Invest in Real Estate

Investors have many different investment options open to them for their finances, and investing in real estate is just one of them. As part of our series of instructions on Investing for Beginners, we will take a look at how to invest in real estate to build your wealth:

  1. Investing in real estate: Advantages
  2. How to invest in real estate
  3. Listed real estate securities (real estate shares)
  4. Conclusion: Consider real estate ETFs

So let's get started.

Investing in real estate: Advantages

Real estate is often referred to as concrete gold because it generally means security and value retention. Investors are always on the lookout for inflation protection, especially in times when central banks are pursuing an expansionary monetary policy. Low fluctuations in value and attractive income distributions, e.g. via rental income, also motivate many investors to invest in real estate.

Investing in real estate can offer a number of benefits:

  • Long-term yield.
  • Inflation protection
  • Diversification versus traditional asset classes such as cash, stocks and bonds.
  • Income and distributions from rental payments, whereby this income may be higher than for other asset classes.

Investing in real estate: Advantages
Source: VanEck.


How to invest in real estate

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  Definition Advantages Disadvantages
Real estate (concrete gold) Purchase of a house or flat as a home or to rent out
  • Co-determination
  • Tax advantages possible
  • Higher yields possible
  • Credit leverage possible
  • High expenditure (repairs, change of tenants, etc.)
  • High acquisition costs (broker, land transfer tax, notary, etc.)
  • Money tied up for the long term
  • Cluster risk
  • High capital investment required
Real estate shares/REITs Investment in shares of a company from the real estate sector
  • Money quickly available
  • Little effort
  • Low costs
  • Low capital investment possible
  • Little co-determination
  • No credit leverage possible
Real Estate Bonds Acquisition of a corporate bond directly related to a property
  • Money quickly available (if traded on stock exchange)
  • Little effort
  • Low costs
  • Debt security
  • Little co-determination
  • No credit leverage possible
Open end real estate funds Purchase of fund shares invested in various real estate projects can be sold at any time
  • Money available relatively quickly
  • Little effort
  • Wide spread possible
  • Partially low capital investment possible
  • Little co-determination
  • No credit leverage possible
  • Higher costs
Closed end real estate funds Purchase of fund shares that are invested in defined real estate projects and can only be sold under certain conditions
  • Little effort
  • Wide spread possible
  • Tax advantages possible
  • Little co-determination
  • No credit leverage possible
  • Higher costs
  • Money tied up for the long term
Crowdinvesting in real estate Association of many private investors to invest in individual real estate projects.
  • Little effort
  • Low costs
  • Low capital investment possible
  • No tax advantages
  • No credit leverage possible
Real Estate ETFs Purchase of a diversified portfolio of real estate shares, which in turn can invest directly in real estate.
  • Money quickly available
  • Little effort
  • Low costs
  • Transparent
  • Wide spread possible
  • Low capital investment possible
  • Little co-determination
  • No credit leverage possible

Invest in real estate funds

Investing in real estate is something many people associate with buying a property for investment purposes, such as a residential building or even a commercial rental property. But there are other options.

Although less well known, you can also invest in real estate through a mutual fund. There are many different varieties of real estate funds as well as real estate ETFs. With some of them, your investment may be tied up for a long time. For others, the minimum investment is very high.

Due to sharp price increases in the real estate market, it is almost impossible for most people to profit from this boom through direct investment. A real estate ETF offers the opportunity to invest in real estate even with small amounts and has a much higher degree of flexibility compared to a traditional real estate purchase. Real estate ETFs take advantage of easy access to the stock market to make investing in real estate easier, as opposed to the traditional purchase of a home or flat, which comes with much higher overhead costs. Purchase price negotiations, notarial certification, land register entry and even searching for tenants are not necessary.

To invest in real estate, passive real estate ETFs offer an attractive alternative to actively managed real estate funds. The reasons for this are that they charge higher fees, often tie up the invested capital for a long time, and may require an extremely high minimum investment. Compared to actively managed real estate funds, real estate ETFs are characterised by higher liquidity, flexibility and lower costs. You can also find out more about real estate on the external pages of the online broker 1822direkt.

Investing in listed real estate shares (REITs)

Listed real estate shares include companies that invest primarily in real estate and whose shares are traded on the stock exchange. These real estate shares are often referred to as Real Estate Investment Trusts or REITs. You will often read terms like REIT funds or REIT ETFs or REIT investments in various financial journals.

A REIT is a company that owns one or more income-producing properties. 

REITs are often exempt from paying taxes on operating profits to avoid double taxation for investors. When you buy a share in this type of company, you are effectively buying a share in a real estate portfolio.

How do REITs work?
Source: VanEck.

There are two types of REITs – listed REITs, also known as exchange-traded REITs, and unlisted REITs. Unlisted REITs are not listed on the stock exchange, but are one of the available investment options.


Advantages of listed real estate assets

Listed real estate shares offer a number of advantages to invest in real estate compared to their unlisted alternatives:

  • Liquidity: Due to the listing of the real estate shares, you can enter and exit at any time when the stock exchange is open and bid and asking prices are offered.
  • Low minimum investment volume: The minimum investment is very small and corresponds to the price of a share, which is usually in the range of a few dozen euros.
  • Investing in real estate brings diversification by country: Real estate shares as well as real estate ETFs usually invest in a specific region. Investing in different real estate shares allows you to diversify your investments across sectors and regions.
  • Diversification by sector: Aspect of Investing in real estate is diversification. There are several hundred listed real estate shares worldwide. For example, there are real estate companies that specialise in a particular sector:
    • Residential
    • Office buildings
    • Shopping centres
    • Logistics areas
    • Factories
    • And many more

Investing in real estate through listed real estate shares and real estate ETFs naturally brings risks, such as:

  • Market risk: Investments in real estate equities may be affected by developments in the capital markets, in particular with respect to interest rates.
  • Concentration risk: The underlying properties may be concentrated in certain regions, sectors or currencies. Consequently, real estate shares may be particularly vulnerable to local economic, market-related or political developments.
  • Currency risk: The value of an investment can be negatively affected by exchange rate fluctuations.

Conclusion: Consider real estate ETFs to invest in real estate

Investing in real estate can be so simple. For investors who do not want to take the time to search for the right real estate shares, there is an option to buy a real estate ETF (exchange traded fund) that invests in real estate shares.

This can provide investors with an easy entry point into real estate investing and diversify your assets and finances. Learn more on how you can invest in real estate with the VanEck real estate ETF:

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