What You Need to Know for a Profitable Investment in Real Estate
Do you want to invest in real estate in Vienna but don’t yet know how best to go about it? Then you’ve come to the right place: we’ll show you proven strategies and methods for successful investing in real estate.
Real estate offers a variety of investment opportunities: additional income, retirement, inheritance, and tax relief. According to Oesterreichische Nationalbank, in 2021, real estate prices in Austria rose more sharply than at any time in the last 10 years, increasing by more than 10% year-on-year.
Today, it is tempting to invest in real estate because of many advantages:
- Benefits from the leverage effect of credit.
- Generating returns by carefully choosing the location of your property (the urban periphery is a prime location).
- Building up a lasting asset base without having a large capital.
- Stability of value and protection against inflation.
- Independence from short-term fluctuations.
- Solid retirement provision.
- Long-term increase in value.
Disadvantages of investing in real estate:
- Higher taxes.
- Increased credit and insurance costs.
- Maintenance.
Investing in real estate means committing oneself for a long period of time. Thus, the advantages and disadvantages should be carefully weighed up prior to making any decision.
Niche Selection, Strategy, and Market Analysis
Before you make a real estate investment, you should be sure of what goal you are pursuing:
Strategy 1: Buy a property, hold, and profit
This strategy is about holding a property for a long time. You acquire your desired apartment and use it as a rental property over a long period of time.
Strategy 2: Renovate a property and sell it at a high price
The “fix and flip” investment involves upgrading properties in need of renovation through various measures. Thus, you increase the value of the property enormously and enjoy good profits.
Strategy 3: The mix of both worlds
The goal of the investment strategy is to combine the best of each of the two previously mentioned methods. The profits come from cleverly taking advantage of tax limits. In the first three years, you carry out only the most necessary renovations to the property and deduct these fully from the tax.
Strategy 4: Invest in real estate without equity
If you want to avoid the strong capital commitment in real estate investment, crowdinvesting offers you a lucrative alternative. With crowdinvesting, you do not buy a single property but participate as an investor in the financing of construction projects.
How to Make a Successful Market Analysis for Rental Investment?
In order to succeed in your rental investment, many parameters must be taken into account:
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Location of your property
It is important to choose a property to rent in dynamic locations with high economic potential.
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Study of the rental market
It is necessary to adapt your property to the needs of the market to easily find good tenants. A study of the supply and demand of housing in the area of your investment is a strategic choice to prosper from your rental investment.
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Evaluate the profitability
Your property has potential that must be extracted to the maximum. The rent must cover the repayment of the real estate loan and the various expenses related to its acquisition and maintenance.
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Financing the acquisition of your property
Your bank is likely to grant you a real estate loan to become an owner. Therefore, you must think about obtaining the loan without any contribution and self-financing your property. It is of utmost importance to have an approximate profitability of 10% to generate a positive cash flow. Thus, you will be able to make a series of rental investments and live off your rent.
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Putting your property under management
Rental management is a problem to which many investors are reluctant. Indeed, to manage your property, you have two options: personal management or delegated management.
Work with the Right Specialists
Buyers and owners of real estate are often faced with decisions of great financial significance. It is good to have someone at your side who can draw on many years of experience in the real estate market.
Hiring a real estate consultant is highly recommended as it comes with several important benefits:
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Real estate consultants are knowledgeable
Qualified advisors spend their lives carefully analyzing the market, so they are much more familiar with it than you are. Their knowledge will help you find the right property at the right price.
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Real estate consultants handle negotiations
A real estate consultant acts as an intermediary between buyer and seller but works entirely in your best interest.
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Real estate consultants take care of the bureaucratic part
A real estate consultant will take care of this task as well, taking care of all the paperwork involved in a purchase, thus shielding you from the bureaucratic nightmare.
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Real estate consultants understand the tax and legal rules
Taxes, for example, can minimize your profits, so you may need to rethink your investment strategy from the ground up. However, an advisor will make sure you are in compliance with the rules and tax obligations. In addition, they will also help reduce the associated costs as much as possible.
You need a consultant if you lack experience with the Austrian housing or real estate market. Especially when you want to buy an apartment in Vienna, the support of a professional expert is indispensable. You probably don’t know exactly what to look for, and the risk of making the wrong decision is relatively high if you go it alone.
Experienced planners and project developers of Luxury Vienna offer you the attractive opportunity to invest in profitable construction and real estate projects. Take advantage of our investment advice. Luxury Vienna real estate investments offer excellent conditions for both private and business investors.
Financial Calculations
When investing in real estate, there are various factors that influence the success of your investment. Below are the 5 important indicators to consider to make the right financial decision:
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Cap rate
Cap rates are measures for the estimation and comparison of ROI for multiple commercial or residential properties.
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Net Operating Income
NOI is the amount of money left over after all your expenses are paid (except for taxes). NOI is less prone to manipulation than other measures, as you can’t really do too many tricks to inflate revenue or reduce expenses.
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Cash on cash
Cash on cash in real estate is the money earned from the money invested in a real estate property. Achieving a balance between profits and expenses is the key to making your real estate project profitable.
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Internal Rate of Return
The IRR is used for estimating the potential profitability of one’s investments.
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Debt service coverage ratio
The debt service coverage ratio determines the borrower’s ability to repay.
Each of the five key metrics contributes to the success of a real estate investment at scale. All key figures outlined here should be known to the real estate investor and should be taken into account in every portfolio. Their proper use is a basic prerequisite for securing sustainable benefits and minimizing risks.
Examining Costs and Determining Price
Are you going to purchase a new property? In order to be able to submit tax returns, you must first calculate the acquisition costs and determine the building share.
Acquisition costs include all expenses incurred to acquire an asset and to put it into working order. For your real estate, this means that it is not done with the purchase price alone. Instead, the incidental acquisition costs must be taken into account.
What exactly we are looking for:
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Depreciation
Depreciation of real estate is also part of the current costs. They reflect the reduction in value resulting from ongoing use. For real estate, the acquisition and production costs of new buildings are depreciated over a period of 50 years. It follows that two percent of this sum must be recognized as a cost each year.
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Operating costs
Operating costs consist of all costs incurred on an ongoing basis in connection with the property. It is important for landlords to distinguish between apportionable and non-apportionable operating costs. The latter are not financed by the tenant but by the landlord.
The apportionable operating costs include, for example, the property tax or the costs for garbage collection. Not-apportionable are, for example, the costs of real estate financing.
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Maintenance costs
Maintenance costs are incurred for keeping the property in a functional or usable condition on an ongoing basis. This includes, for example, regular maintenance work on the heating system in the house.
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Administration costs
Management costs include all costs incurred in the course of proper property management. These include, for example, the costs of preparing the annual financial statements. The amount varies greatly and also depends on the number of residential units. The smaller the owners’ association, the higher the management costs per apartment and month.
The Luxury Vienna real estate provides a property-related market analysis. Based on the legal standard valuation procedures, scientifically determined residential locations, and daily updated comparable objects, the analysis offers the best possible orientation for all parties involved, especially in price comparison — visible results and professional expertise.
We also offer a service for prospective buyers — if you’re not sure whether an offer is in line with the market, the price finder can help. Our housing market analysis will give you an idea of whether you are getting a good bargain.
Detailed analysis is essential to create transparency and understanding about the transactions of planned real estate and real estate companies. Our experts analyze for you the comprehensive information gathered in advance, which is crucial for your purchase decision. This enables you to answer important questions regarding potential “deal breakers” at an early stage and to assess financial risks or possible value potential.
