Rental real estate is a promising solution for investors looking for a profitable way to invest their money. Indeed, faced with very low-yield savings accounts, real estate investment represents an attractive alternative.
Why is that?
For several years now, negative interest rates have been applied on deposits by central banks such as the European Central Bank (ECB) or the Swiss National Bank (SNB). This situation has gradually led banks to make interest on savings accounts almost nonexistent. As a result, when taking inflation into account, holding savings accounts does not generate income, but worse, it costs you money!
On the other hand, very low interest rates favor the real estate market, which thus offers much more attractive profitability. It is far more interesting to invest your money in property than in bank accounts.
That said, for the operation to be profitable, it is important to invest your money wisely. Here are some tips for a successful real estate investment.
Tip #1: Choose the property with a discerning eye
Real estate is a profitable and safe investment, but only if you carefully consider your investment. In other words, you should not rush headlong and buy the first property that comes along, but know the market to thoughtfully plan your investment. Indeed, it is essential to carefully consider certain criteria such as:
- The type of property: studio, apartment, house, commercial, artisanal... this question is important because not all types of properties have the same appeal to tenants or the same profitability.
- The condition of the property: whether it is new or old, it is important to have an expert’s perspective and the necessary hindsight to analyze the strengths and weaknesses of the property. Without this, it is easy to invest in a property that seems to be in perfect condition but actually has many defects and flaws, making it difficult to rent as is.
- The location of the property: some neighborhoods or areas offer better prospects for rental investment. Additionally, proximity to green spaces, a lake, or public transportation, for example, can be real assets for renting. That is why it is imperative to know the market well to invest in a property ideally located.
- Additional amenities: a south-facing terrace, a garage, a parking space, or an elevator, for example, can be real assets for a dwelling. But while some can significantly impact the price of the property, others will have only a minor influence. Only an expert can be sure not to fall into the trap of paying for amenities that should not affect the price.
Getting support from an expert is essential in a real estate investment process, especially if it is a rental investment.
Tip #2: Manage rental risk
Our second tip on rental real estate investment is to take rental risk into account. Indeed, if you own an apartment, you must be aware that it will not always be occupied. Vacancy periods can have a significant impact on your budget, especially during the loan repayment period.
There are methods to reduce rental risk. For example, by purchasing a condominium building with other investors through crowdfunding, the rental risk is spread among all owners, reducing its impact on each individual.
Tip #3: Consider property management
Owning a rental property is not just about buying a property and collecting rent. Between maintenance, paperwork, tenant management, etc., having a rental property involves a real management workload that is important to keep in mind.
In some cases, this workload can be delegated to an external service provider. This is the case, for example, with crowdfunding investments, where co-owners entrust property management to a real estate management company. You don’t need to find new tenants or worry about rent receipts; the management company takes care of everything. Moreover, the condominium is administered and supported by professionals (real estate, financial, and legal).
Tip #4: Gather your own funds for your investment
Our final real estate investment tip concerns financing. This is the cornerstone of the success of your project. Financing part of your investment with a bank loan will allow you to benefit from a significant leverage effect with such low rates. However, banks today require increasingly larger own funds. You need to be able to immediately profit from your investment without putting all your eggs in one basket. Your own funds should be in line with your means.
Crowdfunding offers the advantage of being accessible from an investment of 20,000 CHF, allowing you to easily enter the real estate market even with limited financial assets and to diversify your investments by allocating smaller amounts across different properties.
Key takeaways
While rental real estate investment offers real advantages as an investment, you understand that it is above all essential to adopt a thoughtful approach. To properly establish your investment strategy and acquire a suitable property, it is important to be supported by professionals.
