What are the advantages and risks of investing in construction projects in Germany?

Investments in construction projects in Germany

Ekaterina Demidova, the CEO of DEM Group, answers questions regarding investments in construction projects. Currently, there is active construction activity in Germany; however, the pace of change is not as intense as in Moscow or St. Petersburg. There is no mass residential construction here, and the process is carried out more locally, with greater attention to detail. There are not many new initiatives, which creates a constant interest among investors.

Advantages of investing in construction

One of the main advantages of investing in construction is the possibility of obtaining high profits, which can reach20-25%As practice shows, there are various mechanisms that allow investors to choose the most suitable options. One of them is to keep the property under construction for personal use. This provides the opportunity to manage the apartments and receive a stable rental income. If the investor decides to sell the acquired property after construction is completed, they can also achieve significant profits within the specified range of returns.

Disadvantages and risks of investments

Nevertheless, investments in construction projects have their drawbacks as well. This form of investment is primarily suitable for experienced investors or those who are willing to rely on professionals, like our company, for example. The process of investment activities and construction implementation involves many complexities. Various subcontractors are actively involved in this process, and working with them requires significant time and expertise. Therefore, the investor can either actively engage in the process, thoroughly studying all its aspects, or delegate a large part of the responsibility to their partner.

Key risks associated with investments:

• Delays in deadlines:Coordinating actions with contractors can take time, and without specialized experience, this may lead to an extension of the project timeline, which in turn will reduce overall profit due to the prolonged work completion times.
• Increase in expenses:In practice, many encounter the situation where the cost of repairs unexpectedly exceeds the previously calculated amounts. In construction, unforeseen expenses can also arise. For example, during the process of erecting buildings, it was discovered that the site is not as level as anticipated, which required additional leveling work that was not included in the estimate.

Conclusion

Despite the challenges an investor may face when investing in construction initiatives in Germany, this segment continues to be of interest to those looking for reliable ways to invest capital to generate significant returns. The key is to properly consider all risks and be prepared for them. Investing in rental property can also be a good option, but it has its own peculiarities and requires careful analysis.

How to choose a construction project for investment

How to properly choose a construction project for investment and what important characteristics should be considered? In Germany, there are two main types of development projects: commercial, such as the construction of apartment buildings, and social, which include facilities like kindergartens and homes for the elderly.

The presence of preliminary agreements with potential tenants for social facilities is of particular importance.Such agreements significantly reduce the financial risks for investors.Projects of this type often receive support from local authorities, and the existence of such agreements ensures that the facility will be rented out as soon as construction work is completed.

Market value analysis

If an investor plans to sell apartments in a new multi-family building, it is important to analyze the price range of already completed properties in the area.New buildings often have a high cost, which is associated with the use of modern technologies and quality materials.Therefore, it is essential to ensure there is interest in luxury housing in the chosen location.

Start-up capital for investments

As for the initial capital for investments in construction, the minimum investment for commercial projects starts at one million euros. In the case of social projects, the entry threshold is much lower.since they receive support from the government and can take advantage of additional funding.The minimum amount required for investment is around 600,000 euros.

Collective investment

One of the key innovations is the concept of collective investing. Within a single project, several investors can come together.which allows to reduce the minimum investment requirement to 100 thousand euros.For example, there is currently an opportunity for co-financing the construction of a children's facility.

The impact of investors on projects

What can influence investors' actions during project implementation, and what aspects are beyond their control? We offer projects with a clearly defined concept.What does the finished product essentially represent?Investors are solely involved in financing and should not interfere in construction processes or change the purpose of buildings, as this can lead to a whole range of unforeseen issues.

The investor chooses the concept that resonates with them, while our team of specialists provides all the necessary approvals and support.

Stages of investing

At what stage of project implementation is it best to invest? In Germany, the opportunity to invest in development projects exists exclusively at the very early stages.As soon as construction begins, access to the projects is already closed, as funding has been secured and an investor has been chosen.On average, the implementation of a project takes about two years.

Financing and loans

Is it possible to get a loan for part of the funds, or are banks reluctant to finance such initiatives? There are credit offers from banks for social projects.and we actively assist our clients with this matter.Thus, despite some difficulties, funding can be secured.

