According to one statistic, self-made millionaires make their fortune in one of four ways:
• Own company (74%)
• Management position in business (10%)
• Doctors, lawyers, consultants, etc. (10%)
• Sales Representative and Sales Consultant (5%)
• Others, e.g. inventors, artists, athletes, authors (1%)
So to be financially independent and maybe at the same time an entrepreneur, then you should consider starting your own business. A company that buys, owns and manages real estate or apartments is only one of the possible options, but one with which the chances of success are pretty high. Following are the six main advantages of real estate compared to other asset classes.
1. Potential for appreciation
As you probably know, real estate has increased immensely in value in recent years, especially in major cities worldwide. There are several reasons for this:
We are currently seeing a strong trend towards returning to the cities, i.e. the demand for living space in major cities is steadily increasing. On the other hand, very little new living space is being created, at least not for the budget of most people who immigrate to the cities (there are, of course, a dime a dozen high-end new construction projects for the wealthy). This naturally leads to rising rents because more people are looking for apartments. Still, at the same time, the supply of flats remains constant. And because the value of a property correlates with the level of rents, the property's value also increases.
In the big cities, however, it is not just the population itself that is growing. The number of households is also increasing. That means people are living alone more and more often. The reasons for this trend are higher divorce rates and the general trend towards being single. Many are no longer willing to compromise and therefore prefer to live alone.
But even if you are of the opinion that we have something like a real estate bubble today: If you look at the price development for real estate over a very long time, you can see that the prices have continued to rise. The statistics are very clear. And if you ever buy an apartment or a house or if you already own an apartment, then all you need to do is take a look at the extract from your local land register. And you will find a strong increase over time in my apartments. The question now is: Why is that? The simple answer is inflation!
3. Leverage - Financing with borrowed capital
Leverage actually means nothing more than financing your rented condominium with borrowed capital, i.e. with money from the bank or another financier. So you use other people's money to finance your properties. This allows you to buy objects that you couldn't easily buy with your own money.
4. Tax benefits
If you have bought your apartments or real estate in a rundown neighbourhood and they are well managed, then there is a good likelihood that you might be eligible for some kind of tax exemptions or, at the very least, decreased taxes as your property will uplift neighbourhood value and attract more investors to do the same.
Some home buyers are known to invest in such neighbourhoods simply so they can take advantage of the lower tax incentives and buy houses for cheap, and when property values start to rise after development, they can recuperate their investment many times over.
5. Cash flow
A widespread strategy of many investors is to generate continuous passive income from every apartment or property with the aim of being able to live on this income in the medium to long term.
Cash flow refers to the amount that remains after borrowing interest and repayments, as well as maintenance expenses that have been deducted from the net operating income (NOI). The NOI, therefore, represents how much you earn operationally from your real estate. Put simply: the cash flow is what is left after paying all the bills and is what you can regularly count as income.
Your tenants pay off your loan at the bank with their rent payment. This creates a large amount of equity over time, essentially without your intervention. Ultimately, your loan will be fully paid off, and the property will be entirely yours. The cash flow will then increase enormously and ideally allow you to live comfortably on the rental income. At least the rental income will be a good addition to your salary or your down payment.
States clearly indicate that by investing money in the real estate business that you will become financially independent than in any other form of investment.
6. Easily predictable income
Real estate and condominiums are recognized as one of the safest and most reliable asset classes. Banks are happy to give you a loan for a property as security. It is also the case that everyone needs a roof over their head and thus an apartment or at least a room. This means that the business model for renting condominiums is fundamentally very stable and easy to predict. Of course, it depends a little on which part of the country the property is in and how the population is developing there, among other things.
The benefits are immense compared to other asset classes. A business model that is easy to forecast, stable cash flows or passive income, as well as tax advantages, are just some of the reasons that speak for investing in real estates, such as condominiums.
On the other hand, real estate prices have risen enormously in recent years, especially in attractive locations, so that an investment should be carefully considered from the point of view of return. In addition, real estate cannot be described as a "passive" form of investment in the true sense of the word. On the contrary: rented condominiums require a significant amount of work and cannot simply be left to their own devices.
In this respect, it makes a lot of sense for you if you
• Find a good investment in your city
• Are willing to invest time in the management and further development of your property