terms and guarantee a higher rental yield than other assets.
But for a real estate investment operation to succeed and bring a high return, it is advisable to seek help and advice from experts in this field who help the investor in finding a suitable property, its acquisition and management.
Putting money in a savings account or in safe assets such as federal bonds is not a profitable operation. Whereas rental investments offer a more attractive palliative solution with the duo of security and guaranteed returns in the short to medium term as well as the long term.
Indeed, rent collection is a way to have cash on a regular basis. On the other hand, if resold, the investor can receive capital gains that will increase the capital originally invested.
To ensure that the property is profitable, it must be maintained and improved to adapt it to the needs of the market. It is also necessary to comply with current rent regulations and tenant requirements, while keeping in mind to determine fair rents.
Good knowledge of the market
This may be obvious, but you should still remember that a good knowledge of the real estate market is key to the success of a rental investment. Owning the market allows you to choose the right property in a good location and at a fair price.
This type of investment offers an impeccable level of security if the property is chosen, purchased and managed effectively and methodically. Hence the interest in taking advantage of the support of a professional in the buying process.
We should expect to encounter a seller who thinks his property is the prettiest, or a broker who cares more about getting his commission. By having a rental investment professional on their side, it is easier for an investor to distinguish the truth from the lies and benefit from better protection of their interests.
Through pragmatic analysis, an investor can learn the true potential of a real estate investment and, above all, avoid falling into the trap of sentimentality, which is detrimental to any investment.
A professional can help his client get an equal footing with the broker and better negotiate the purchase price.
He can also intervene to communicate with various interested parties, such as the banker, notary, works manager, etc. It also helps in estimating the potential rent of the property and its profitability in view of the environment of the property.
Indeed, when selecting a property, it is necessary to learn about the infrastructure, public transportation and various services that may be of interest to tenants and meet their needs.
Such elements are studied by a real estate expert to identify areas with high potential for economic and professional development that benefit from good access to services and public transportation. This is a means to ensure a regular and sustained return on the property.
Some professionals even do joint tenancy cases and offer rent insurance. A service that is an added assurance of rental investment.
And it is, above all, an opportunity to avoid amateurism that is detrimental to the financial side of the investment.
Invest in Switzerland
Having made the decision to invest in rental real estate, it is necessary to choose the region in which the investment will take place. Switzerland is highly recommended for this type of investment.
Since the 1990s, the region has seen an influx of many German-speaking investment funds that have chosen to invest in Romandie. Indeed, the region has many advantages, including its economic dynamism, the richness of its cultural heritage and regular population growth.
Investors are aware of the potential in Switzerland, where Geneva and Lausanne are major destinations that are very attractive in terms of rental investments.
But it should be noted that opportunities are becoming increasingly rare, so it is necessary to seek the services of a professional who can find offers that are not published in real estate listings.
Investing in rentals is available to everyone
To start a rental investment, you hardly need to mobilize a fortune to buy a building worth about 5 million Swiss francs in Lausanne. It is better to give preference to small spaces to ensure interesting yields.
Usually people choose a studio or a few living spaces that are part of NIH programs under construction. A good way to increase your sleeping assets with yields of 6 to 15%.
This type of investment allows for a profitable rental portfolio over the long term, while having liquidity on a regular basis, not excluding the capital gains gained from resale and therefore the ability to reinvest. The choice of personal protective equipment turns out to be reasonable at various levels, especially since the costs of maintaining the building are shared among the co-owners.
Keep in mind that it is easier to forecast costs, which makes it easier to evaluate the return on investment in real estate.
It is recommended to invest in multiple studios in the city instead of choosing a large area outside of the urban center.
Having multiple properties is used to smooth out the risk of rental vacancies. Statistics show that studios have a 98% occupancy rate and two-bedroom units have a 94% occupancy rate.
A clear example of a private investor
Take the example of a private investor in his thirties who purchased an apartment in Prilly 2 years ago in addition to a garage unit. Both were quickly rented out, allowing the owner to generate income before the first payback period in the bank.
