Explainer video: 3 advantages in 4 minutes

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Advantage 1: protection against inflation

Inflation can quickly devalue your savings. For example, if you have €100,000 and inflation is at 5%, you lose 5% of your money every year. After two years, your €100,000 is worth only €90,500. Real estate offers effective protection against inflation, because rents usually rise with inflation. If inflation is at 5%, your rental income also rises by 5%. This means you benefit from rising rental income in the long term, and your investment is protected against the effects of inflation.

• Assets: €100,000
• Inflation 5%, purchasing power after 1 year: €95,000
• Inflation 5%, purchasing power after 2 years: €90,500
• …

Bonus tip! The effect of inflation on loans and repayment

Suppose you’ve taken out a loan of €100,000. In times of inflation, your money gradually loses value. This means your money’s purchasing power decreases while prices for goods and services rise.

Here’s the interesting part: while prices rise and incomes increase, your loan’s monthly repayment rate stays unchanged. This means that over time you keep repaying the same fixed instalment, which decreases in real purchasing power.

This has two important effects:

Your debt gets “devalued”

Inflation causes your debt to decrease in real terms. This means the originally borrowed loan amount of €100,000 is worth less in real purchasing power over time. In other words, you effectively repay less once you factor in inflation.

Rising income can make repayment easier

If your income rises over time due to inflation, it becomes easier to manage your monthly repayment instalment. This means you may have more financial leeway to make other investments or reach your financial goals faster.

Advantage 2: your tenant pays off your investment

One of the best features of real estate investments is that your tenants pay off your investment. The bank grants you a mortgage loan that you don’t have to earn yourself. Your tenant pays the monthly rent, which covers part of the financing. Once the financing is paid off, the property belongs to you entirely. On top of that, you benefit from the appreciation of the land. Even if land prices rise by only 5% per year, these gains add up over the years to a substantial sum of additional wealth.

• You only need 20% equity
• The bank provides the rest (debt capital)
• Who pays your loan? Your tenants!

Remember this sentence forever:

Your tenant pays off your investment!

Advantage 3: passive income

As soon as your monthly rental income covers your monthly costs, you generate passive income. This means you earn extra money every month without having to work actively. This passive income can help you achieve financial independence and give you the freedom to enjoy more of your life. For example, if you have monthly costs of €1,000 and monthly rental income of €1,100, you generate a monthly passive income of €100.

• “Costs” of your property p.a. = €12,000
• Net cold rent p.a. = €13,200
• Surplus = €1,200

Why does a property make sense as a capital investment?

Hopefully you no longer ask yourself this question after these 3 key advantages!

Real estate investments offer effective protection against inflation, the opportunity to build wealth while your tenant pays off the investment, and the chance of passive income. If you enjoyed this video, don’t forget to like it and subscribe to my new channel. Stay tuned for more insightful content on real estate investing. Thank you for watching!

Tip: Capital investment guide

What does it mean to own real estate privately?

Private real estate ownership refers to the purchase and ownership of real estate by individuals or families. This real estate can include residential properties such as single-family homes, condominiums or apartment buildings as well as commercial real estate.

Fundamentals of real estate ownership

Buying real estate in the USA requires several steps:

• Financing: Most buyers need a mortgage(loan) to finance the property
• Equity: Buying in the USA as a foreigner often requires 100% financing
• Property valuation: A professional valuation helps to determine the value of the property
• Conclusion of contract: The purchase contract must be signed and all legal steps completed

Advantages of private real estate ownership

1. Value appreciation: real estate can increase in value over time
2. Regular income streams: rented properties can generate monthly rental income
3. Tax advantages: Tax deductions for mortgage interest and depreciation are possible
4. Personal control: Owners have control over their properties and their use

Private ownership of real estate offers numerous benefits, including the possibility of appreciation and rental income. Tax benefits can also have a significant impact on the overall investment.

Disadvantages of private real estate ownership

1. High initial costs: buying a property requires a considerable investment
2. Maintenance and repairs: owners are responsible for maintaining the property
3. Market risks: Real estate values can fluctuate, which can lead to losses
4. Liquidity problems: Real estate is less liquid than other forms of investment

Despite the advantages, there are also disadvantages that potential buyers should consider. High costs and responsibilities as well as market risks can make investing in real estate complicated.

Taxes for private real estate owners in the USA

Owning real estate in the USA has various tax implications, which can be both positive and negative.

Important tax aspects

1. Property tax: Owners must pay annual property tax on their properties
2. Mortgage interest deductions: Interest on mortgages can be deducted in the tax return
3. Capital gains: Profits from the sale of real estate are subject to capital gains tax

Property owners need to be aware of tax obligations, including property taxes and potential capital gains when selling their property. However, tax deductions can help reduce the overall burden.

