Why you should invest in real estate and how this will affect the investor in the future.
Real estate is an excellent investment option as it gives its owner the opportunity to take advantage of high return rates, lucrative tax benefits, as well as the ability to use your property to increase your income.
At the same time, many individuals tend to believe that real estate investments are risky and require large amounts of money, which means people are still hesitant when it comes to this type of investment. Below we will take a look at 7 reasons why it is worth considering diversifying your portfolio with real estate assets to secure your profit.
Before you invest your funds in real estate, you should figure out if you want to use your property as a capital investment or wish to have it as a private residence. You have the following options in this case:
It is essential to review the location, value and purchase price of the property when it comes to the investment.
Our real estate agents at Luxury Immobilien GmbH are ready to help you choose the most lucrative investment option based on your budget and purpose. We will handle the entire purchase transaction, from the interaction and negotiations with a seller, to viewings and handling paperwork along with respective fees on your behalf. Our specialists will inform you of the current Austrian real estate trends and lucrative investment strategies for your specific case to avoid any associated risks so you can increase your capital to its utmost potential.
The term 'inflation' takes its origin from economics and means a decrease in consumer prices. That being said, inflation can become a result of a swift change in the exchange ratio of goods to funds if the latter's supply increases, while the production of goods slows down. The current inflation in Austria has been mainly affected by the COVID-19 consequences, and according to Statistics Austria, in April 2022, inflation rose to 7.2%, which is quite a high indicator.
It is worth noting that real estate investments provide a hedge against inflation, as the value of the asset grows at or above the inflation rate. Rents can be adjusted over time to reflect these changes. On the other hand, it is worth considering selling real estate in the future to maximize your income. This way, you will at least preserve your capital and remain protected against potential risks.
If you lease your property, you have the opportunity to use the rental payments to cover all or a part of your mortgage. Once the cost of the property has increased significantly, you can sell it for a higher profit.
Note! You may minimize your chances of making a poor investment by taking a closer look at communities where property prices tend to increase. In addition, by working with a real estate broker, you can also get historical data on the growth of real estate prices in the areas you are interested in.
Let's review an example of the rental profit. If you decide to lease your apartment for EUR 1,500 per month, then the annual income amounts to EUR 18,000. Considering that it is possible to purchase an apartment for EUR 400,000, then the payback time is 22.2 years.
Please note that as mentioned earlier, the capital value of real estate is always increasing, resulting in higher rental yields. If the rental price in your chosen area tends to increase, then by gradually raising the rental price, you can shorten the payback period. For example, if the price increases to EUR 1,800, the payback period will be 18.5 years, and if it increases to EUR 2,000, it will take 16.6 years.
Property investors have the opportunity to save taxes or offset them completely. That being said, the interest you pay on your loan may be written off against any rental income profits and you can also write off 10% of the costs of your furniture package as depreciation against your rental income. Also, if you pay the income tax in Austria for rental profit, then there is an EUR 11,000 tax exemption per annum. This means that if 2 individuals acquire a property together, then the tax allowance amounts to EUR 22,000.
Note! Austria also provides depreciation for wear and tear in terms of rentals varying between 1.5% and 4.5%.
If you begin investing in real estate when you are young, you will have a property which you will not have to pay rent for. That being said, the statutory pension system does not maintain the high standard of living in old age, while those with a private provision are well advised. Real estate ownership provides a consistent rental income and secures a sufficient income beyond working life. As a result, some individuals feel more confident knowing their funds are placed in a safe investment (property) rather than in the stock market or as a cash account. So, you may improve your rental income whether you rent your property or sell it and earn a decent profit.
When passing on your property to your heirs, you will be leaving not only an income-producing asset, but also an expanding asset. So, the inheritors may maintain the house and lot for sale, or sell it and enjoy a profit. Fortunately, there is no inheritance tax in Austria and the inheritance procedure is the same as any other real estate transaction. At the same time, there is a 3.5% transfer tax and 2% for close relatives to be considered. In this article, you can learn more about property-related fees in Austria.
If you opt to invest in property but want to avoid the high capital commitment for direct acquisition, you can consider crowdinvesting. When doing so, you do not purchase your own property, but instead take part as an investor in financing the developments' construction. As a rule, the cost entry starts at EUR 500. Such a small sum provides you with the opportunity to invest in an array of projects and investment properties simultaneously, as well as to diversify your portfolio to minimize risks. As a result, you do not have to invest the full amount, but can still take advantage of property ownership.
As opposed to the stock market, the real estate market is much less affected by significant fluctuations. Also, property is a long-term investment, so short-term dips will not have an impact on the property's capital value. COVID-19 is a perfect example of how property has more stability than stocks. When the pandemic hit Austria with full force, we witnessed the stock market drop at once and many markets and industries followed suit. As a result, the real estate market was also affected, with the number of home sales dropping dramatically. Nevertheless, property prices have quickly rebounded, and according to the Property Index 2022 by Deloitte, Austria ranks the second most expensive market in Europe.