When considering the price indices for real estate and building land, which are constantly rising according to the data from the Federal Statistical Office, the question arises: Is it currently worth investing in real estate? Real estate expert Birger Dehne has an answer ready for you.
The entrepreneur, property owner and investor Birger Dehne has developed into one of the largest private apartment owners in Germany with over 10,000 apartments over the past 20 years.
Profitable investments in A and B locations are hardly possible
As Birger Dehne points out in a recently published interview, he made his first real estate investments in the late 1990s. At this point in time, the properties in the so-called B locations cost around six to seven times the respective net annual rent. Today comparable properties that are in a good to acceptable condition are up to twenty times the net annual rent. According to Birger Dehne, this makes it extremely difficult to identify profitable investments in real estate in A and B locations.
According to Dehne, this rapid increase in prices is due to three factors. For one thing, inflation kept prices rising. Second, there is currently an excess demand for living space – the supply of living space cannot meet demand. And thirdly – what, according to Dehne, had a glaring effect on the market: the composition of the market. Meanwhile, a large number of professional real estate investors, stock corporations, private equity investors and state actors are active in the real estate market who were not present at the beginning. The demand for the objects otherwise privately or communally held rose dramatically. Listed stock corporations such as Vonovia or LEG Immobilien have hundreds of thousands of apartments in their portfolios. In addition, the easiest way to maximize returns is through rent increases, said Dehne.
Success is in the details
“The real success is based on detailed knowledge and the ability to draw the right conclusions from changes in the markets”, as Birger Dehne says in an interview with “Wall Street Online”. Apart from an “entrepreneurial gene” and a wealth of experience, this requires a feeling for the markets. There are still opportunities on the real estate market today, but it is a matter of “heterogeneous markets within a homogeneous overall market”. Accordingly, opportunities are possible in different segments of the real estate industry. For Dehne, for example, “concrete gold” is a better choice than unsecured investments in stocks or government bonds. After all, stocks can be worthless from one day to the next while houses remain in place, says Dehne. “The next change in the sub-markets will come and an entrepreneurial instinct is required to recognize it.”
This market offers opportunities for newcomers
With regard to possible future prospects, Dehne predicts in the interview that living behavior will change due to the changed mobility. While people once fled the countryside to large cities because of jobs and educational institutions, the opposite could happen in the years and decades to come. The advancing digitization makes workplaces increasingly mobile. Universities offer digital lectures, and people are working from home more and more regularly. Housing in rural regions with a lot of space is becoming more attractive again and could again come into focus. For these reasons, an increasing demand for real estate in today’s D locations – at the expense of real estate in A locations – is to be expected.
Here the real estate market offers newcomers opportunities to build up a portfolio. Instead of looking for real estate in large cities, it is better to look for interesting real estate in small and medium-sized towns and in rural areas. According to Dehne, a strong influx of people can be expected here in the next few years, which would result in significantly higher prices.
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