The apartment consists of 3 rooms with a monthly rent of CHF 2,000 and a parking space of CHF 200. The property is conveniently located within the city of Lausanne, close to various services and amenities, making it easy to find a buyer. This investor has conducted similar transactions with five apartments and six parking spaces, all of which are occupied.
The investor invested some of his savings in the property to have a fixed and regular income in the long run. This approach has been popular since 2008 and 2009, and gained power in 2017 with negative rates of 10 to 20 percent loans.
The tsaria fixes financing for income-producing properties as high as 10 to 15 percent of mortgages. While nationally, mortgages for rental investment have increased from 10 to 20 percent over the past decade.
The dynamism that characterizes the real estate sector is largely due to the practice of low interest rates, making mortgages affordable. Indeed, the overall cost of credit has fallen by 20% since 2008.
These low rates are also affecting low-risk investments, such as Confederate bonds, whose yields have plummeted and sometimes yield negative interest. This also explains why many investors allocate up to 40% of their assets to rental properties.
Possible profitability of rental properties
The real estate market in Lausanne is experiencing a certain shortage and is beginning to become more difficult. This is due to a slowdown in immigration and the policy of large structures that rent to their employees among expatriates.
This trend has been declining for some time, which significantly affects expensive goods. Observers agree that it will be difficult to find renters for naked properties with rents of more than 2,800 Swiss francs per month.
In the case of the investor mentioned above, he has apartments priced between CHF 250,000 and CHF 700,000, between 30 and 80 m² and rents between CHF 1,300 and 2,200.
He has no problem renting out his properties, especially to students, families or retirees. The investor's goal is that the income after depreciation of each apartment will be on the threshold of 1,000 Swiss francs, i.e. a net annual amount of 60,000 Swiss francs.
This amount will be used to repay the loan as soon as possible. In addition to the rent, this investor's real estate will enable him to receive an inheritance of CHF 2 million.
By taking advantage of this period of low rates, he will significantly reduce his debt, having less hassle if rates are later revised upward.
Owning your own apartment to obtain financing
To take out a loan used for real estate financing, the applicant must provide 20% equity. But in the case of an income asset, it would be difficult to use the second component.
The assessment of the applicant's ability to pay differs in the case of rental investments and primary residence. In the case of income property, the bank would consider rental income, not household wages. The basis for a rental property will be the rental value, whereas if the acquisition is outside the plan, in which case the institution will assess the estimated rent. That said, some banks are pessimistic about the value of the rent.
Acceptance of the credit depends on the difference between the rent withheld and the fees, if the difference is, of course, positive. The costs consist mainly of interest on the loan, maintenance costs and expenses for fixed assets, i.e., heating, work, management of common parts of the building, etc.
For maintenance, it is usually 1% per year of the value of the property, as it can be included as an exception in the owner's management expense calculation.
When investing in more than one asset, if one is unprofitable, another can provide coverage. Nevertheless, it is important to choose a self-sustaining property.
If such a balance is unattainable, the banking institution will record a "rent deficiency" in which case it will request the usual financial guarantees to cover the deficiency.
Ensure subsequent management of the property
After acquiring and renting a property, the owner should think about the management of his property. A mission he can undertake or ask a professional or agency to take care of it.
It must be said that property management requires dedicating time and effort to it. In addition to a firm knowledge of tenancy law, not neglecting the various technical aspects.
The goal is to avoid mistakes that can be costly. By contacting a specialist, the owner avoids any risk, but in return he must charge a fee of 5 or 6% of the annual rent.
In addition to the legal aspect, the rental property investor should be careful about his tenants. He should make sure that he establishes a contractual relationship of choice with them to ensure a profitable investment.
He must also avoid responding to demands that do not comply with the law. Hence the need to be accompanied by an expert who is fluent in lease and property law.
This professional can ensure that the owner's interests are protected, especially in the case of joint ownership. Nevertheless, it is possible to handle everything yourself, maintaining a good relationship with the tenants, while being aware of your rights and responsibilities.
This is the best way to develop your assets and earn passive rental income