FOCUS online: Mr. Hörhan, what does the real estate fan say? -Expert on the situation in Germany and Europe? Are you currently investing?
Gerald Hörhan: We live in paradisiacal times. Prices are low, interest rates are falling again and there is an enormous housing shortage. We can now increase the rents and the purchase prices will pay off more quickly.
They already have a lot of apartments, preferably smaller units. Are you currently watching or actively trading?
Hörhan: I have bought a lot, continue to buy and also deal in real estate. I am very active.
What would you advise the average person to do now – should they buy a property? You are a friend of the property as an investment property and not as an owner-occupier.
Hörhan: Owning a home is economic nonsense because you can’t write anything off from your taxes. If you renovate something, you have to do it with the back tax money. This is double nonsense. And the more individual the home is, the more greenfield it is and the larger it is, the lower the equivalent rent I would pay as a tenant of such a property. And on top of that, homes in the middle of nowhere are very difficult to sell.
When does owning your own home still make sense?
Hörhan: There is only one point where it can actually make sense: I’m buying an apartment in a very good location with an existing tenant and notice for my own use. Otherwise, owner-occupied property is stupid. The second option: a small apartment of 25 square meters in Frankfurt. It is much wiser to rent and buy property as an investment at the same time because it gives you financial freedom. Once the property is paid off, you can live on it. I have a tax advantage that is protected from inflation and a predictable cash flow. I am also much more flexible in my life planning.
So I have to make a decision whether I buy a property for myself or one where I live for rent and another that I buy and rent out.
Hörhan: No, that’s not true, because I usually say that the single-family home costs significantly more. If I buy a single-family home here in the Rhine-Main area, not a villa, just a single-family home. How much would that cost me? 700,000, 800,000 euros? But for that money I can get six or seven small apartments in Offenbach. Then I no longer have any risk of clusters.
One can also argue the other way around. If I rent somewhere, I have to pay the rent from taxed income and at the same time pay tax on the rental income.
Hörhan: Yes, but there are two arguments against it. One is that the return on condominiums is much higher than on traditional private homes – i.e. large apartments or single-family homes. This means that the rent that I actually have to pay is actually much lower. The rental yield for large apartments and single-family homes is 2 to 2.5 percent, and for small investor apartments it is 4.5 to 5 percent. You can see this, for example, in the Frankfurt or Stuttgart rent index. The second point is that I pay for the renovation, regardless of the form, from untaxed money if I have an investment property and from post-taxed money if I have a home. Those are the two big differences.
And the third is that, in addition to the cluster risk, I also carry an unsecured loan with me. You shouldn’t underestimate what that means either. It’s much harder for me to sell my own home, including a large apartment and single-family houses, than such small apartments. Even in the biggest crisis of 2023, they were sold. The price had to come down a bit, but there were interested parties.
When you say you also act: do you buy an apartment, renovate it and then resell it at a higher price or do you look for cheap properties and resell them directly?
Hörhan: The classic so-called wipe-and-away business will not work in the current market environment. You have to buy cheaply, renovate cheaply, then often offer a different rental concept and then you can do business with it.
Can you summarize in one or two points what you need to pay attention to when dealing with this yourself?
Hörhan: First you have to look at how you can sell it. In Austria and Germany it was like this in the boom phase: I’m buying an apartment, I have no idea, but some idiot will get up and pay more. Until no Jecker stood up anymore and many were bankrupt. That means I have to think about how to sell the property in good time.
And the second point?
Hörhan: In an emergency, I have to be able to keep it in stock. This means that the rent has to pay off the loan, and that works well in the current market phase. So I’m not going bankrupt because I can’t sell, but I still have a viable model. And if I stick to these two rules and understand the business – you have to know about renovations and locations – then you can do a good deal. These are now paradisiacal conditions, both for inventory development and for trade.
But do you still tend to buy smaller units or four-room apartments?
