Does real estate investment make sense?

Property ownership is in many cases a sensible investment. It is a smart move to spread one's own assets while lowering the risk and even raising the average return at the same time.

Real estate stocks, bonds and funds

Real estate stocks are exchange traded securities of companies whose business model is the management of housing, the ownership and rental of real estate and / or the trading of real estate. This is a big market, because Chinese investors are pushing into the German market and it causes the soaring prices.

These companies also issue bonds, which are called real estate bonds, if they have been issued to finance a real estate project; sometimes also as a real estate capital investment with 100% collateralization.

Real estate funds invest their investors’ money into multiple real estate stocks; and real estate ETFs creats various indexes of real estate stocks. 

Invest in real estate with crowd-investing

With crowdfunding everyone can invest directly in real estate. Crowdfunding offers crowd investors unique benefits and opportunities. However, it is important to note the special features and risks of this form of financing.

Why crowdfunding is interesting for project developers

When financing real estate projects, banks expect the project to have at least 20% equity. Crowd-investing offers project developers the opportunity to raise so-called mezzanine capital through the crowd with subordinated loans. This represents a hybrid of equity and debt capital. From the bank's point of view, subordinated crowdfunded capital is equity, which provides additional security for the bank. As a result, the bank's loan claim ranks ahead of the demands of the crowd investors.

Benefits for crowd investors

Return

For crowd investments in real estate, crowd investors expect a return of between 4-8%.

Transparent and direct financing model

In contrast to most real estate funds, the investor knows exactly which property his money is put into. As a result, crowd investors have the opportunity to follow the construction progress of the project directly.

Risk spreading

A big advantage of crowdfunding is that you can participate with relatively small investment sums. This allows crowd-funders to build a broad portfolio and thereby spread the risk.

Comparatively short terms

Compared to start-up investments, the capital of crowd-real estate loans is usually with shorter bind (often times between 1-3 years).

Lower costs

The cost of crowdfunding projects is much lower than most real estate funds. These cost advantages can be passed onto investors in the form of higher interest rates.

What crowd investors should pay attention to

Risk of total loss

Most crowd-investments are subordinated, which means that the demands of the crowd are subordinated to the demands of the bank. For real estate projects, there is a risk that the construction costs may be higher than planned or the property cannot be sold at the planned price. As a result, the subordinated loan of the crowd investors cannot be refunded.

No influence over the project

The crowd investors usually have no say.

Early termination is not possible

Investors should be aware that, apart from an unusual right of termination in the event of a performance disruption, the loans are generally unable to be cancelled over the term of the contract.

Our tips for real estate investments

Trust as basis

The basic feeling should be right for every investment. Crowd investors should look at the "track record" of the project developers (how many real estate projects have the developers successfully achieved?).

Don't blindly follow the crowd

One should not let oneself get carried away by the "intoxication of the herd", but consider whether the investment makes sense. 

To understand the "real estate case"

What important is your own conviction that the real estate project is properly set up; it needs to raise the planned costs for construction in order to profit from selling it.

• Team: are the project developers trustworthy? Do they possess the necessary experience and qualifications?
• Location: Does the property have the potential to achieve the planned purchase price?

To understand investment conditions

It is important to understand the conditions in which you invest. A risk-reward comparison helps the decision making, whether the investment conditions are perceived as fair or not.

• Risk- opportunity comparison: Is the promised return healthy when comparing to the risk?
• Are the investment costs associated with the investment? If so, are they fair and understandable?

Be prepared of total loss

Do not invest more than you can handle if you lose. Better build a broad portfolio with smaller investments to spread the risks.

Germany provides highly advanced social welfare. The state’s principle of welfare is guaranteed and unchangeable by the Constitution (Article 20 Paragraph 1, Article 28 Paragraph 1). Therefore, as a welfare state, it is an obligation for policies. The state should ensure the livelihoods of its citizens (social security) and balance out the socially weak and the socially strong (social justice). The social welfare is ensured with various methods, for example, the senior citizens are secured, other life risks, such as illness, need for care, unemployment, are also taken care of.

The main elements of the welfare state are statutory social security schemes. Statutory pension insurance (GRV) is the largest social security system in the Federal Republic.

