Art & Collectables as an Investment
Art has proven it's worth as an investment. Hardly any other type of investment has managed to multiply capital so sustainably over the long term. The art market is developing rapidly and is opening up more and more target groups and buyer countries.
However, anyone who wants to invest in art should inform themselves very carefully, especially when starting out. This type of investment has very specific requirements and strategies.
For investors, art is often much more than a mere store of value. In addition to its material value, art also has an emotional value. The pleasure of the work of art and the high prestige factor distinguish the investment in art from other forms of investment.
Many people who buy works of art are not primarily looking to make a quick profit, but to acquire something beautiful with a value that will last. For this reason, works of art are, for example, a popular capital investment for the future of one's own family. However, an investment in art does not only pay off in monetary terms: it increases the quality of life and gives the pleasant certainty of having contributed to the preservation of culture.
Real estate is still one of the most popular forms of investment and has achieved an average increase in value of 4.5% to 8% over the past 50 years. The type of construction, the furnishings, the technologies used and the location of real estate are decisive criteria in the development of value.
Most investors here are not looking for quick returns. Many interested parties regard real estate as an additional option for wealth creation. The investment period is at least 15 years and can last several generations if the property is well maintained.
Investors in the real estate sector are divided into different groups. Many simply want to own their own home. Others are capital providers in order to realize new real estate projects. In many countries, the trend is toward second or third properties in order to generate additional income from renting them out.
UP TO ANNUAL R.O.I.
Real Estate & Plots
HIGH TRANSACTION COSTS
MANAGEMENT & MAINTENANCE
TIME IS MONEY
NO GUARANTEED GROTH
When buying shares, the transaction costs for trading are very low, often only a few euros. However, when buying real estate, the transaction costs are significantly higher. Unlike other types of investments, transaction costs for real estate can significantly affect the value of the investment and make it more difficult to make a profit. These include costs for: Agents, surveyors, builders, notaries, lawyers, banks, agents, administration, craftsmen, janitors, gardeners, insurance.
Many investments are highly liquid and can be bought and sold at a fraction of a second profit, as in high-frequency stock trading. Real estate investments, however, are comparatively illiquid because properties cannot be sold quickly and easily without a significant loss in value. Real estate investors must be prepared to own a property for months and years, especially if it is to be rented out.
Hardly anything can spoil an investor’s enjoyment of the newly acquired property faster than hidden defects that only become visible in retrospect. Therefore, investors in real estate should always have appropriate big reserves to be able to act at short notice. These include: Incorrect insulation/sealing which can lead to moisture and mold, outdated or poorly maintained piping such as sewage and service water pipes (especially in older buildings), toxic materials used or renovations required by law.
Real estate requires management and professional maintenance. As soon as an investor acquires a property, it must be renovated, maintained and managed. Financing payments, real estate taxes, insurance, management fees and maintenance costs can add up quickly, especially if the property is vacant for a long period of time.
Whether you buy a property privately or as an investor, it usually involves a high capital outlay and thus the bulk of the saver’s money is tied up in a real estate investment. Many clients can therefore no longer dispose of it for a long time or even for the rest of their lives.
As mentioned earlier, the inefficiencies of the market can be beneficial to investors. But we also want to mention the disadvantages, which can be illustrated by investors who buy properties sight unseen at auctions. The most aggressive investors buy properties based on minimal information and do not know if they got a good deal until they pay for the property and then inspect it. Similarly, investors with rental properties have to contend with fluctuating demographics and economic trends that can either increase or decrease their profits. Real estate investing involves dealing with market inefficiencies that, if mishandled, can lead to financial ruin.
Time is an essential factor, first it is necessary to acquire the appropriate knowledge, then to find a suitable object. Do I have enough time to take over the management myself or do I use a property management company. Likewise the time span of the plant and the possible restrictions connected with it must be considered.
Many investors rave about increases in the value of real estate in metropolitan regions. However, prices are already disproportionately high and no one can guarantee that this growth will continue or that the government will impose appropriate rent limits. A real estate crisis appears regularly every few decades and can cause the value of real estate to plummet by 80%.