Hörhan: I also buy them if there are separate rooms in the apartments. The trend is obvious: people are getting poorer. What does that mean? You have to limit yourself. The house becomes an apartment, the apartment becomes a one-room apartment, the one-room apartment becomes a room that I rent out, i.e. a room in a shared apartment. And at the same time people are becoming lonelier. Some even want to live in a shared apartment. And even then there will be levels of improvement, such as mechanic rooms, where I then rent out a bed, no longer a room, then two or three beds per room.
But that has certain regulatory problems. Sometimes you have to be careful because there are also tax or building law issues that come into play. And then there is the temporary bed, which guest workers already have in many countries. There are still many levels of improvement, but also because we are now at a declining level of prosperity, and not just in Germany, but worldwide.
Does that worry you?
Or are you just trying to make the best of it?
Hörhan: I see the circumstances, but I can’t change them. We have a global political crisis that endangers prosperity, freedom and peace almost knowingly, or at least blindly. If we want to create prosperity, it will only be possible if people and states work together productively and if entrepreneurship and creativity are encouraged. And that doesn’t work through deglobalization, through disputes, through wasting resources on weapons, through bureaucracy and state capitalism, and not even if people no longer want to work. And if we create the incentive for people to stop working and promote this politically, it will become even more difficult. There are also idiocies like gendering and climate glue.
If I let technology companies suffocate in bureaucracy like in Germany, then I won’t create prosperity and what I mean by that is that we need cooperation between the states again, including between the state and business, and that we promote rationality again and that we need prosperity again, Describe freedom and peace as the highest values.
But: History was written on November 5th. Donald Trump became president with an unexpectedly clear majority with a Republican Congress, and the traffic lights in Germany are history. In any case, a different wind is blowing now. It will be seen whether this will improve the global political crisis, at least it would be hoped.
But that’s not a German problem.
Hörhan: No. Everyone is complaining about Germany, there is new bad news every day. I see this as a global problem; Europe is also on the decline. We should quickly think about what we can do to bring Europe and the EU forward again and get back to the top of the world.
And what can we do?
Hörhan: There are a whole range of topics. So number one, as I said, we need a government again and also a mentality among the population that goes forward and not backwards. And then you would have to start doing various things: drastically reduce bureaucracy, reform tax law, reform corporate law and make investments attractive for start-up entrepreneurs. And I believe that if you return to the essentials such as peace, freedom and prosperity and slow down the radical elements by saying again: We are doing something sensible, then things will go in the right direction again. I’m even optimistic.
Why?
Hörhan: In Germany it was always like this: Either we are world champions, including physically as in football, or everything goes completely wrong. Then we lose at football too. But the world goes up and down, just as the financial markets are changing.
Your conclusion?
Hörhan: Take the real estate. A few years ago everyone wanted them, even though they were far too expensive. Likewise, everyone wanted crypto, crypto, crypto. Then it’s time to be careful. And then when everyone says: “Help, the world is collapsing, like in 2022 with cryptocurrencies and 2023 or now with real estate – then it’s time to buy. And that’s why I’m actually much more optimistic than many others. I still remember buying Bitcoin at the end of 2022 at $18,000, now 2 years later Bitcoin is at $80,000. When it comes to real estate, we currently have an extremely attractive combination of a lack of housing, far too little construction activity, sharply rising rents and falling interest rates again. Chances are good that in two years we will be talking about how low prices were in 2023/24.
What are the main factors contributing to the recent changes in the real estate market?
– What are some of the reasons for the current shift in the real estate market, and what are the potential implications for both buyers and sellers?
– How can investors mitigate risks associated with changes in the market, such as the recent decrease in prices and interest rates?
– What factors should be considered when deciding between buying a single-family home or investing in multiple small apartments?
– What opportunities exist for those looking to invest in renovating and flipping properties, and what challenges might they face?
– Given the global political and economic climate, what kind of changes might be necessary for Europe to regain its footing and become more attractive for investors?
