After 13 years of intense turmoil in the economic environment (2008-2021) it makes sense for most private investors to be possessed by a sense of insecurity. On the one hand they have to deal with an environment of very low returns & negative interest rates and on the other the frequent fluctuations of the capital markets, which are things that push many to turn to real estate considering that they are the only "safe" investment option and hoping to achieve high returns with small risk. However, the traditional saying "no one has ever lost money from real estate" has also proved utopian as real estate may have potentially attractive returns, but often not only do they not but they also involve risks.

Many investors are not even aware of these risks because the real estate market is less transparent than other investment categories as real estate prices are not published daily in financial media as is the case with stock prices, bonds, Mutual Funds, ETFs etc. This allows many to feel richer than they really are.

Of course, having your own home fulfills a strong emotional need, which is perfectly reasonable. However, when one lives in one's own home it is important to realize that this is not free as there is a financial cost.

If someone lives in an apartment with a buying value of € 300,000, they give up the annual return that this capital could have (eg XSpot Wealth High Income Portfolio with an annual dividend yield of 6% -7% would return 18,000 € - 21.000 €) and would save the annual maintenance costs which would burden the owner. But if his house is much bigger than he needs to meet his housing needs, it means that he is redeeming his emotional satisfaction very expensive by losing income.

As for all other real estate investments, what is most important is their returns as in any form of investment. A house is considered a good or bad investment depending on the price one pays to acquire it. Its total return is calculated as the total rental income and the increase of its commercial value.

The indicators Real Estate Acquisition Value / Annual rents (& their adjustability), and Real Estate Acquisition Value / Annual income are very important criteria for investing in real estate. For example, an annual net return of 6% -8% of a property is considered an attractive return. The lower the return the less attractive the investment in the property becomes.
The lower possibility there is of readjusting the rents in a house, the less attractive it becomes.

Those who continue to buy overpriced properties often justify their decision based on the following reasoning: "The area is very good, so prices will go up forever." This, however, is not really the case and we witnessed it in the recent economic crisis. In times of sudden decline in the real estate market even real estate in good areas is affected for the simple reason that previous increases were excessive.

The fact that real estate prices fluctuate based on the business cycle proves that real estate investments also involve risks with the most important being the fluctuation of their commercial value, the stability of rent payments & the possibility of their readjustment. A tenant may not be able to pay the rent or the property may not be rented for a long time or may not be sold when the investor needs the capital. And in the case of real estate investments, the most effective way to manage the risks involved is to differentiate (disperse) into various investment categories (cash, bonds, shares, real estate) and maintain the initially selected distribution of the investor's portfolio with regular rebalancing.

In XSpot Wealth we regard that a diversified global portfolio based on the profile of our clients can contribute to achieving their financial goals.

This document does not constitute and shall not be construed as a prospectus, advertisement, public offering, or placement of, nor a recommendation to buy, sell, hold or solicit, any investment, security, other financial instrument or other product or service. This document is for general information only and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction.