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21 04 2016
One’s Own Four Walls – A Good Decision, Even For Retirement Provision

Lots of German tenants are taking sooner or later a step towards independence that is provided by owing an own property. It pays off financially, too and the effects will be noticeable on long-term. Whether for owner-occupancy or for investment, properties are a good capital investment. After a first positive experience, the question often arises whether it is worth purchasing further apartments. “Real estate as a form of retirement provision” is a frequently used key word. Is this really true? In most of the cases, the answer is simply yes. In the limits of financial resources, residential portfolios provide stable returns and promise long-term value appreciations Especially in fast growing major cities and in their environment it is not difficult at all letting the new apartment or even apartments at a reasonable price.

Low Interest Rates Form The Basis For A Good Funding

The current market situation offers a good opportunity to think about further residential properties. Interest rates are still at a historically low level making it possible to finance a new apartment at the corresponding favourable terms. However, this should not entice to buy apartments which are too expensive. One should seize the moment to take out a loan which can be repaid in bearable monthly instalments within a manageable period of time. As a rule of thumb, loan rates plus home owner's association fees and reserves for maintenance should correspond more or less to the warm rent.

A Leased Apartment Generates Additional Income – The Whole Live Long

The funding should be sustainable in the long term and one should take into account further life plans. At the time of retirement, ideally all properties should be completely paid off. Precisely at the moment when one’s own income normally decreases, the monthly instalments can be saved so. Despite, rental income remains constant or has already been adjusted for inflation.

Moreover, then one holds one or more unencumbered properties offering a new margin since there exist several possibilities now. Especially when having purchased a barrier-free apartment, it could be now the right moment to move into one’s own apartment and to spend the twilight years in a rent-free accommodation. If one owns more than one property, the others not being used for oneself, could still be leased, too. This creates a safe additional income. Depending on the amount of one’s own pension, either gaps can be filled or one can afford additional luxury. 

The third possibility is to sell the already debt-free property. The profit can then be invested elsewhere – or can be used to indulge oneself with something really special. Finally, life wants to be enjoyed also in old age. An Investment in a residential property provides the necessary reserves.

Properties Ensure A Stable Wealth Creation

Moreover, purchasing a property creates wealth which is comparatively stable. Prices for condominiums have increased steadily during the last few years. Moreover, on the German real estate market and especially in Berlin, there is still significant room for value appreciations which can be expected for one’s property. In contrast, risks are low since a leased apartment remains a lasting asset value and the current and expected population growth is promising durable occupation rates.

When trying to build up similar assets with other forms of investments such as shares, one is quickly trapped: the higher the possible return, the riskier is also the investment. Those who are unlucky can lose their whole investment. This form of investment requests strong nerves and enough capital in order to bear such a loss. 

Government bonds, on the other hand, offer a maximum of security – but therefore hardly generate returns. At the moment, interest rates are probably not even sufficient to compensate the inflation. They are hardly better than the good old money saving socks. 

Thus, those who can afford it should ideally invest in further residential properties – for an independent life and for ensuring a secure retirement.