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Return: Different types and their benefits

Different types and their benefits

Buying a property is worthwhile from many angles. Also from that of the return. Find out everything you need to know about the topic in our article.
When we talk about yield, it means the return on an investment. It refers to the investor’s capital investment and is a decisive factor for it. The percentage of the return value is significant for measuring the success of investments. After all, it is decided on the basis of these to what extent an investment is worthwhile. Investments are now increasingly being made in the form of real estate. For the private investor, this can result in an enormous return.

What does return mean?

Anyone who invests money wants to generate a reasonable return from it. This is also the case in the real estate sector. Even if you live in the purchased property yourself and do not rent or lease it at first. The return can always be calculated or foreseen in a relatively simple way. The capital input and the costs incurred are compared with the income. This ideally results in the return on investment, according to the return calculator.

When investing in a property, this can come in the form of rent saved in the future. In the case of external use of the living spaces, the income from rent or rent is part of the return. In the latter case, the profitability of buying a property should be demonstrated by a yield calculation.

Of course, the term return does not only refer to real estate. The income from interest on a savings investment can also represent a return for the saver. Similarly, fixed-income securities or payouts from existing shares are associated with a return. Today, investors have a lot of options to make a worthwhile return on their existing capital:

  • Funds, after the sale of fund shares
  • Commodities through buying and selling price
  • Securities
  • Savings
  • Shares
  • Bonds in states and companies
  • precious metals, etc.

Types of return:

  • Dividend yield in equity transactions
  • Steady return or logarithmic return
  • Discreet return
  • Return on shares
  • Cash Flow Return
  • Rental yield
  • Time-weighted return
  • Capital-weighted return

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Return on profit in the profit calculation

The cost of an investment must be included in the profit statement. For example, when it comes to investments from companies. Then the returns are called a gross return. To use a separate term here, we can also talk about effective interest. As a result, an investor’s gross return must, of course, be taken into account for tax purposes and indicated in the tax return. On the other hand, there are pure price or interest income. They represent a net return.

Example:

An apartment owner rents out the premises after buying an apartment. The rent generated from it must be taxed by the investor. Even if he uses them to settle a current real estate loan.

Rental income and return

The purchase price of a property, the expense of the investment and the possible rental income from it determine whether the purchase is worthwhile. The housing market and the associated rental mirror are currently not making it easy for investors to make a worthwhile investment. This way, you should find out exactly what rental income is possible in Region X before purchasing. It is important to always calculate these setups with the possible cold rent. All operating costs such as water and heating must be taken into account.

Capital gains

Ideally, the purchase price and the selling price of a property result in a surplus. This is called the capital gain. It is important to take into account the additional costs and investments made in terms of acquisition costs. Tax levies after the sale of the property must also be deducted from the capital gain. If, on the other hand, the premises were rented continuously for 10 years or more, the tax burden is eliminated. This is often a big plus for private investors in the end, which can be added to the real estate return.

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Return on real estate

If you want to build or buy yourself, you will have to make some considerations in advance. Investors should be able to assess well whether the purchase yields sufficient returns from an economic point of view. The most important aspects of the purchase of a yield object with an expected return are first of all the purchase price and the income from the expected rent. If the property itself is inhabited, the rental savings are taken into account. In addition, the location or necessary renovations and renovations are part of it. The location-based rental mirror from a future perspective also plays a role, of course. For pure investors, even stocks and bonds may be an alternative to buying real estate!

What is the gross rental yield?

The gross annual cold rent is compared to the investment costs of the property. The result is the gross rental yield. This is of course also expressed in percent. With a purchase price of 120,000 euros and an expected gross cold rent of 6,000 euros, the gross rental yield would be 5. Of course, necessary renovations and possible expenses are not taken into account. And the risk of vacancy must also be taken into account by the investor himself. For this reason, the gross rental yield, which is initially easy to calculate, is rather less meaningful.

Investing in a secure future

The E1 Investments concept offers a proven system for the solid development of a business as a broker and owner of a real estate business. E1 Real Estate has the infrastructure and operating systems that enable us to offer first-class services with a team of brokers. You are investing in the market of the future.

What are the investment costs?

  • Purchase price
  • Construction costs for new construction
  • Ancillary acquisition costs 10 (notary, land register, real estate transfer tax)
  • Administrative and maintenance costs

What is the net rental yield?

Compared to the gross rental yield, the net rental yield is somewhat more meaningful for planning. If taxes and investment costs have already been taken into account, it describes the return on which the investment is interest-bearing. Thus, the lower the purchase price of a property with a relatively higher rental income, the higher the return. Even with a low purchase price due to poor location, a higher return can result. The higher the purchase price with a very good location, the lower the return.

The return and real estate credit

The return for the investor in a property is not always direct. After all, it is possible for the fewest to finance a property from their own resources. Those who have the options here will not have to look at the aspects of debt financing. For everyone else, the financing structure must be planned. For example, a construction loan or a real estate loan can be used. They do provide the necessary means to make the purchase. However, the bank also wants to draw a return from the loan. This is to be borne by the investor in the form of interest payments.

Save taxes and increase returns

In fact, an investor has ways to save taxes. When renting, the investor can claim and deduct various expenses at the tax. For example:

  • Property tax
  • Tax advisor/lawyer
  • Additional costs of tenants
  • Brokerage
  • Renovations and repairs up to max. 6000 Euro
  • Acquisition costs over 50 years per 2 percent

Increase in return - more opportunities

Landlords should always be careful to have satisfied tenants. In this way, the risk of vacancy can be minimized. In addition, the value of the property is also increasing due to renovations and maintenance measures. Finally, rent increases can also be achieved, provided that they are contractually compatible. Modernizations, additions and conversions or measures on the substance of the building allow the sales value of the property to grow continuously.
As far as existing loans are concerned, the financial structure can also be optimised. This is relatively easy due to low interest rates. Special repayments also reduce interest payments on balance.

Conclusion – is the return on real estate worthwhile?

In the conurbations, the prices of houses and flats are currently rising. At the same time, we are in a low interest rate phase. Accordingly, the chances of achieving the highest possible return on real estate should be good. Anyone who includes the necessary key figures in their account will know to what extent the investment is worthwhile. In fact, there is not “one” formula for return. However, your revenue, expenditure and funding should always play a role. On the other hand, possible increases in value and planned repayments should only be taken into account with one eye. They are more to be seen as speculation, less as a safe calculation of returns.

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