Multi-family house as a capital investment in an aging city

I also know that nowadays 7% returns only come with significant risk.

Exception: the property is owned _and_ paid off. The rest is then provided by the KfW

Rhenish regards

Why should the return then improve? The property is a lot of equity, which must also be taken into account in the return considerations.

I would say you are wrong here. I read the following in a real estate book, which has been confirmed by my yield research: .

you should study less theory and instead talk to people who are landlords and have worries or also joys about their investments.

I always find it cute that people refer to books and think they've discovered the wheel. If renting were a one-way street and a jackpot, everyone would do it and be rich.

you should study less theory and instead talk to people who are landlords and experience the worries or the joys of their investments.

I always find it cute when people refer to books and think they've discovered the wheel. If renting out was a one-way street and a jackpot, everyone would do it and be rich.

I think it's like with many other entrepreneurs as well. There are those who have a knack for it and make it big, there are those who try it and fail, and there are those who invest time and money but don't get much out of it.

I once read a very interesting blog. Important for the blogger was the cheap purchase of the property. He had set up suitable search filters on real estate portals over a longer period and as soon as a bargain came in, he would call the same day, have documents sent to him, and arrange a viewing appointment. Speed was an important factor here in order to be able to snap up real bargains.
This way he bought one property after another. This can reduce reserves because the likelihood of something breaking down in all properties at the same time is relatively unlikely. The reinvested money in turn generates returns. And with the number of properties, a rent default doesn't hurt as much anymore.
The average person, who buys a condominium on the side to supplement their pension, simply doesn't have all these advantages and experiences, and those are usually the ones who then complain about problems and negative returns in renting. For them, it's nice when the rented condo is paid off, but actually, it's a return killer.

I read the following in a real estate book, which has been confirmed during my yield research: In top cities and/or top locations you have less net yield than in poor locations!

Even if I "only" have surveyor/publicly appointed surveying engineer on my title – we are trained in valuation during our studies and legal clerkship. That you educate yourself is of course okay – still, I doubt that you have mastered it flawlessly yet.

No matter where – in Germany you will only achieve a net yield (not to be confused with net cold rent!) of 7% if you rent out at an extremely high price, so high that the rent index no longer applies (yes, that is possible) – or you move into the illegal area. Then 100% is also possible.

If you were to achieve 7% net yield and no ongoing costs, this would mean that you would pay about 14.3 net annual cold rents as the purchase price. That would have been the lower value of the scale (15–25) before the financial crisis, but from the net annual cold rent the ongoing costs must still be deducted, so at best 4% – if unlucky only 0%. If, on the other hand, you want to generate 7% net yield after deduction of all costs, your purchase price today should only be about 10 annual net cold rents. Calculated the other way round, that quickly results in at least €16 cold rent, ergo well over €20/m² warm rent – please ask yourself whether that is at all remotely achievable in the location where you want to purchase your properties if that simultaneously exceeds everything asked for in Munich city.

You will hardly find a new property today that can be purchased under 20 annual net cold rents; in metropolitan areas it gets completely absurd, there it goes up to +40. With that, 7% is very difficult or not achievable at all.

The question, therefore, with all due respect, is not whether you achieve 7% in Herne – but where the error in your calculation lies.

Best regards Dirk Grafe

I thank you all for your answers and especially you, Dirk. I actually caused confusion by equating Nettokaltmiete with net yield. But for myself, I had already correctly calculated with the yield.

But at least when I talk about a NettoKaltmiete, 7 - 8% are realistic here in the Ruhr area. Of course, these houses are at least 40 years old. But if I buy a house where not much is expected to be invested in the coming years, then my net yield is roughly equal to my Nettokaltmiete minus 1%. That’s what I assume at least, because apart from a maintenance reserve, not much is deducted. Of course, then there are the taxes I have to pay on my rental income. And I don’t even look at fairly new properties. Although they have low ongoing costs, i.e., repairs, due to the high purchase price, in my observation of the market, they have a worse net yield. The rents do not increase accordingly. And you first have to come up with the high purchase price.

Interesting topic, I will keep following it and report. By the way, I have meanwhile moved away from Herne. I believe there are even more promising cities in the Ruhr area.