Save taxes through private real estate ownership

Private individuals can benefit from various tax deductions associated with owning real estate. These include deductions for mortgage interest, renovation costs and other operating expenses. Careful accounting and tax planning are crucial to making the most of these benefits.

FAQ on private real estate ownership in the USA

What types of real estate can I own?

Individuals can own various types of real estate, including single-family homes, condominiums, apartment buildings, commercial properties and land.

How do I find the right property for me?

Finding the right property requires research and often the assistance of a real estate agent who can help identify suitable properties and assist with the buying process.

Private real estate ownership in the USA for investors

Private real estate ownership can be an attractive way for investors to build wealth and generate passive income streams. However, it is important to understand the market developments and tax implications.

Conclusion

Private real estate ownership in the USA offers numerous advantages, including the possibility of value appreciation and regular income streams. At the same time, potential buyers should carefully consider the disadvantages and tax aspects. If you are thinking about buying real estate, it is advisable to learn about the specific requirements and market conditions and possibly consult a professional to make informed decisions.

Legal forms USA: Foundation & real estate

What types of company are there? If you want to set up your first US company, choosing the legal form is one of the first steps in the company formation process. Whether you want to set up a special real estate company or a start-up, we have summarized all types of companies in the USA for you here – with extra tips for real estate investments, of course.

• Legal forms USA

The typical sale: “asset deal”

The difference: In an asset deal in the real estate context, specific assets such as land and buildings are sold individually, whereas in a share deal the shares in the company that owns the real estate are transferred.

Simply put:

• Asset deal = property is sold
• Share deal = Immobilien GmbH is sold

A share deal means that the buyer does not acquire the property itself, but the – in this case – Immobilien GmbH. Here is a short infographic. Then back to the direct sale of the apartment building, after which I will explain more about the holding company and taxes on the sale.

Here is a small infographic:

Tax calculation: Example

If you sell within the speculation period, you must – simply put – pay tax on the profits as normal, just like income from work, regardless of whether you are employed or self-employed. As a single person, this would typically mean a top tax rate of 42%.

Asset deal as a private individual

In this example, we are selling an apartment building in Berlin, as a private individual, single person with full tax rate.

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit = 2,000,000 euros
• At 42 % (single person) = 840,000 euros

Asset Deal as a company

In this example, we are selling an apartment building in Berlin, as a company, already with significant tax savings.

• Purchase 2024 = 2,100,000 euros
• Sale in 2033 = 4,100,000 euros
• Taxable profit Berlin approx. 19.1 % (trade tax 4.1 %, corporation tax 15 %) = EUR 2,000,000
• At 19.1 % = 382,000 euros

Share deal property: tax advantages

Saving taxes, but the right way? In my guide to selling a multi-family home for tax purposes, I have just given a short, simple explanation of the share deal, with an example calculation. Instead of 382,000 euros in taxes, only 1,540 euros! How does that work? Here is an insight into asset deals and share deals. You will quickly recognize the advantage and why professional investors work with holding structures.

• Share Deal Real Estate
• Asset / share deal difference

Importance of the handover when selling a house

Once the purchase contract has been signed and the notary appointment has been completed, the final step of the house sale follows: the handover. This is when you place your property in the hands of the new owner. To ensure that nothing goes wrong and there are no nasty surprises after the purchase contract has been signed, there are a few points to bear in mind.

Compensation for damages or a subsequent reduction in the purchase price make many buyers’ hair stand on end.

But that doesn’t have to be the case.

Role of the handover protocol

A handover protocol creates clarity and avoids disputes. This is because the purchase contract alone does not record all the key points. Defects, meter readings and existing inventory can be recorded again or in much more detail in a protocol. This is signed by the seller so that he cannot subsequently claim that he did not find the house as contractually agreed.

• Creates clarity and avoids disputes.
• Supplements the purchase contract by recording important details such as defects, meter readings and inventory.
• Signed by the seller to document the agreements and avoid misunderstandings.

Important aspects in the handover protocol

The handover protocol when selling a house is not so dissimilar to the protocol when handing over a rental property. However, other important points must be recorded.

This includes defects that still need to be rectified by the seller. A date should also be set for this. The handover protocol should also record which fixtures and fittings still need to be removed. All meter readings should also be recorded. The process of handing over the keys is also noted in the protocol. If keys are still missing, it is noted how many and when they will be handed over. The keys are usually only handed over after the purchase price has been paid in full.

• Similar to the protocol for rental property handovers.
• Documents defects for rectification by the seller.
• Setting a date for repairs.
• List of the inventory to be removed.
• Recording of meter readings.
• Note on the handover of keys, normally only after full payment of the purchase price.

