Investing in real estate, that’s something only rich people are able to do’. It’s something many of us think all too often. But nothing could be further from the truth! Even with a smaller budget, you can nowadays make great investments. We’re happy to explain how!
Investing in real estate is much more than just a financial decision. Whether it is an office space, a flat or a larger house, the purchase of real estate also involves an emotional rollercoaster. From rejoicing to a moment of fear when you make a large payment, to the pride that comes with financial success. But which investment strategies are worth considering? And which ones fit your budget?
Investing in real estate, what does it mean?
Real estate means ‘land and everything built on it’. Anyone who invests in property usually buys a building or a house wanting a return on investment. This return can be achieved in two ways: by renting out the purchased property and receiving rental income, or by renovating the property (this irrevocably increases the value of your property) and reselling it after a certain period of time. With both formulas, you can raise enough capital to repay your loan and perhaps even earn some extra on top of it. We call this approach ‘property investment’.
Are you not yet fully aware of how ‘property investing’ works? You can easily compare it to a game of Monopoly. The aim of the popular game is to buy as many properties as possible as quickly as possible. Does someone land on a space where you have a house or hotel? Or do you own the whole street? Then ‘visitors’ have to pay you rent. Do they want to buy a space from you? Then you ask more money for that particular investment (with or without an extra house or hotel) than you paid for it yourself.
Types of property
We distinguish three different types of real estate: residential property, commercial property and holiday property. But which type of investment is needed for which type of property? And what will it cost you?
Residential property is an umbrella term for property that will be used primarily for living in. So are you buying a new home to live in with your family? Or do you decide to invest in a flat in the city to live in yourself? In this case, we are talking about residential property.
Commercial real estate
With commercial real estate we mean the purchase or sale of premises where ‘own use’ is not the final goal. Office spaces for large and small companies, shops and spaces with other purposes are part of this.
The word speaks for itself: holiday real estate is real estate that you invest in when you are looking for a second or outer home. Although the gross return on a second home is not much more than the return on a first property investment, people are increasingly choosing to purchase a second property as an investment.
Depending on what your goal and budget is, you can invest in different types of property. And today, you can make an investment with a fairly limited budget: with a starting capital of around 25,000 euros, you are already well on your way to securing a loan from the bank and, consequently, to becoming a property investor.
4 tips for investing in real estate on a tight budget
1. Define your strategy
Before you invest in real estate, you should ask yourself the following questions: do I want to buy real estate for personal use or do I want to buy the property as an investment in order to rent it out afterwards and get an income from it? And if I want to invest in a property to rent out afterwards, which type of property should I choose? Residential, commercial or a holiday home? Obviously, you want your real estate investment to generate returns in the long run, whether in the form of rental income or a sale. So it is best to consider all the options before ‘opting’ directly for a specific property.
2. Choose territory with growth potential
You have probably read it a few times already, but if you also want to benefit from your investment, choosing the right location is key. If you are looking for office space, it is best to choose a location that is closer to a (large) city. For a (single) house with a garden, it is advisable to choose something further out than the city centre. Prefer to live in a flat? Then again, you’d better choose a location that is a little closer to a city or village centre.
But not only the location of your property is an important location-related factor, also the real estate agents active in the area play an important role in the choice of a property tailored to your needs.
3. The interest rate, important for your investment
Do you have a starting capital of 25,000 euros? Well look at you! Then it’s quite possible that you have a chance of getting a loan to finance the remaining capital needed for your real estate property. But a loan also plays a crucial role in making an investment.
If you want to borrow, you have to deal with interest rates. And those interest rates have a big impact on your repayment and therefore also on the return you can get from your investment. If you borrow at a low interest rate, in principle you can borrow more from the bank and you need to contribute less yourself. As a result, the return on your capital may even increase exponentially and you may even be able to pay off your loan sooner. The message here is to negotiate your interest rate well before you actually take out the loan.
4. Start investing in real estate from an early age
Today, real estate is only increasing in value. So, the earlier you start investing in real estate, the faster your invested capital will return. If you invest in a garage box in your twenties, by the time you reach your thirties, it will yield more capital when you sell it than when you bought it. You can then use that capital for a larger investment, which you might not have been able to make at that age without the proceeds of that garage box… If you then sell that property, you again have more capital to invest in something even bigger, and so on. Who knows, by the time you are 50, you may even be able to buy property for your children! An advantage that can only make everyone happy!
Conclusion? Investing in real estate is certainly not just for the rich. With the right strategy, the right insights and the right approach, you can also invest wisely with a smaller budget!