Expert interview: Investing in Real Estate

There are different ways of investing in real estate: from buying an old house and renovating it to buying  turnkey apartment/house. Investing in real estate is a long-term process and it is very important to study the market beforehand, since it is common to happen that there might be a lot of supply and no demand or the property that you are investing in is not in the perfect location.

Mr. Keller, who has knowledge and experience in real estate business in Europe, gave an interview on the topic of “real estate as alternative investments”.

-Good afternoon everyone, today we are having Mr. Keller with us. Thank you very much for coming!

-Thank you for inviting me.

-We will be discussing  the topic “Real Estate As an Investment” today. Mr. Keller, what are the different types of real estate investments?

The first type of the real estate investment is when an entity, a fund company, or an individual purchases the property and speculates that the value will increase. The second type is when  a fund, a company or an individual again takes another approach and analyzes the competition or does the market research. For example, house on the lake with 2000 m² and five hectors costs 20 million, and person purchases this land and makes out of it 15-20 apartments. Basically creates a value by making a strategic decisions and doesn’t only speculate.

-What benefits do people get from investing in real estate?

First of all, when we look at individual person that purchases real estate-  it will be a proud ownership of a tangible asset. Individual in any way needs to pay for his electricity and water in any case either he runs for purchases something when he’s a private owner of the property and doesn’t need to spend the rent, which is basically money that disappears in the sky. So I think it is a self satisfaction and the proud ownership that are the major aspects and benefits of owning real estate. The second benefit is the return on investment you will be very happy if you can make money out of it by owning a real estate.

-Would you say that the risks are high not getting the expected ROI?

This really depends on the location and then the target market. When you, for example, look at the real estate in the city center and for the real estate in front of the beautiful mountain, then this would be two different approaches. If the location is very attractive and no one can take the view away (e.g. build something in front of your property), then the value will remain of the assets or even increase overtime. When you will look at the properties based in the city center, sometimes the value of the real estate decreases as the location or the area itself might become worse throughout the time (e.g. in 20 years). This is why to guarantee stable investment and make sure that the value will increase, then you need to choose a unique location. It can also be on the rooftop, on one of the highest buildings in the city.

https://www.youtube.com/watch?v=3LQ1O77KVRM&t=23s

-How do different generations approach real estate investment?

-So, this is actually very interesting, because the consumer spending of the previous generations (baby boomers) was very different. They were saving a lot of money and rarely renting properties. They were building up capital and then eventually buying a property, interest rates were quite high back in the days, when we look at the 80s and 90s. Nowadays, the consumer spending of the new generation is completely different. People like to travel more, they like to spend their money on accessories and fashion.We came to a certain position, when the new generation, when we look at the investing, doesn’t have enough capital to obtain the mortgage. Back in the days interest rates were very high, but people had initial capital to obtain the mortgage. They were ok paying 5%-6% on their mortgage. Nowadays, we have interest rates at between 0,75% and 1,5% in Switzerland and the new generation can not put upfront capital, when the individual is being asked for a mortgage, because he/she needs to give first 20% of the total value of the asset, but people do not sit on enough cash. So, even though their interest rates are very attractive, it is free-financing, free money from the bank. They are not in the position to purchase property, because of their consumer spending behaviour and that is very frustrating. We have seen a shift from an older generation owning and renting properties of 3-4 bedrooms and the new generation having to spend 1000-2000 CHF for 1-2 bedrooms. Because first of all, the housing market is high. Second of all, they can not afford more than 1-2 bedrooms. Third of all, if they want to afford the house, they have to save a lot of more money and then they have to obtain the mortgage,  but interest rates are very attractive for the new generation, but they do not have enough cash.

-So, the approach nowadays completely changed? 

-Completely changed, the consumer behaviour has completely changed.

-Perfect, thank you very much for sharing with us your knowledge. We wish you a great day and will let you know if visitors of the website will have some questions for you.

-My pleasure. Thank you very much, bye.

I hope you have enjoyed reading this blog as well as watching the interview and I am looking forward to further discussing this topic with you below in the comments.