What investment strategies in real estate exist in Europe?

Investment strategies in real estate

Olga Müller, managing partner of IIG Real Estate Group, who has a legal education and economic experience, as well as being an independent real estate valuation expert in Europe and a member of the Royal Academy RICS, shares her thoughts on investment strategies. Initially, the term "investment styles" was used in the world of finance and stocks, but over time it began to find its application in the field of real estate, leading to the development of several specialized strategies.

Definition of investment goals

Every investment strategy is a deliberate and thoughtful way to achieve specific financial goals. First, it is important to understand what the investor's objective is. These goals can vary considerably, depending on:

• personal preferences;
• investment period;
• available resources;
• the desired level of profitability.

A clear definition of goals is a key factor in choosing the optimal investment path and developing a strategic plan.

Core Strategy

Among the many strategies, four main styles stand out, referred to in English. The first of these is the investment strategy.Core. It implies long-term ownership of assets, which can last from 20 to 25 years or even longer. In the process of purchasing such properties, both equity and a small share of borrowed funds are mainly used. The goal of this approach is to acquire liquid real estate properties located in large and medium-sized cities that provide stable income.

Criteria for selecting objects

Criteria for selecting objects within the framework of the strategyCoreemphasize the following:

• central location;
• the presence of reliable tenants.

In this model, location takes precedence over potential profitability. An investor must think ahead when making investment decisions, as the main goal is not to achieve quick profits. The primary priority is to expand the financial portfolio through prestigious real estate that has historical or cultural value.

Examples and features

The most striking example of this type of investment could be:

• a major shopping center;
• a rental house located on the main street of the historic district;
• office building in a prestigious business class.

When choosing an asset, it's important to pay attention to long-term ownership, as such assets are often seen as inheritable. Examples of such locations include well-known spots like Kurfürstendamm Boulevard in Berlin or Königsallee in Düsseldorf.

Risks and returns

StrategyCoreis considered one of the least risky, as its results are not subject to significant fluctuations typical of the market, since it is focused on long-term periods. The expected return within this approach ranges from3% to 4%and sometimes it can be even less. However, as mentioned above, this is not the main focus for investors applying this strategy.

Conclusion

It is important to note that the information presented in this article may be useful for those interested in the process of acquiring real estate in Germany and who wish to better understand the key aspects of the investment market.

Introduction to Real Estate Investment Categories

In the field of investments, it is common to distinguish several groups, which makes it easier for investors to choose different types of real estate. For example, properties such as hotels, senior living facilities, or apartment buildings that are purchased for long-term ownership often fall into the category of core investments.

Nevertheless, unlike the traditional perception of this group, such assets may not be located in the very center of the city, yet still maintain a stable long-term potential, which is also characteristic of the core class.

Core-plus strategy

There is an alternative approach called core-plus, which aims to identify properties with significant development potential. The focus is on buildings that are currently leased, where there is an opportunity for improvement and further growth. A key aspect of this process is the ability to increase the value of the property, which is directly related to its location.

• The presence of short-term rental agreements opens up the possibility for changing the terms after they expire.
• This creates chances of increasing revenues by modernizing the facilities.
• Updating buildings and changing tenants increases the attractiveness of properties for potential clients.

Types of objects in the core-plus strategy

As part of the core-plus strategy, retail spaces such as supermarkets and shopping centers located in large and medium-sized towns become extremely important, as they have high potential for further growth. Typically, these properties have been owned for more than ten years.

An example of a successful investment strategy can be considered the "Karstadt" department store chain in Germany. These department stores are located in the central parts of cities and have an impressive history, dating back to 1881. However, by the early 2000s, the concept of large department stores had lost its relevance, leading to a decline in the chain's market position.

Many retail spaces have closed, and a significant portion remains without tenants. The solution to this problem in 2014 was the proposal to sell the vacant spaces.

New owners and renovation concepts

The new owners, interested in implementing fresh concepts and the possibility of reconstruction, have started actively working on revitalization, placing great hopes on it. Such projects often utilize borrowed financing, which can account for up to half of the total investment volume.

It is also worth noting that investments in the core-plus segment provide income growth through the increase in the market value of real estate. Typically, such properties are characterized by high foot traffic and stable demand from tenants.

Expected returns and risks

With the right management strategy and planning, it is possible to generate returns that are higher than traditional core investments, ranging from 4-6%.

However, it is important to recognize that such a scheme involves certain risks associated with market fluctuations and the effectiveness of management decisions, which requires investors to be more attentive and vigilant.

Thus, while core-plus real estate investments may be more profitable, they also carry increased risks.

The relevance of investments

In recent years, issues related to investments, leaving the country, and purchasing real estate abroad have become increasingly relevant for Russian citizens.

