Why it often makes no sense for the return on equity to use a lot of equity when buying real estate

The acquisition of real estate is an attractive form of capital investment for many investors. One decisive factor that influences the long-term success of such an investment is the return on equity. Sven Schwarzat, Managing Director of Schwarzat Capital GmbH, explains why it can make more economic sense to keep the equity invested low in order to maximize the return.

What is the return on equity?

The return on equity describes the relationship between the profit from an investment and the equity invested. It is a key indicator of the efficiency of an investment. The higher the return on equity, the more profitable the capital invested. In the real estate sector, this key figure is often used to evaluate the success of an investment.

The leverage effect

A key argument for the use of debt capital is the so-called leverage effect. Sven Schwarzat emphasizes: "The targeted use of debt financing can significantly increase the return on equity. Low interest rates in particular offer the opportunity to raise capital at favorable conditions and thus leverage equity in the best possible way."

Schwarzat Capital GmbH has successfully implemented this in numerous projects. When financing, care is taken to cover a large proportion of the purchase price with loans. This leaves more equity available, which can be invested in further projects, enabling diversification and a higher overall return at the same time.

Disadvantages of high equity investment

Lower return: The more equity is used, the lower the return on equity. This is because the profit is not leveraged, but is allocated directly to the capital invested.

Tying up liquidity: Investing a lot of equity in a single project ties up capital that is not available for other investment opportunities. Schwarzat Capital GmbH advocates using capital "flexibly and strategically" in order to be able to realize several projects in parallel.

Risk of opportunity costs: Higher equity in a property means that this capital is not available for other lucrative investments. "The opportunity costs are often higher than the supposed security provided by equity," says Sven Schwarzat.

Practical examples from Schwarzat Capital GmbH

One example of the successful use of debt capital is an apartment building that Schwarzat Capital GmbH acquired in Leipzig. The purchase price was around 1 million euros, with more than 90 percent of the price being financed by a loan. Thanks to the low interest costs and the high occupancy rate, a return on equity of over 20 percent was achieved. If the purchase had been financed entirely with equity, the return would have been just under 5 percent.

Conclusion

The right balance between equity and debt capital is crucial to the success of a real estate investment. Sven Schwarzat and Schwarzat Capital GmbH recommend reducing the use of equity in a targeted manner in order to increase the return on equity and effectively diversify the portfolio. This requires a sound financing strategy, but pays off in the long term.

Investors who want to maximize their return on equity should therefore carefully examine the possibilities of debt capital and use it strategically. As the experience of Schwarzat Capital GmbH in Leipzig shows, a well thought-out leverage effect can be the key to a successful real estate portfolio.

About the author: Sven Schwarzat is Managing Director of Schwarzat Capital GmbH, based in Lützen. With this GmbH and also privately, he holds numerous properties in his portfolio, carries out construction projects and rents out his apartments. His focus is in and around Leipzig. His expertise and experience make him a reliable advisor for general questions on real estate and specifically on the Leipzig real estate market.

About Schwarzat Capital GmbH: Schwarzat Capital GmbH, based in Lützen, is a leading company in the field of real estate investment and development. The company specializes in the acquisition, refurbishment and letting of residential properties in Leipzig.

For further information, please contact (also responsible for this press release):

Schwarzat Capital GmbH
Mr. Sven Schwarzat
Ernst-Thälmann-Straße 18
06686 Lützen
Germany

phone ..: 034444909876
web ..: http://www.schwarzat-capital.de
email : info@schwarzat-capital.de

You may use this press release - even in modified or abridged form - free of charge on your website with a source link to our homepage.

Schwarzat Capital GmbH
Ernst-Thälmann-Straße 18
06686 Lützen
Germany

https://www.schwarzat-capital.de

Herr Sven Schwarzat
034444909876

info@schwarzat-capital.de

Schwarzat Capital GmbH, based in Lützen, is a growing real estate company specializing in the rental of residential space. The company is particularly active in the student housing sector and offers modern and affordable rental solutions in attractive locations.

This release was published on openPR.