It's not just the location that matters
Everyone who has anything to do with real estate knows the saying: Everything that is important is the location! But that's not entirely true, because in addition to the location, there are numerous other aspects that should be considered when selecting the right investment property.
Only if everything really fits can the desired effect be achieved with the property, which should usually consist of increased profits. Accordingly, these points are important:
-
- location
Access to public transport and general infrastructure are crucial. How is the property in relation to schools and kindergartens, doctors' offices and administrative facilities? A property in the country can also be profitable, but it should have very good connections to the most important infrastructure facilities.
- construction
The structure of the building and the year of construction are decisive. Older buildings are often in poor condition and often require expensive renovation. New buildings are usually more expensive, but there will be no renovation work in the next 20 to 25 years. Possible repairs to the building cannot be completely ruled out here either, but they are less likely.
- Tenant structure
If the targeted property is a building that has been rented out, a look at the tenants is essential. How often do they change and what is their payment behavior? Are there any noticeable vacancies or apartments that are regularly moved into? If you take a close look at the tenancy agreements before buying the property, you can save yourself a lot of trouble.
- price
The purchase price is certainly one of the most important criteria, but should always be considered in conjunction with the other aspects. A property that has an excellent location and structure as well as a complete rental with reliable tenants will always be more expensive than a property that is the complete opposite. Alleged bargains should always be viewed with caution!
Calculate the return on the property correctly
In order to be able to determine the return on the property, an appraisal must first be made. Usually it is about the market value that real estate experts calculate. Real value and income value are the two values that have a significant impact on the market value. The real value is the current value of the building in connection with the land value. The earnings value, on the other hand, reflects the long-term rental value of the property.
In order to estimate the earnings value, the net rental income must be compared to the capitalization rate. The latter is expressed as a percentage of the costs incurred. Laypeople can get help with these calculations from a real estate or financial advisor, whose services they should definitely use before making a purchase.
In order to calculate the return on the investment property, the expected profit is divided by the total capital that must be used. An example:
A property has an investment value of 3 million Swiss francs. The gross rental income is CHF 300,000, the gross yield would be 10 percent.
More informative, however, is the net return, where the costs incurred must be deducted from the rental income. If the property shown above as an example causes costs of 80,000 francs per year, these must be deducted from the 300,000 francs. This results in a net return of 7.3 percent.
Conclusion: Do not buy a property as an investment property without a specialist
Certainly the layman can also be lucky and earn a profit with the property bought blindly and unsuspectingly. However, if you want to approach the matter professionally and not risk financial loss, you should definitely rely on a professional. The value of the investment property must be calculated as well as the possible return, which in turn is influenced by all cost factors.