Pension is socially balanced, because the statutory pension insurance offers the protection of a strong intergenerational solidarity. The life after retirement will be secured by the pension. Unlike private insurance, gender, age or health status do not play a role in the contribution to statutory pension insurance. Important phases of life, such as raising children, are also covered for the society as a whole. More importantly, statutory pension insurance provides not only social security in old age, but also during the employment phase, in the form of rehabilitation benefits or pensions due to reduced earning capacity. In addition, surviving dependants are supported by the pension in the event of the death of their spouse or their registered civil partnership or by the orphan's pension in the event of the death of the parents.

Pension is individual, because it is mainly calculated on the basis of the income insured in each case. Thus, the statutory pension is a reflection of the lifetime achievement. The supplementary provision can be designed individually at work or privately. With the state support this individual design of one's own pension provision is reinforced.

Pension is sustainable, for it is reliable and functioning for a long period of time. In the course of its development, the statutory pension insurance has already demonstrated its adaptability to changing economy, demography and social conditions. Pension also provides security for individuals, as pension rights and entitlements are under the constitutional property protection. The principle of the statutory pension is an integral part of the German understanding of society and is supported by all important social groups.

An overview of the German research and innovation system

The success of the German research and innovation system results from a multi-layered interaction of different framework conditions and influencing factors. The structure of the German R & I system is determined by the structure of the federal state, the size and orientation of German economy and its actors. With regard to social and global challenges, a diverse research and enterprise landscape is required, which is supported by various institutions and actors. State funding for research and innovation is based on several pillars. The legal framework is the Basic Law. The federal government, the states and the European Union also work together. The pact for research and innovation as well as the promotion of research buildings including large-scale facilities at German universities represent the high commitment of the Federal Government on this matter. A range of instruments provides required supports: project funding, institutional support and funding of research. Research and development are conducted in various public and private institutions. Expenditure on R & D is statistically recorded either at the funding institutions (financial analysis) or at the research organization (implementation review).

The federal and state governments as financing actors

The federal and state governments are major participants in funding research and development. The legal basis of state funding for science, research and teaching is the Basic Law as well as the constitutions of the individual Länder. Important framework conditions also arise from the federal budget regulations and the corresponding state regulations. Various funding instruments are available for targeted research funding: The medium- and long-term institutional funding jointly funded by the federal and state governments serves to secure the entire spectrum from basic research to application-oriented research, the research infrastructure and the strategic orientation of the German research as a whole. The federal and state project subsidies serve to promote temporary research, technology and innovation projects. Project funding primarily addresses the promotion of application-oriented research. The federal government and the federal states spend roughly one third of gross domestic expenditure on research and development.

Economy

The private sector finances about two thirds of the annual R & D expenditure in Germany. This appropriation will be used both for companies' own R & D activities and for joint R & D projects with partners from business and academia circles. The R & D in the economic sector is highly application-oriented. Its main goal is to achieve immediately usable results. By contrast, basic research in the private sector that is less important. R & D activities vary widely from region to region. They are mostly determined by large companies. Despite their lower share, small and medium-sized enterprises (SMEs) as well as start-up companies make a significant contribution to the innovative performance of the German economic sector, because they are often the source of pioneering innovation. A further structural feature of the private sector from High-tech industry in Germany is its high concentration of R & D capacities comparing with other countries in the world.

In Germany, parents are not allowed to teach their children at home. The state’s educational mandate requires compulsory schooling for all children. Normally, children will be enrolled at the age of six and receive nine-year compulsory education.

How the school system in Germany is established?

At the beginning, children attend primary school for four years. After that, the school system is further divided into secondary schools, grammar schools and comprehensive schools.

The lower secondary school ends at the 9th grade with the lower secondary school leaving certificate, whereas the Secondary school ends at the 10th grade with the Secondary school leaving certificate. After that, pupils can choose either vocational training or continuity of schooling. The grammar school ends at the 12th or 13th grade with the Abitur, which entitles you to study at a college or a university.

Does one have to pay school fees in Germany?

The public schools, which ensure high quality of education, are free of charge in Germany, since they are financed by taxes. Around nine percent of the pupils go to private schools, which require school fees.

What is the responsibility of schools?

In Germany, school is not organized by the Federal Government. The ministries of culture of the 16 Federal States are responsible for this matter. In each Federal State, the range of subjects, curricula, degrees and transition between school forms may vary from one another.