Handover protocol: Example

Here is an example of a handover protocol in table form:

Comparison! Handover of a rental property

When the house is handed over, not only are the keys handed over, but also many other important documents. Construction plans, floor plans, the calculation of the living space, building contracts, expert opinions, maintenance contracts, insurance certificates and much more are handed over to the new owner on this day. If you are selling a rental property, the rental contracts and documents relating to the various tenants must also be handed over. During the handover, the seller usually also explains to the buyer how the heating and other important appliances in the house work.

Checklist documents

Checklist documents handover:

• Building plans
• Floor plans
• Calculation of the living space
• Building contracts
• Expert opinion
• Maintenance contracts
• Insurance certificates

Germany’s AAA location: Berlin

Anyone buying their first property is looking for an immediate return. If you have time, you can make impressive profits in Berlin. Tax-free for owner-occupiers after just 3 years. For owner-occupiers, for investors, Berlin is the place to be in Germany and nothing will change.

Berlin real estate market: A market with exceptional value growth.

This makes Berlin not only the place to be, but also a hotspot. The most expensive streets in Berlin are mainly in Mitte and the southwest, as far as Wannsee and Potsdam. No other German city sees more investment. But how have buyer prices (for houses) developed?

A look at purchase price trends over the last 10 years and what you can learn from them for your investment in Berlin.

Are you looking for one or more investments in Berlin? Write to me or give me a call: Contact.

Why do many domestic and foreign investors love Berlin?

The impressive rise in real estate values in Berlin

The development of property prices over the last 10 years is remarkable: from an average value of 2,070 euros per square meter, prices have risen to 5,114 euros per square meter, which corresponds to an impressive increase of 147% (official data: Federal Statistical Office). Even in shorter periods such as 5 years (increase of 51% to 3,378 euros/m²) and 3 years (increase of 20% to 4,249 euros/m²), the enormous growth potential of the Berlin real estate market is evident.

Berlin: +147 % price increase in 10 years

The figures illustrate the long-term value creation of Berlin real estate:

• 10 years: Increase from € 2,070/m² to € 5,114/m², which corresponds to an increase in value of 147%.
• 5 years: Increase in value from € 3,378/m² to € 5,114/m², an increase of 51%.
• 3 years: Improvement from € 4,249/m² to € 5,114/m², an increase of 20%.

Tax-free sale: Example of personal use

Saving taxes in Germany is not that difficult. For example, through personal use. Calculate the increase in value, a great investment with a lot of security.

• Investment sum: 13 million euros
• Tax-free sale possible after 3 years for private use.
• An increase from EUR 13.0 million to EUR 15.6 million was realized for non-rented properties, which corresponds to a
• This corresponds to anincrease in value of 20.3% or EUR +2.639 million in 3 years.

PS:

• Long-term letting: A combination of rental income and capital appreciation can lead to considerable increases in assets after 10 years(speculation period).

Rental yield compared to value appreciation

Despite a current rental yield of just 1.2% with an average basic rent of 13,500 euros per month, the long-term performance illustrates the true profit potential. Over a period of 5 years, the rent adds up to 810,000 euros and over 10 years to 1,620,000 euros, making the property not only an ongoing income stream but also a valuable asset.

You can invest in Berlin apartment buildings or in private real estate for your own use, such as villas in Berlin.

Townhouses, residential and commercial buildings in Berlin.

Exclusive villas in the southwest of Berlin.

Tax benefits for private use and rental

One of the biggest attractions of the Berlin real estate market is the tax incentives. For private use, the German tax system allows a tax-free sale after just three years. Regulated by the speculation tax. This means that a non-rented property purchased for 13 million euros can be sold for 15.6 million euros after an increase in value of 20.3% – a tax-free profit of 2.639 million euros.

Strategic investment approaches for landlords

For landlords, the ten-year holding period for a tax-free sale offers a long-term investment opportunity. Through the combination of rental income and capital appreciation, a landlord can realize significant asset growth after 10 years. This underlines the importance of choosing the right time to buy and sell in order to make the most of market opportunities.

Conclusion: Long-term prospects in the Berlin real estate market

The data speaks for itself: the Berlin real estate market offers enormous potential for investors with a long-term perspective. Although rental yields may be moderate at the moment, the continuous increase in value and tax advantages ensure that patience and a strategic approach pay off. Berlin therefore remains a top address for real estate investors with foresight.

More about investments in Berlin

Read more about investments in Berlin here:

• Buying a villa in Berlin
• Berlin’s most expensive street
• Real estate as a capital investment
• Off Market Real Estate Berlin