Various Real Estate Investments
As we said, there are many different ways to invest in real estate, so you don’t always have to have large amounts of capital. The easiest form of investing in real estate is that a real estate investor buys a property and then lets it out to earn back the investment. However, this way of investing requires the necessary knowledge and a lot of equity.
We can, therefore, state that there are few private individuals who invest in commercial real estate in this way (offices and retail premises). Prices of this type of (business) property are often very high and in most cases are purchased jointly by real estate investors.
Individuals opt for smaller investments:
Many private individuals do choose to invest a substantial amount in smaller homes such as student rooms, single-family homes or senior apartments. In general, this type of housing is priced cheaply and there is a high demand for this type of housing, so quick returns from rental income are booked quickly.
On the one hand, this offers a bit of financial security and on the other hand, you always have a passive income that you can spend freely. The passive income is often used by a real estate investor to pay off any additional mortgage. People also opt for an investment in silver.
In some cases, private individuals even choose to purchase properties in a rested state. In this situation, the purchase price is often somewhat lower and you receive immediate income from the tenants. This type of situation is very interesting for real estate investors because the bank is considerably more flexible when it comes to financing.
It is therefore often the case that you have to make up a large part yourself if you do not yet withdraw any direct income from your property (s). However, always take into account the situation where the home value may fall in the coming years, this is in principle no problem if you have tenants who pay a fixed monthly rate.
Invest in real estate, inflation & tax:
You may be wondering about inflation & tax when you choose an investment in real estate. No worries, in addition to substantial returns, the property market is largely protected against inflation. As we said, property value can also fall over the years, if you achieve a return from rental income, you can easily correct this decrease, this has everything to do with the annual indexation in which this decrease in value is included.
If you are dealing with considerable inflation, then the rent will also go up and any losses will be compensated.
Pay attention, if you are not living in the building in which you have invested, the Tax Authorities will see this as an investment. In a nutshell, this means that you cannot simply deduct your mortgage costs for your investment from your income.
Your income from investments also falls in box 3 of the tax return, we can state that income from investments is largely tax-free. You will have to declare the net asset value of your investment to the tax authorities, on the other hand, you do not have to declare your exact income from rental income to the tax authorities.
Box 1 with active contribution:
As you have just read, income from investments in real estate is taxed in box 3 with the tax return. However, pay attention, if you actively contribute to your real estate income, the income will simply be taxed in box 1.
We talk about an active contribution when you as a landlord carry out a lot of maintenance or take on the recruitment of new tenants yourself. In this situation, you are an active asset manager and the tax authorities see this as your salary. Many real estate investors, therefore, choose to outsource this type of service.
If you want to resell your real estate investment, it will also end up in box 1, you will pay more tax than in box 3. Do you not want to pay tax on your investment? Then choose to buy gold!
Indirect investment in real estate funds:
Many Dutch private individuals know the problem, they want to invest in real estate but have to deal with limited assets. Not to worry, there are also plenty of opportunities for these private individuals to achieve substantial returns on real estate. You can always choose to invest in a so-called real estate fund.
This real estate fund will invest in real estate with multiple investments from different real estate investors, eventually, you will see a portion of the profit distributed. You can best see a real estate fund as a collective.
The biggest advantage of real estate funds is that you spread opportunities across different real estate projects. In addition, you do not have to have large numbers of equity and time, the real estate fund will take over everything from you and make a nice return at the end of the ride.
Real estate limited partnership:
Of course, there are also risks associated with real estate funds and you are not always guaranteed a nice return, so you may have to deal with a vacancy and falling prices in the area. It may be that it takes you longer to get a return, in the worst cases you will not see your investment in real estate again.
You also have other options besides choosing a real estate fund, so you can also choose a real estate limited partnership, also known as a CV. This means that together with another group of real estate investors you will invest in one or more real estate projects for a predetermined term. There is always a managing partner who takes on the task of buying and selling real estate, you don’t have to do this. You can also act as a silent partner who only makes assets available.
The liability of real estate projects entered into jointly depends strongly on the number of assets that you have invested, so you cannot lose more than you actually brought in. There is another advantage to this since you do not lose any income and corporation tax to the tax authorities, as it is seen as an investment.
However, be careful when you invest in a limited number of real estate projects, this can entail a lot of risks, in addition to that there are numerous providers who would like you to have a partnership in them.
It is therefore often difficult for the private lender to choose the right investors, it is therefore smart to compare all providers with each other since it is a lot of money.
Investing in real estate & crowdfunding:
Another way to invest in real estate that appeals too many individuals in the business real estate projects that are offered through crowdfunding. There are a number of parties that stand head and shoulder above the rest in the field of crowdfunding. You can easily consult which real estate projects are available on these platforms.
But how exactly does this work? If you opt for real estate investments through crowdfunding, as an investor you will have to choose for yourself which projects you would like to support. The risk of such an investment is often very small since it concerns substantial amounts that of course also determine your risk profile. The interest rates on various real estate campaigns are very interesting for many private individuals, also for private individuals with limited capital.
Is the real estate project completely in the soup? Don’t worry, in most cases, the investors have the right to sell the property, so in most cases, you will get your investment back.
You always have to deal with collateral which reduces the risk to a large extent, note that you can also lose money with this type of real estate investment. It is therefore smart to spread your risks and opportunities across multiple investment projects.