Value-added strategy

One of the most sought-after investment strategies today is value-added. In this methodology, the investor targets properties that have a market value below their actual price and require certain improvements, such as renovating old buildings or changing tenants.

The main goal is not only to increase cash flow but also to maximize the value of assets as much as possible.

Use of borrowed funds

In implementing a value-added strategy, borrowed funds are often used, which can account for up to 60% or even 70% of the total investment volume. Financial benefits are achieved through the subsequent sale of assets at a higher price.

For example, after the reunification or unification of Berlin there was a unique chance to invest in income houses in need of major repairs, and after the completion of quality reconstruction they could be broken down into apartments and resold. Such actions significantly increased the income from the transaction. However, in the current environment it is becoming more and more difficult to find such objects, which significantly complicates the process of assessing their investment attractiveness.

Auction property

In addition, this strategy also actively utilizes real estate auctions, where the main goal is to acquire property at a low price and then sell it at a higher price.

It should also be noted that real estate located in regions with developing infrastructure is of particular interest. It is expected that prices for such properties will significantly increase in the near future, making them very attractive for investment.

Holding periods and returns

The holding periods for such assets tend to be much shorter than traditional investment instruments and can range from 5 to 7 years.

The expected return from implementing a value-added strategy often exceeds the performance of core and core-plus, reaching 8-10%, but this strategy also comes with high risks.

Recommendations for investors

If you are planning to invest in residential real estate, it is highly recommended to pay attention to recommendations and advice before making any investment decisions.

Opportunistic strategy

The next strategy worth mentioning is opportunistic. This type of investment involves short-term investments, with targets that can include both completed buildings and projects that are still in the development stage.

An asset that is at various stages of design and future implementation can attract the interest of investors.

Permits and documentation

Such projects often already have all the necessary construction permits and approved technical documentation, which significantly increases their market value.

Investors using this strategy try to identify undervalued assets or those that show high growth potential due to significant transformations.

Example of modernization

As an illustration, one can mention buildings selected for deep modernization or complete reconstruction. Thus, stable and well-founded investment decisions, based on continuous market analysis and monitoring, can ensure significant profits in the future.

Current state of the real estate market

In the real estate world today, many properties are experiencing significant liquidity challenges. This is happening for various reasons, including unstable economic conditions in certain regions, as well as low or even nonexistent rental rates.

These factors require in-depth analysis and the implementation of effective strategies to improve the situation. One of the most promising methods isrepositioningSuch issues usually affect small and medium-sized cities, where there is a high level of vacant properties.

Potential for investment in residential complexes

One of the options for solving this problem is to purchase residential complexes near major cities, which are often in a condition that requires serious repairs. However, in addition to the buildings themselves, it is also important to pay attention to development.infrastructurearound them.

Updates may include:

• Improvement of public institutions;
• Improvement of courtyards;
• Creation of new playgrounds.
• Other activities to improve the quality of life in the area.

These steps have a noticeable impact on the appearance of the neighborhood, making it more attractive to potential residents, which in turn contributes to higher housing prices.

Return on investment projects

When it comes to the profitability of such investment projects, it is worth noting that it can fluctuate from10%more than30%The main feature of such transactions is that the holding period for the property is often short-term, and the investor's goal becomes a quick resale.

However, high returns do not always go hand in hand with low risks, and investors should take this into account. It is important to understand that risk and potential return are two interconnected factors, but they do not always have a direct relationship.

Strategy for Successful Investing

To achieve success in real estate investing, thorough analysis of the current conditions in the region, a deep understanding of the market, and well-considered decisions are required.

Overview of the city of Bochum

Bochum is an important city located in western Germany. The completion of a large-scale renovation aimed at expanding commercial areas and major repairs was expected by the end of 2016. These initiatives created new space that can be used for various commercial needs and attract customers.

Commercial building in Hextor.

Another interesting property on the market is a commercial building in the German town of Hexten. It is listed for1.7 million eurosand covers an area of1498 square metersThe Edeka supermarket, which generates an income of23.7% per yearIt is available for long-term rent. The building is located in an area that is easily accessible for transportation, making it attractive to buyers. In 2011, it underwent renovations to meet modern retail space requirements.

Store in Leipzig

Another interesting offer is a store in Leipzig that provides investors with a ready-made business for3 million eurosThe total area of the property is2500 m²The Netto supermarket has been successfully operating near Hanover for more than18 years oldDuring this time, it has established itself as a reliable project. A new lease has been signed, which includes favorable terms for the investor, such as an increase in the rental rate and the possibility of extending the lease terms.

