Notable price increase
of real estates

 

Current developments show: the real estate prices increase again. One could anyhow expect since quite a while that the “relative” standstill would cease. But the interesting thing is the point of time when this is notable: just as we forecasted it three years ago, a high demand of real estate sets in with the “end of the D-Mark”. But yet another factor plays a role: the time of the unstoppable stock exchange boom seems to be over for several years. Many investors who made a fortune with the stock exchange business before got off lightly – but many others winded up with big losses, some of which had consequences threatening survival.

It is as always in such times: when the shares go up almost everybody wants to be there that day. Yet on the day of reckoning people are having a row with each other. The wife upbraids her husband “see, I knew it from the start” – or wallows in self-pity – “oh, I should have listened to my inner voice”; of course the husband couldn’t have known that it would go downtrend so rapidly. The bankers – always good advisors – wash their hands of it, and the actual causing points of the incident remains unseen and unpunished ones more.

But it is fainéant to look at the losses of value of the destroyed funds. For those who are affected by the damaged are also affected by it without such numbers – but they can be sure that they are not the only ones who need to foot the bill in the end. In the USA alone, around 540 billion DM – 540.000.000.000.000 Deutsche Mark – of shares has been destroyed, based on data from the trade journal. But as always, also that is just a theoretical figure – for the money never actually existed in anyone’s pocket. It has rather been like a soap bubble which became larger and prettier and glowed like a crystal ball, and it’s value seemed to become bigger and bigger, and everyone thought he would become rich through the crystal ball.

Then the lovely structure burst – and with it the dreams of effortlessly earned wealth.

Yes – we shouldn’t be gibing; even if we didn’t invest into shares, we are yet all affected by it. For the bursting soap bubble has only been a consequence of an entirely different process: the truth is, what burst was a corporate insanity; the idea that one could unhinge all the old laws and money by means of the new economy – mainly the internet and the economic activities connected with that. That went thoroughly wrong – but it had to. Because money cannot be multiplied arbitrarily, and to achieve practically endless luck on earth has at least not been achieved up to now.

So many have learned the old lessons anew and now return to the reliable lore – by which we come back to the real estate.

What actually shows the value of the property as compared to the shares? At this point I want to alert about a new trend of which one can often read in trade journals today. Apparently owning a property – “my home is my castle” – is no longer the trend of the future, but the right of user of such. In other words, ownership and usage are a different kettle of fish. Well, that is nothing entirely new – but what’s new is the way this idea is getting marketed.

Instead of purchasing a property it is said to be better to lease it, rent it or get the right to use it like one’s own for a certain point of time – with an irredeemable and usually lifelong right to it, which is additionally tradable like goods. At the same time the actual property, the real property, remains in the ownership of a society which also sees to its maintenance, administration and all other “real” aspects of the property. It provides all the services virtually as a whole package – and instead of paying a sales price for the property, the user then pays for these services connected with the usage. Of course, like this one at least saves the property acquisition tax and probably also doesn’t get the type of troubles one can otherwise have with a building. And that can be worth something – for one gets to have all the advantages which an own property holds, yet without having to bear the duties and responsibilities connected to that.

But why do we advise against this trend when it brings with it so many advantages?

Very simple: the real estate as a valuable investment cannot be replaced by anything. Building ground is the only economic goods on planet earth which cannot be multiplied arbitrarily. As long as we, as mankind, are not yet able to evade to other planets and as long as we have a growing number of residents on this planet, there will be a constant demand for developed or undeveloped premises, a need for one’s own home.

An owner of a property can be lucky to be in that situation, for he is immune to various inconveniences, such as:

Of course one could extend this list – you certainly would be able to list ten or more additional advantages that a freehold property brings with it. Allowedly, owning a property also holds various risks. If one doesn’t pay back one’s loan to the bank or just falls behind with the due interest rates then compulsory expropriation (by auction) becomes a menace. If a communistic government comes into power – compulsory expropriation (by governmental intervention) becomes a menace. If the taxes on freehold property assets get raised – bankruptcy becomes a menace.

But: aside the fact that the bank could expropriate you by compulsory auction, other interventions are relatively unlike to happen. It can rather occur that you happily have rented out your property to a nice tenant who turns out to be the opposite afterwards; he is not paying the rent, suing you to lower the rent because of pretended damages and it all results in a long process to handle it, for which you have to pay in the end because the tenant is insolvent.

And yet: despite all which can happen with a real estate as one’s property, one usually remains on the winner’s side if one pays attention to some basic – and long-proven – rules. The first, most important and irrevocable one is so well known that one could hammer it onto the tables of Moses: location, location, location. “And god said to Moses: you should not buy a property in bad locations.” Probably this law is as old as towns exist, but it’s right interpretation – the right estimation of the location – always requires to know the market as it is at the given time and to do current researches.

But how does one get the current data?

There is an approach to it which works in almost any case. Simply do the following few steps and you will already be on the safe side by 80%:

Altogether, it all adds up to this: answer yourself the question how the chances of the property to a good value development will be in this location in future. Below is a list of a few negative factors:

Amongst those mentioned viewpoints of course there are locations such as Frankfurt Main, Munich, Stuttgard, Duesseldorf or Hamburg, the positive slow-burners in regard to the real estate market. The European Central Bank  and the airport of Rhein-Main alone have given such a tremendous advantage to the location Rhein-Main in the past years, especially the cities Frankfurt, Wiesbaden and some others in the area, that investing in these locations can almost become a blind success. But only almost – for the old rule also holds true for these locations: never purchase without having closely examined the specific location. It is needless to say that some knowledge about the city and an expert advice are advantageous to this.

 

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