Overseas property

Investment vehicles: how to get high yields in Europe

Investors often compare European real estate with other profit-generating vehicles like public bonds and bank deposits.

Public bonds are among the most popular capital maintenance vehicles for affluent investors. They yield 0.5–3% per annum, do not require servicing and are liquid, making them suitable for long-term investment.

Bonds compete with rental real estate. Such properties in Europe yield a comparable return of 3–6% p.a. and gain in value annually. For instance, the price per square metre in Berlin more than doubled between 2011 and 2016. However, real estate is less liquid and requires the investor to manage the property or hire a management company.

Bank deposits have low yields (up to 1.5%) and are only suitable for capital maintenance.

Value Added projects allow investors to maintain their funds, but also boost their capital holdings. The point of the strategy is to buy a land plot or property at a price below market rates, build real estate on it or repair their property and sell it at a higher price. Such investments yield 10–15 % per annum. Tranio’s Value Added projects in Germany are targeted at investors with budgets from €30,000 to €500,000. The expected yield is about 12% per annum after tax and expenses, and the project delivery time is from 6 to 18 months.

With a €400,000 investment, one can earn up to €6,000 with bank deposits, €12,000 with public bonds, €24,000 with a property rental business, and up to €60,000 with a Value Added project (Table 1).

Table 1: Expected returns with a €400,000 investment

Sources: Financial Times, TheBanks.eu, Tranio
Deposits Public bonds Rental property Value Added projects
Goal capital maintenance capital maintenance and accumulation
Yield per annum up to 1.5% 0.5–3% 3–6% (4–8% with a loan) 10–15%
Downside risks low medium high
Asset volatility high low
Management not required simple (a management company can be hired) complex (a management company is required)
Liquidity highest high low
Transaction costs none Up to 0.2% 5–15%
Transaction closure time instant several months
Maximum annual
return on investment for €400,000
own investments
€6,000 €12,000 €24,000 €60,000

Tranio recommends investors have diversified portfolios, with 70% of kept in a reliable and secure asset such as in high-quality overseas real estate or the top-tier issuer bonds, and keeping the remaining 30% in a mature highly profitable Value Added strategy. This ensures relatively low overall capital risks and a high yield.

George Kachmazov, managing partner at Tranio

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    Tranio’s managers offer advice on buying real estate overseas
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