Conclusion

Investing in real estate in Germany, whether in social or commercial projects, opens up numerous opportunities for growth and development.Proper project selection and market knowledge greatly increase the chances of successfully completing the investment.

Volume of financing and interest rates

The volume of financing and interest rates can vary significantly depending on the characteristics of each individual project. In some cases, it is possible to attract funds up to 80% of the total construction cost. However, when it comes to residential complexes, investors should be prepared to use their own resources, as obtaining a loan in such situations can become a real challenge. Nevertheless, there are ways to reduce personal expenses.

From the moment construction work begins, even at the stage of foundation preparation, it is possible to start selling apartments to end customers. This allows to attract funds from buyers, which significantly reduces the financial burden on the developer and contributes to the timely completion of construction.

Investment processes

Investment processes can be carried out both through private investors and legal entities, including Russian and German companies. The most favorable option is investments from German companies. A separate legal structure is created for each new project, usually formalized as aGmbH"(Limited Liability Company), which corresponds to the Russian concept of a limited liability company."

In cases where the project involves equity participation, investors become co-founders of the new legal entity and distribute shares depending on the funds invested.

Investor protection

It is also worth noting that investors can rely on reliable legal protection, as they become the owners of the land plot from the very beginning, which creates a foundation for the further development of the project. During the construction process, they are involved both in the creation of the unfinished object and in the completion of the already finished building.

Selection of construction companies

When selecting construction companies for project implementation, preference is given to German contractors. We take a careful approach to selecting companies with extensive experience and a proven reputation, which possess all the necessary licenses and permits for carrying out construction work.

• In Germany, low-rise buildings are mainly constructed.
• Large firms, such as those that were involved in the construction of Moscow City, are not always relevant.
• Many development projects are carried out by medium-sized companies with a good reputation and qualified experience.

Potential problems

As for potential problems related to the bankruptcy of contractors, our investors are also protected in this respect. Contractors are paid in stages; this means that financing occurs only after specific work is completed. In addition, we have several contractors working at different stages of construction, which minimizes risks.

Project timelines

In terms of timelines, projects for the construction of apartment buildings or social facilities typically have a high implementation speed. All our projects are low-rise, not exceeding four stories, while social facilities usually consist of two stories. This significantly reduces the time spent on construction and allows us to successfully meet the set deadlines.

Planning of project implementation timeframes

In most cases, the implementation period for projects is about one and a half to two years. If you are interested in detailed information about investments in income-generating real estate in Germany, take a look at a few examples.

Income property in Gelsenkirchen

We have a wonderful option - it is a revenue house located in Gelsenkirchen. The value of this property is670,000 eurosThe total area reaches463 square metersand the expected annualized return exceeds6%It should be noted that remote viewing is possible, which allows for the transaction to be conducted online.

This income property is in the heart of downtown and located just a three minute walk from the main pedestrian street. Includes.8 apartmentsand also the updates made in2021The annual rental income amounts to40,470 euros. The building was constructed inIn the years 1911, 1965, 2003, and 2021It has four floors and 8 residential units with a total area of 463 m².

Apartment in Düsseldorf

The next property is an apartment in Düsseldorf, which costs473,000 eurosper area68 square metersA separate purchase of a parking space in the underground garage is possible for29,000 euros. The apartment is located on the first floor and has a functional layout.

Year of construction —2020 and 2022The total area is68.20 m². It has an entrance hall, a bathroom, a bedroom and a kitchen with living room. In addition, there is a wonderful terrace with an area of16.58 m²Please note that the buyer's commission is not included in the price.

Apartment in Duisburg

There's a condo for sale in Duisburg for the price of a61,500 eurosThe area of this object is59 square metersIt consists of two and a half rooms located on the third floor. The utility payments amount to190 euros per monthand the potential annual rental income could reach approx.2,760 eurosthat corresponds to a profitability of about4.48%However, it is important to note that this apartment needs renovation, and the commission for the buyer is3.57%of the cost.

Income property in Krefeld

A rental property is also offered for sale in Krefeld for390,000 eurosThe area of this object is221 m²and the annualized yield is4.83%The building is conveniently located in the city center and was built inin the year 1900.

