Was ist ein guter Kaufpreis? Die Bierdeckel-Rechnung.
What is a Good Purchase Price for an Apartment as an Investment?
Introduction to the Calculation Method
- The video introduces a simple calculation method, referred to as the "beer coaster calculation," to quickly assess whether the asking price of an apartment is a worthwhile investment.
- This method helps determine if an apartment serves as a valuable financial asset or merely a speculative object that could lead to financial strain.
Understanding Price-to-Rent Ratio
- The core of the calculation is the ratio of purchase price to annual rent. A lower resulting number indicates a better purchase price.
- Buyers and sellers often use this ratio (known as the factor) to evaluate potential income against their investment.
Importance of Rental Yield
- Instead of using the factor, the video emphasizes calculating rental yield, expressed in percentage terms. A factor of 20 corresponds to a good rental yield of 5%.
- Higher gross rental yields are favorable; however, initial calculations do not account for management costs or additional purchase expenses.
Evaluating Costs and Financing
- The video suggests that determining what constitutes a good rental yield depends on personal expectations and location factors.
- It assumes monthly rent of €500 (annual €6,000), with management costs estimated at about 1% of the purchase price.
Financial Viability Assessment
- The assumption includes financing 100% of the purchase price while covering only additional costs upfront.
- With financing conditions set at 2% interest and 2% initial repayment, total bank payments would amount to 4% of the purchase price.
Conclusion on Investment Potential
- An apartment can be considered financially viable if its rent equals at least 5% of its purchase price or does not exceed twenty times its annual rent.
- Further calculations may reveal tax implications and other cost structures affecting profitability but starting from a gross rental yield above 5% warrants closer examination.
Risks Associated with Low Rental Yields
- Purchasing properties with low yields (e.g., 2.5%) means monthly losses where rents fail to cover costs and interest payments.
- Such investments require out-of-pocket repayments without assistance from property income, making it less effective than saving for future purchases outright.
Benefits of High Rental Yields
- Conversely, buying properties with high yields (e.g., 10%) allows for immediate positive cash flow from month one, leading to passive income generation alongside mortgage coverage.
Investment Strategies for Private Investors
The Challenge of High Yield Expectations
- Many ambitious investors seek properties with unrealistically high returns, often influenced by larger investors who claim they won't buy below a 10% yield.
- This mindset can lead to missed opportunities; private investors may overlook properties that offer solid returns in the 5-6% range, which can provide excellent financial security over time.
Understanding Rental Yield Calculations
- The return on invested capital is significantly higher than the rental yield alone; understanding this difference is crucial for evaluating property investments.
- A simple calculation using purchase price and rent can help determine if a property is worth considering. For example, a property priced at €120,000 with a rent of €500 should be analyzed closely.
Evaluating Property Prices and Rent
- If the same property were offered at €150,000, the rental income would likely not cover costs, making it an unattractive investment.
- Conversely, if the property were available for €100,000, there would be more room in calculations for interest and repayment costs.
Impact of Rental Income on Investment Viability
- The potential rental income directly influences how much one can afford to pay for a property; higher expected rents allow for higher purchase prices.
- Conducting multiple calculations after discussions with sellers or agents helps clarify whether an investment is worthwhile based on current market conditions.
Tools for Investment Analysis