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2.4 | The one where you’ll get more than you had hoped for
Trying to squeeze the small joys out of life in pandemic times with unexpected “you get more than you thought you would” moments. In real estate, could that be the bacon cities we mentioned?
Here’s a suggestion for “best feeling in the world” - being positively surprised. Don’t you agree? It’s still pandemic times so expectations are low and we are all taking what we can get I guess. An example? The pro-tip I have read a few times these days, somewhere on the internet: Stuff a small bill and, for good measure, some candy into your coat pockets when you last wear it at the end of winter. You’ll pack it away and definitely forget about it and by the next time grey and dreadful-season rolls around … voila: you will have officially positively surprised yourself, finding money and some sugar when you most need it.
You want bigger endorphins? Sure, this is a story I can’t stop thinking about lately: A man ventures to a Massachusetts flea market where he is enchanted by a small drawing of a lady with child. Worth the 30 bucks, he thinks, and buys it. By now you will have figured out where this story goes … Through serious trials and tribulations and with a very hefty portion of luck it was finally determined that the innocent flea market find was indeed an unknown work of Albrecht Dürer, fabled German artist and printmaker. And might be worth around 50 million USD. Talk about getting more than you had hoped for and being positively surprised. That sure buys you a looooot of candy.
Basically, what I am not so subtly trying to tell you is this: the very newsletter you are reading right now? It feels like a bonus edition, an extra that you hadn’t quite expected, at least to me. After all, we did basically tell you to just roll with it and look into b-cities for your real estate purchase last week. Done and dusted. Yet here we are, with a third bucket of German locales, weirdly called bacon cities in our preview on top of that. Let me explain: There’s primary and secondary locations, as discussed over the last two weeks. But there’s also the suburbs, basically rings of activity around urban centres, close enough to the action but not quite the city itself. Instead of just looking at a third cluster of small cities, focusing on size alone, this is what we’ll zone in on today: locations that are defined more by their proximity to something and their unique makeup than by their number of inhabitants. And in German, they are called Speckgürtel. Literal bacon or fat belts - which is a pretty graphic description of what they are and a fun word to know. Please note that humans, no matter their body shape, can never have a Speckgürtel, though. They can have a Fettschürze, an “apron of fat”, but let’s leave this rabbit hole of etymology for another time.
So Speckgürtel … a few things that are noteworthy about these “neither here nor there”-places of Germann-ness as it pertains to real estate:
To drive home what we mean, look at these cool images (I mean, apart from the “piece of art” that seems to be a real belt from speck it seems?!) You can really see the ring silhouette, telling us that the belt metaphor is pretty accurate. These aren’t individual places dotted around randomly - they really form a circle of desirable real estate locations around any given city
As you can imagine, initially these were places that (especially families) flocked to as the urban centres became too expensive to live in. The idea: cheaper rents outside of the city limits while still having the advantageous infrastructure of primary locations close by. It worked for a while, but with rising costs everywhere, the suburbs have increased in size and in price as well. More and more opportunities for working from home have not helped matters
From a city planning perspective, these locations are without much of an alternative really: In Germany alone, it’s estimated that there are about 1.5 million additional apartments required until 2025 (!) - and since densification within city limits is often limited in scope and met with fierce resistance, the only way to add that housing stock at scale is outside of the previous city limits, making the Speckgürtel broader and the initial city fatter in the process. Good news for those buying property in the ‘burbs
While the Speckgürtel naming might be Germany specific - there’s actually a (much cooler) sounding name for the phenomenon in the US. Not surprisingly, Brooklyn is seen as the origin of “Hipsturbia”, where millennials are moving as they become parents but aren’t ready to give up city life just yet. They’re looking for affordability as well as urban staples like dining, shopping, entertainment and jobs, all within a walkable distance. To every Manhattan there’s a Hoboken and a Santa Clara to each California
But with all the Speckgürtel goodness engulfing you, as always, things aren’t quite as easy as they seem initially: while real estate might indeed still be cheaper in these places than in the city itself and tenants don’t mind the drive in - don’t forget that commuting is a cost factor unto itself. It makes sense to think about studies like this one that calculate at what point theoretical savings from buying a cheaper place in the suburbs will be eaten up by additional costs incurred by transport. And if you are buying for yourself: train tickets aren’t the only thing you should be taking into account: even installing a proper home office, while reducing the costs for a commute, is a cost factor - up to the point that you might actually need to buy a bigger property
And because we always like to leave you with a tangible tool instead of just a bunch of theory: experts of WeltWirtschaftsInstituts, a think tank based in Hamburg, have put together an impressive color coded map of places that have a very favourable ration between purchasing price and attainable rent. Sure, it only leaves you with 16 out of 401 counties that are green (for a very positive prospect), illuminating our general dilemma, but worth having a look at nonetheless. Find the “Investitionschancen Index 2021” here
As always, we are left wondering what it all means … no positive surprises on that one, we knew the question was coming. Soooorry. A Speckgürtel location outside a top city like Frankfurt, a Hipsturbia called Langen (I really am not sure the word applies :)) let’s you (theoretically) drive into banking capital Frankfurt for 75 years before evening out the cost of buying a property there vs. in Frankfurt itself. Places like Pinneberg, Seevetal or Ahrensburg, scattered around the edges of Hamburg, have much cheaper real estate, yet infrastructure is great and commuting into Hamburg is fairly easy and doesn’t take too long. In Pinneberg you have the added advantage of living in the only county in Germany that has correctly predicted the outcome of every single national election as they have voted the winning party consistently on the county level since 1953 (which I guess means you will have clairvoyant neighbours?!).
Yet what we have said in previous posts rings true here as well (damn, still no surprises): there is no one size fits all general statement about all Speckgürtel locations (just like there is no generalised statement about secondary or even prime locations) - because you have outlier like Starnberg outside of Munich where the Alps are at your doorstep and a multitude of mountain lakes glisten at your feet and VIPS reside and prices are EVEN MORE expensive than in Munich yourself. Or, on the other end of the spectrum, places outside of Berlin that very quickly turn into sparsely populated rural areas in the former East of the country where infrastructure is lacking, rents declining and there really is no bacon to speak off. I mean, if it was easy we wouldn’t be writing this newsletter I guess?!
But, for a positive surprise at the end, let’s maybe leave it at that: it’s still true that most suburbs do have cheaper real estate and, more importantly, prices are also rising less crazily for those looking to buy (12% price increase year over year as opposed to 22% in the city, according to this piece in Handelsblatt for example). At the same time, it’s not only property buyers who are escaping the inner cities, it’s also those who rent. Only logical, seeing that prices are increasing for tenants as well. As such, an investment in Speckgürtel locations is still considered relatively safe. As always, you need to do your research, you need to know your stuff and you can’t just buy the first thing that crosses your path. If you follow these rules, though, your real estate purchase might just be the piece of candy you find in your coat pocket, though. With less of a sugar rush but a longer lasting high.
Next week, on Rente aus Stein: Your “it’s okay, we can do this together”-guide to real estate KPIs. How do you actually calculate which property will make you happy (aka: rich) in the longterm and what common mistakes do investors make? Make sure to subscribe to not miss this.
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Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advice. We are simply telling our story in the hope that it’s inspiring to you.
2.4 | The one where you’ll get more than you had hoped for
Such an entertaining style to transfer these informations. I love it.....!