"The higher the yield, the higher the risk." This rule of thumb should an investor always eye before he values melodious offers that often have a drawback. However, is this rule correct always and everywhere? Or are there investment chances with which the yield due to other reasons is higher? Let’s check it out.
Banks that want to park their money with the EZB pay a "parking fee" in form of negative interest rates, because the money should flow into the business circle instead of keeping it at the bank. The negative yield of this investment reflects at the same time the security, because the EZB cannot run bankrupt. Such as gold: As everybody knows, gold does not generate any yield, however, is accepted since millenniums as a currency worldwide, with it highly fungible. Besides, it shows an extremely high value density and mobility. The more people flee in gold, the higher the price. So the idea behind it. Risk and yield hang together apparently directly.
Low risk means law yield
Now let’s have a look at concrete gold. For investments in residential real estate in e.g. the very solid core location Munich, one receives a rent yield of about 2 to 3 percent. This exceeds just barely the official prize growth and inflation rate, but this is the price of the security and also for the high likely hood that the value does not fall in bad economic times or in deflation phases or – if it should decrease - at least clearly less strongly; and the demand for flats and apartments is still unsaturated.
80% higher yields with hotel real estate
Hotel real estate, a special form of concrete gold, promise about 5 % yield, so approx. 80 % more than the yield for residential real estate. So are hotels riskier than freehold flats? In principle certainly not. Certainly not at all, when one hands the management of the hotel to an experienced and well-known operator; or even better an international hotel chain with a long-term rental contract that guarantees the yield. The secret lies less in the yield than in the purchase price; since the lower the price, the higher the yield.
The price is not only determined by the risk!
However, the purchase price depends not only on the risk, but also on the market and the demand. With hotel real estate, the inquiry is strongly influenced by state-, but above all private unit trusts. They can only purchase in certain prize regions, because they must calculate their own costs for due diligence, administration and own profit.
Hotel real estate truly is concrete gold, which shines a little bit more than regular real estate. And that with a risk, which is lower in the long term than with other real estate.