It has central gas heating and includesfour apartmentsandtwo commercial premises. The real annual income is as follows18,840 euros, with the potential to increase to24,240 eurosthat corresponds to the yield5.84%The commission costs for the buyer amount to5.95%.

Other properties for sale

Another interesting property is a rental house in Gelsenkirchen, which can be purchased for830,000 eurosThe total area of the building reaches870 square meters.

There is an increased interest in construction projects in the real estate sector, especially in the Essen region. A new residential building is planned to be erected on a plot of 353 square meters. The total area allocated for residential apartments is 413 square meters, and the project includes the creation of four apartments as well as the construction of four garage boxes.

It is worth emphasizing thatAll necessary construction permits have already been obtained....which makes the project implementation process significantly easier. The total project cost reaches 1,739,520 euros, while the expected final expenses may amount to 2,130,554 euros, indicating that...potentially high profitability.

Proposal in Solingen

In addition, there is an attractive offer regarding a rental property in Solingen, Germany. This real estate occupies 551 square meters and guarantees a yield of5.71% per yearThis building contains six apartments and two separate commercial spaces.

The central gas heating was updated in 2015, and from 1988 to 2015, regular maintenance work was carried out, which ensured the property remained in good condition. For the convenience of residents, two parking spaces are provided on the street. It should be noted thatThe actual annual rental income amounts to 33,720 euros.and the buyer will need to pay a commission of3.57% of the value of the property.

Duisburg - a profitable house

In Duisburg, there is also an interesting offer in the form of a rental property, with an area of 696 square meters and a yield.6.9% per yearThe building underwent significant modernization in 2019, during which the following were installed:

• new roofs;
• updated electrical networks;
• updated plumbing systems;
• replaced radiators and plumbing fixtures.

Each block was equipped with new radiators, and a complete replacement of the sanitary facilities was carried out. The windows on all floors are fitted with double-glazed units, which significantly improves the level of comfort.energy efficiencyThe area of the land plot is 389 square meters.

Land plots in Duisburg

For those interested in purchasing land, there is also an opportunity to buy a plot in Duisburg. The land area is2000 square metersIt is located in the area of 47506 Neukirchen-Vluyn and is currently in the process of obtaining a permit for the design of a residential building. In the vicinity of the site, there are:

• golf courses;
• water bodies;
• private houses with affluent neighbors.

This creates attractive conditions for comfortable living. The commission fees amount to4.76% of the value of the propertyMore detailed information is provided upon request after receiving the LOI.

Investments in Kassel

In Kassel, there is also an interesting opportunity in the form of a rental property that could be a great investment. The building is located in Espenau, just a short distance away.15 minutes from the University of KasselThe area of the land plot is 311 square meters, while the living area of the house itself is about 365 square meters.

The inner courtyard creates a cozy atmosphere, and the building itself consists of three floors. The first floor includes:

• a two-room apartment with an area of about 59 square meters;
• one-bedroom apartment of 37 square meters
• a studio with an area of 22 square meters.

Apartment in Berlin

In addition, an apartment in Berlin with an area is up for sale.55 square meterslocated in a building constructed in 1971. In 2017, significant work was carried out here to update the facades and renovate the balconies.

The apartment is located on the third floor, and there is an elevator in the building. The living area of the apartment is approximately54.92 square metersand includes:

• a bedroom that overlooks the courtyard;
• a living room with access to the balcony;
• a hallway with useful storage space.

Thus, this offer may attract both investors and those looking for comfortable housing. The market offers a variety of interesting properties for purchase, which presents a great opportunity for those who want to invest their funds in real estate.

Real estate from Dem Group GmbH in Germany

At Dem Group GmbH, you can find a variety of attractive real estate options in Germany. Let's start with a small property located in Solingen, priced at 70,000 euros. The apartment has an area of 36 m² and is situated in the city of Mettmann. This residential property was built in 1972. Currently, the apartment is rented out, providing the owner with an annual income of 2,460 euros, or3.51%from the cost of the property. When purchasing, a commission will also need to be paid, amounting to3.57%from the purchase price. Additional information can be obtained upon request.

