I am a big fan of property investments. Especially in Germany properties are highly underrated looking at the global level. Buying houses in Paris easily costs twice of what houses in Munich cost, which means there is still a lot of potential for value increases for the next years.
However, I do not have lots of money. I am not rich. Maybe you are not either. Also, I have already owned properties in the past and my experience with horrible tenants taught me that it is not all a bed of roses just because you own some property.
By the way, I am only talking about buying properties to rent them out. Buying a property to use it yourself is a luxury and not an investment and a topic for another blog post.
Ok, so we want to invest money into properties. So what can we do? Well, the first solution is to stick with ETFs, of course. Many companies are somehow invested in properties which is also somehow reflected by All-World MSCI ETF or similar ETFs.
That is nice and neat but maybe we really really want to invest directly into properties and not just companies in general. So then we can have a look at pure play property investment companies. In Germany, there is of course Vonovia and Alstria. And in general, especially looking at the US, there are lots of REITs (Real Estate Investment Trusts) which do nothing but buying, selling and renting out properties or provide services connected to this specific type of business.
Living in Europe it was interesting for me to learn that there is basically no reliable pension system in the United States. That is why, if you want to have cashflow in your old age, you can buy REITs in the United States. That is actually what they were made for. That is also why they have to follow special rules and cash out a certain percentage of their earnings to their investors contrary to normal companies that can decide more or less freely how much of their wealth they want to keep and how much they want to pay out as dividend.
There are lots of different types of REITs in the United States but I would aways to consider to go for the bigger ones. And there is even a special “sin section” in the REIT sector which is the prison REITs. Pretty crazy but it is true. Just look for CoreCivic (ticker symbol CXW) or the GEO group (ticker symbol GEO) which you could really invest in. So you could even make money out of the imprisonement of unfortunate people.
But let us not deviate too much from the starting point of this post. Fact is that investing in properties always is or was a good idea simply because you cannot multiply property. The space on earth is limited and contrary to pieces of Gold and Silver everybody definitely needs property, even if you just need it to live on it. It is definitely not a bad investment.
But if you want to invest in property and do it yourself you need a lot of capital (at least 50k EUR in any bigger city, Munich 200k EUR or more for the smallest apartments) and taking out a loan to do so is, at least in my opinion, not a good idea because suddently you are not investing but buying yourself a product, which is the loan. Getting a loan to invest in property is a business decision and not an investment decision.
(If you buy the property with a loan to use it just yourself it is a luxury, basically the worst type of consumer credit that exists. It is definitely not an investment. But as I said earlier, that is a topic for another blog article.)
Furthermore, if you are not a millionaire, you are bound to buy one property and then rent it out which means you will not be able to have lots of properties. The rather high price of single properties also means that you create a cluster risk when investing in single properties, unless you are a millionaire already. And if you are, then you will have a lot of work mantaining all those units. It is your job and maybe one where you do not earn much if you count your hours properly and pay yourself a salary as you should.
Usually, you can be lucky if you have enough money to buy one or two apartments which is definitely a cluster risk. Also, you will have to be around the area where you bought your properties or pay yourself a lot of hotel costs and gas money to mantain it. Of course, instead you could also try to find an agency that takes care of it but they will eat up all the potential earnings while leaving you with the risk of the investment. And of course you really have to buy in a big city because it is to be expected that within the next years and decades more and more people will move from the countryside to the bigger cities to find jobs.
I am not saying that you should not buy an apartment and rent it out. But there are many easier ways to invest money. It could be REITs, it could be companies that are only involved in the property business, it could simply be ETF. Then, you have time to take care of generating additional income that you can invest again.
Many people make lots of money with properties and everybody of us lives in a house or apartment. This makes us feel like we know stuff about the topic. But truth is we do not. These people are professionals. If you like the property market and want to become an estate agent you should absolutely pursue that career. Then you can do everything I warned about above, because then you are a specialist. But if you are a simple employee and have no experience as an estate agent then I think it is pretty dangerous to buy single apartments or houses and renting them out. It can work out, if you are lucky but in most cases you will lose money or at least barely make any profit. Why work 20 hours a year to get some EUR out of a property that you own if you can get the same cashflow for the same investment EUR amount from a simple ETF? Simple stock, REIT or ETF investments are the saver bet.
Tell me what you think. What is your approach to the topic of property ownership and becoming a landlord? Would you do it? Have you done it? And would you tell others to do the same?