Real estate creates liabilities, obligations and ongoing costs. The annual cold rents, which a real estate owner receives, do not correspond by far to the net yield from the real estate capital investment and are bound to a high degree to financial and legal liabilities. All the disadvantages mentioned above are added to the costs that a real estate investor takes on when buying, financing, renovating, renting, managing and maintaining a property. In addition, there are taxes and insurances. Also, when investment properties are placed in a corporation, there are often personal guarantees associated with the company and the risk of losing the income and profits generated by the company. Maintenance measures in particular can incur high costs and are considered a real yield killer, especially by landlords.
Real Estate & Plots
EASIER TO UNDERSTAND
A HEADGE AGAINST INFLATION
PROPERTIES EXIST IN AN INEFFICIENT MARKET
CAN BE FINANCED AND LEVERAGED
INFLATION IS AN ADVANTAGE
Real estate is easier to understand at first than other investment classes. With most investment opportunities, it can be difficult at first to grasp everything you need to know in order to make a profit. Many types of investments rely on abstract concepts and complex algorithms that can be particularly difficult to understand. Real estate, on the other hand, involves the purchase of physical property and most people are familiar with real estate to some degree. Investing in real estate can be much easier to understand than complex investments developed by mathematicians.
After buying a share, you hold it for a certain time and hopefully sell it at a profit. The success of the share depends on the company management and its corporate success, which is outside one’s own control. In contrast, real estate investments are directly under one’s control. Although you can’t control demographic and economic changes or acts of God, you can control many things related to the physical property and tenants. With good management of the entire real estate portfolio, the value of your investment can be noticeably improved and wealth can be built.
Real estate is one of the few investments that respond proportionally to inflation. When inflation rises, property values rise and rents rise. Although real estate is generally a good hedge against inflation, rental properties that are re-rented each year are particularly effective because monthly rents can be adjusted upward during periods of inflation. For this reason alone, real estate is one of the best ways to hedge an investment portfolio against inflation.
Unlike the stock market, the real estate market is full of inefficiencies. There is a lack of transparency in terms of individual property values and also the strength of the various markets, which means that real estate investing has the potential for very high profits. Real estate investors who do their research, especially with the help of industry experts, can find great real estate bargains.
Technically, of course, you can buy stocks and other assets using debt, but that can be very risky because the financing is not buying a hard asset. Real estate, on the other hand, is a market where products are usually purchased with debt. Real estate investments purchased with hard money or a mortgage can be structured in a way that is fairly safe and affordable, so large purchases can be made with a relatively small initial investment. The result is the purchase of a hard asset that increases in value from year to year, and the payment for it is made primarily with other people’s money or banks.
If a property is purchased, this is usually done in conjunction with loans. Of course, I have to pay attention to the conditions of the bank. A good and trust-based relationship with the banker can quickly bring a significant advantage here. In addition, the time of depreciation plays into one’s own pocket. Especially with real estate, the cost of credit is often cheaper than the profit I have through regular inflation. Example: If inflation stands at 3% and I get my loan with 1.5% interest, I already have every year on average a profit of 1.5%.
A personal note
We hope we have not dampened your spirits. Of course, you just found a lot of risks. Nevertheless, if the necessary capital, a little time and self-discipline is available, real estate can be a fantastic way to secure the capital and let it grow. If you are ready, to leave your comfort zone a bit behind and look to different countries, maybe even outside of Europe, you will find more interesting possibilities.
The important thing is not to have to use all of your assets. Appropriate liquid assets are of high importance and must be partially available at short notice.
In addition, an investor does not have to start immediately with a large or risky project. The acquisition of land, warehouses or garages often offers an excellent entry into the real estate world. There are also possibilities to invest in Hotelrooms, small studios with all inclusive services in care and maintenance to invest. On top is the revenue on daily rent usually much higher.
To get an idea of which country or region currently promises the highest returns, it is advisable to take a look at magazines such as Forbes.
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According to Forbes, currently the most profitable area to invest in real estate.