Apartment in Düsseldorf

The following property is located in Düsseldorf and is offered for125,000 eurosThe area of this one-bedroom apartment is 34 m², and it has been completely renovated.in 1995The apartment windows overlook the inner courtyard. By the way, the building is located just athree kilometersfrom the key streets of Düsseldorf and in close proximity to the main train station. The area has many shops and cafes, creating a comfortable living environment, and access to public transport is greatly simplified. The rent for the apartment is440 eurosIt is worth noting that there are also additional expenses.

Spacious three-room apartment

A spacious three-room apartment is for sale, located in the very center of Düsseldorf, at a price of350,000 eurosThe living area of this apartment is75 m²and includes three rooms, of which two bedrooms are square-shaped. In addition to these rooms, there is:

• Large living room
• Cozy kitchen
• Convenient hallway
• A balcony with a wonderful view of the city

The balcony overlooks the courtyard, and the apartment is located on the fifth floor with an elevator.

Apartment in Essen

Dem Group GmbH also has an apartment in Essen for90,000 eurosThe area of this housing is72 m²It consists of three rooms and is located on the second floor. The apartment is for rent, and its actual annual income is4092 eurosAt the same time, there are additional expenses that amount to259 eurosThe commission for the buyer is also3.57%from the final cost.

Two-room apartment in Duisburg

A two-room apartment is for sale in Duisburg.67 square metersfor69,000 eurosThis object is located on the third floor and was built inin 1938with subsequent major reconstruction inin 2012The residence is in good condition and equipped with central gas heating, located in a quiet area of Duisburg-Beck. Nearby, there are bus and tram stops, making it more convenient to get around the city.

New project in Emmerich am Rhein

It is also worth noting the new project in Emmerich am Rhein, which has a cost of383,000 eurosThis is a unique residential complex in an environmentally friendly area, located near the large lakes of Western Germany. Apartments are available for sale in two modern buildings with comfortable layouts. Despite the number of floors, the complex is equipped with modern elevators, adding to the convenience. Its proximity to the Netherlands makes this project particularly appealing to investors and buyers.

Apartments in Willihe

Finally, modern apartments are offered in a new residential complex in Williha at a price362,808 eurosoccupying an area73 m²In this building, there is only7 apartmentsThis creates an atmosphere of privacy and comfort for the residents. The purchasing conditions and other details can be obtained from the company's staff. Each of the listed properties represents a wonderful opportunity for both investment and comfortable living in Germany.

Introduction

So, having completed our review of investment opportunities in the construction sector in Germany, I would like to highlight a few key points that I believe will be useful for you if you decide to consider this market.

Advantages of investments

Investments in construction projects here can really offerhigh yield, reaching 20-25%. However, it is important to remember that such investments require a certain level of preparation and knowledge.

Features of the construction market

Unlike large megacities, where large-scale construction is prevalent, projects in Germany are implemented more locally and purposefully. This may seem like a disadvantage, but on the other hand, this model creates demand for unique offerings and helps avoid market saturation.

Investment risks

It is important to understand that investments in construction are associated withcertain risksThe main ones are:

• Delays in deadlines:Coordinating work with contractors can take a considerable amount of time.
• Increase in costs:Additional expenses can arise at any stage of construction.

Therefore, if you want to do this right, you shouldn't neglect the preliminary analysis of projects and collaboration with experienced partners who can take on some of the responsibilities.

Social projects as an alternative

Additionally, it should be noted that in Germany there is an opportunity to participate insocial projects...which are safer due to government support and pre-agreements with tenants. This also creates an opportunity for a lower entry threshold, making capital investments more accessible.

Conclusion

In all of this, it's important to remember that investing in construction is not just about numbers and figures. It's about caring for the future, creating conditions for people, and ensuring stable income. The German market offers solutions that can be not only financial investments but also social ones, creating real value.

In conclusion, feel free to ask any questions if you have an interest in this area. I would be happy to help you find optimal investment opportunities. Your financial decisions today can lay the foundation for your success tomorrow—especially if they are backed by deep knowledge and a sound approach.