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By investing in real estate, you can equip yourself with a safe form of investment and passive accumulation of wealth, which in turn can have a very supportive effect on individual life satisfaction. Especially in the long term.
There are many good reasons to invest your money in real estate - one of them is passive wealth accumulation. Regardless of whether you have an eye on your retirement provision or simply want to supplement your active income, both are possible with real estate. Real estate investments can be particularly interesting for private investors who only have little money at their disposal. Because nowadays, in addition to the classic purchase and sale of real estate, there are much more flexible forms of investment with which you can generate passive income and invest in real estate with smaller amounts.
Our guide shows you how you can build passive income with real estate and how you can achieve your goal with the right strategy.
You can build up passive assets with real estate in various ways - for example with direct real estate investments, where you buy an apartment or other residential real estate, or with indirect investments in real estate, such as ETFs or real estate funds.
Don't just think about the classic possibilities for passive income streams, but also think about innovative new investment opportunities. Thanks to digital real estate investments, you can start accumulating wealth with little money and time.
Before you determine your strategy for passive wealth accumulation, it is worth taking stock of your financial situation. Think about what your income and expenses are, how high the value of your current assets is and what amount you want to invest in real estate per month or year.
You can achieve financial independence through different approaches - building passive income with real estate is one of them. Once you build passive income, you have another stream of income alongside your wages for your work. Thanks to digital possibilities, you can also invest in real estate with little money. But before you start passive wealth accumulation, you should know the different investment options with real estate and where their advantages and disadvantages lie.
The classic way to generate passive income with real estate is to buy and then rent an apartment or other residential property. After you have bought the property, you can rent it out and generate passive income in the form of monthly rental income. Advantage of this possibility: You create living space for other people at the same time. However, buying real estate involves a lot of money and usually a loan including interest - this makes this option unattractive for investors with little start-up capital. You also have to reckon with the fact that the property will have to be maintained over the years, which means additional costs. In addition, buying and renting real estate involves a considerable amount of time.
Passive income can also be built up with real estate funds. A basic distinction is made between open and closed real estate funds. Open-ended real estate funds offer the advantage of being more diversified. Because the risk of a loss through the investment is spread over several projects at the same time. Closed real estate funds, on the other hand, concentrate on a single real estate project. As an investor, you have to pay fees for both fund management and the purchase of fund shares. In addition, many real estate funds with high minimum investment amounts are less suitable for small investors. What can also be problematic: real estate funds are not intended for short-term investments due to their long term. If you want to sell your shares before the end of the term, you have to look for possible buyers yourself - often the sale is only possible at a loss.
In recent years, a form of investment has become increasingly popular called Exchange Traded Funds (ETFs). ETFs work in a similar way to real estate funds, but they are exchange-traded index funds that track specific indices. They are available for different sectors and asset classes, e.g. B. for stocks, commodities, or real estate. If you as an investor want to build up passive income with real estate, you can promote this with real estate ETFs. In real estate ETFs, you will only find shares in companies that belong to the real estate market. Thanks to passive management, investors benefit from lower fees, which significantly reduces the financial outlay and increases the achievable return. At the same time, however, you should note that (real estate) ETFs are still an investment product of the stock exchange and are therefore significantly more volatile than the real estate market itself. You should therefore be aware of the risk of disadvantageous price fluctuations.
In real estate investment trusts (REITs), the two asset classes stocks and real estate meet. REITs are real estate stock corporations that invest in real estate and land. The return on REIT shares is made up of profits from leasing, renting, or selling real estate. The ability to build passive income works in a similar way to real estate ETFs. With REITs, you invest in real estate and can still get involved with relatively little financial effort. However, REITs are exchange-traded shares, which is why investors should have dealt with trading on the stock exchange beforehand. Like any other investment product on the stock exchange, REITs are also subject to market price fluctuations, which means a certain risk of loss for investors.
You can also build passive income with crowd investing in real estate. The basic principle of crowd investing is relatively simple: several investors come together and invest together in real estate projects. You can usually find real estate projects that are financed through crowd-investing on special crowd investing platforms. If the projects are successfully implemented, all investors will receive interest at a previously fixed rate. Even low-income investors can invest their money in this way and generate profits. Crowd investing is characterized by the fact that short-term projects are realized that generate high returns, but are also associated with a higher risk.
Even newer on the market than ETFs are so-called digital real estate investments - as an investor you do not participate in new real estate projects, but rather invest in existing properties. With such digital real estate investments, the return is made up of the rental income and the development of the value of the property. The managed properties generate ongoing rental income, which can be used to cover maintenance and the repayment of bank financing and to generate a return. Therefore, you can ideally build passive income with digital real estate investments.
So what are the advantages and disadvantages of real estate as a financial investment? Does a real estate investment make sense?
After a thorough analysis and careful consideration of the favored property, attention should be paid to the possible increase in property value. This can be a very pleasant side effect and is especially the case with properties in areas that are flowering and developing their potential. But even apart from the increase in value, there are compelling aspects why you should invest money in real estate.
Through the concept of leverage defined a little above, the contracted loan practically pays itself (= through rental income), one can build passive income and after some time own a fully paid property.
Investing your money in real estate is like choosing a long-term and future-oriented investment. This could be a disadvantage if the capital used up in the property is needed quickly.
It is often possible to sell a property quickly only if the selling price is reduced. Notary certifications also take time. Apart from this, however, only other advantages stand out.
Real estate investment is a fiscally privileged capital investment. Up to 2% of the invested amount can be amortized annually. Real estate is also one of the best investments from a tax perspective when passed on to future generations.
As already described above, property as a capital investment offers a high degree of security even in times of crisis, since as a tangible asset it does not lose value and the yield even increases in the event of a further increase in inflation.
The supreme discipline for tax saving with real estate is listed ownership, where even much higher amounts can be deducted from taxes.
As already described above, property as a capital investment offers a high degree of security even in times of crisis. Being a tangible asset, it does not lose value and the yield even increases in the event of further inflation, so investment properties can protect against inflationary influences. However, these investment transactions do not lose flexibility and the possibility of co-determination. It is not for nothing that we speak of "concrete gold". For many decades, the real estate sector has proven to be a crisis-proof investment.
As you can see, it is not that difficult to build passive income with real estate. Thanks to innovative forms of investment, such as real estate ETFs or digital real estate investments, investing no longer has to be associated with an enormous amount of time or money. Even with little money, you as an investor can start building a passive income. But before you get started, you should always make sure that your investment doesn't turn out to be a financial burden that you can't handle with your monthly income. First of all, it is worth comparing the various options for passive wealth accumulation with real estate and choosing the method that best suits you and your situation.