Shopping center in Trier

The shopping center in Trier is also worth mentioning, with an area of9000 m²This convenient offer can be purchased for13 million eurosAmong the key tenants are well-known discounters Lidl, as well as chains selling garden products. With long-term lease agreements in place,15and18 years oldThe center also hosts:

• bakery,
• hair salon
• newsstand.

This makes the object even more appealing.

Hotel in Düsseldorf

In Düsseldorf, there is an opportunity to purchase a hotel with an area of2303 m²for10.875 million eurosThis object, built inin 1968, a major renovation took place in2020and rented out for10 yearswith the possibility of extension for two five-year terms. The first two years of the lease are insured, and for the remainder of the term, there is a guarantee from the tenant, which ensures the reliability of the investments.

Commercial building in Recklinghausen

A commercial building is also up for sale in Recklinghausen, covering an area of1165 m²The price of this asset is2.487 million eurosThe building consists of a Netto supermarket and a bakery, which already have a long-term tenant, and will be put into operation inSeptember 2016If necessary, slight changes to the deadlines for delivery are possible.

Commercial real estate in the suburbs of Munich

In conclusion, it is worth noting that commercial real estate with a total area is available for purchase in the suburbs of Munich.6050 m², the cost of which is10 million euros. This facility is located in an administrative and industrial zone, totaling in thein 15 minutesfrom Munich International Airport. The successful location highlights its potential for stable income and further development.

Therefore, interested investors may find profitable options for their investments in the commercial real estate sector in Germany.

Transport accessibility and investment opportunities

The transport accessibility of the area and the well-organized public transport system create comfortable conditions for living and doing business. Against the backdrop of investment growth in land and commercial real estate, especially in Germany, one can find many interesting opportunities. Let's take a closer look at a few attractive options.

Commercial real estate in Mecklenburg-Vorpommern

Among them, commercial real estate in Mecklenburg-Vorpommern stands out, with a price of4,400,000 €. It is a package of three single-storey buildings leased by well-known supermarkets in towns such as Jarmen, Eggesin and Lübz. The long-term tenants are large retail chains such asPennywho signed a contract for15 years.

Modern supermarket in Eschweiler

Also highlighted is a new retail outlet in Eschweiler, valued at2,150,000 €This is a modern supermarket that started its operations in September.2020. The plot is4,087 m², and the leased area —870 m²The lease agreement with the tenant will be valid untilthe year 2030and is not subject to termination, making it a reliable source of income. The annual rental income is equal to120,000 €that ensures profitability at the level5.58%.

Production facility in Berlin

Proposal for a production facility in Berlin for1,400,000 €It also deserves attention. This is a functioning business focused on manufacturing stoves that use pellets and firewood. The company is engaged in the development and sale of modern heating solutions that are characterized by high efficiency and low carbon dioxide emissions.

Hotel complex in Hamburg

An excellent hotel in Hamburg, which is being offered for sale for, looks no less interesting.40,000,000 €This is a five-star hotel complex located in a quiet green area of the city with good access to the center. The area of the land plot is1.5 hectareswhich allows to organize events of different formats: from conferences to weddings and exhibitions.

Income property in Krefeld

The offer for the income property in Krefeld has a price.390,000 €and provides returns4.83%per year. This facility is located in the heart of Krefeld and was built in thein the year 1900. It consists of four residential apartments and two commercial units. The annual rental income is18,840 €and there is a possibility of increasing it to24,240 €.

Apartment building in Frankfurt am Main

Finally, it is worth noting the apartment building in the center of Frankfurt am Main, which is priced at7,500,000 €It is a new building and includes seven apartments. The living area is approximately600 square meters...while the total area reaches...800 m²The building has three floors, and the apartments on the first floor are equipped with terraces and access to the garden, while the upper floors have balconies.

Result

Each of these properties has unique characteristics and investment potential, making them particularly attractive to buyers looking to expand their assets in the German real estate market.

Conclusion

In conclusion, I realize that in the world of real estate investment, choosing the right strategy is crucial. As the analysis of various investment styles has shown, such ascoreandcore-plusEach of them requires careful assessment and understanding of the market, as well as readiness for risks.

The main goal of investing is not only to generate income but also to create assets that can serve as a solid foundation for financial well-being in the future.

Key points for choosing a strategy:

• Clear understanding of one's own goals
• Assessment of investment horizons
• Readiness for analysis and management

With the right strategy and sound management, real estate investments can become a reliable and profitable source of income for many years to come. Remember that any investment process requires thorough analysis and careful attention to market changes, as well as continuous exploration of new opportunities.

Ultimately, successful investments cannot be achieved without a passion for your work and a commitment to continuous growth, which are the keys to success in the fields of real estate and finance. I hope this article has provided you with useful guidance in the world of investments and helps you make choices that align with your goals.