The one in which I am revisiting high school

I hope you can maybe tell that English was a favourite subject in high school - but these day, on our real estate adventures, I wish I had paid more attention in geography class

Feb 3, 2022

Hello my little water tigers, can you believe it’s February already? If the year continues at this crazy pace I might as well type up our December newsletter, close the laptop, call it a day and never throw out the last bit of Christmas decorations still lingering around in my apartment. Nothing like a dried up fir tree with a few sad needles left and tinsel to patch up the holes, riiiiight? Isn’t it a sign of advancing age that you feel like time moves faster and faster each year (and it doesn’t help that Moritz the other day randomly sent me this). If that’s true, I might be close to 60 already - next thing you know I’ll be talking about the weather in great detail and how my (imaginary) grandkids are doing. For today’s edition, that might not actually be a bad thing, though, because I kinda need you to imagine me twenty years older, with an unruly, reddish full beard and thick glasses. That’s right, I am channeling my high school geography teacher (who was a dude by the way). While I have always enjoyed literature, languages and my super intense philosophy class, geography (or Erdkunde as it is called in German) never really made me brim with excitement. Sure, I like looking at a globe as much as the next girl and there’s some hidden pockets of knowledge buried somewhere deep that make me remember more than I need to know about glaciers ... but beyond that it feels like year’s worth of learning simply went “pooooffff” and are gone. We all know what that means, right? Buckle up. We are going to go back to class together!

Why the sudden excitement for maps and morays you wonder? Well, like many things you learn in school, real life applications of many a subject stay a mystery until much later in life when you suddenly realize why what you were supposed to learn makes a whole lot of sense in a very practical way. Basic math makes a reappearance in your everyday shopping, languages come in handy when ordering drinks on vacation and, well, certain aspects of geography pop back up as we think about where to invest money in real estate this year. Remember how we said in Jan that you better have a strategy? Yep, we are taking our own medicine and have been debating next steps intensively. We’ll take you on that wild ride for sure and geography just happens to be the first stop. Yep, this is all part of formulating that very real estate strategy for us - and laying it out for you to see.

With prices for real estate soaring in big cities, we know it’s time to look beyond our plate’s rim (which I know is a German idiom only - but I guess you get the gist) and get creative about our investment strategy. Sure, Hamburg and Berlin are literal real estate comfort zones to us and we are continuing to look for deals here - but more likely than not we won’t be able to afford the kind of property we are after (multi-family home in a less posh suburb, with no major structural issues) … meaning our money will have to be spent elsewhere. But what if hanging up a map and throwing darts isn’t the best way to determine where to go and spend a small fortune? Exactly. Investment pros instead look to the ABBA strategy. And before you start humming “Gimme, gimme, gimme” in your head … there is no relation to the Swedish pop phenomenon, sorry. What’s meant is actually simple: In A cities, invest in B locations - whereas in B cities, only A locations will get you the optimal risk / reward relation. Good tip and easy to remember.

With Abba in mind, we have spent quite a bit of time trying to figure out how to strategically think about Germany and all its peculiarities and how one could cluster this vastness of 357,022 square kilometers of land. What really constitutes A and B cities? Do you go by size and number of inhabitants alone? Or should other factors like economical statistics and/or number of interesting employers in the vicinity play an outsized role? This is the kind of intellectual gymnastics we are undertaking currently and let me tell you, it’s equal parts fascinating and really frustrating, all at the same time.

Germany, per Wikipedia, “a great power with a strong economy; it has the largest economy in Europe, the world's fourth-largest economy by nominal GDP, and the fifth-largest by PPP.” I seriously didn’t know the “fourth largest economy globally” bit, who said that you couldn't learn a thing or two by wildly googling around? Also, I keep harping on about the fact that Germany is different to, let’s say the UK or France who each have their one metropolitan hub - when Germany is geographically really varied (from the flat coast in the North to the Alps in the South) and has several economical and cultural centers.

Looking through my thick glasses and forlornly stroking my reddish beard I can almost see you rolling your eyes as you sit in front of your computer and read this (you know, years of experience as a geography teacher have given me this sixth sense for my classroom audience). You think we are completely overthinking this, aren’t you? To be honest, I am with you. Almost. Of course, this is a lot of work and, more importantly, a very theoretical approach to things. Do you really need to spend this much time researching the geography of your home country, a place you should be surface level familiar with? Well, whenever I ask myself that question I am reminded that a) we are about to make a huge investment, one that will literally determine my financial status for decades to come. And b) just because we got lucky the first time around with a less scholarly approach, that doesn’t mean it’s going to work a second time. If anything, it increases the odds that, the second time around, we really need to know what we are doing to not screw up and diminish our so far good batting average.

What can I tell you, I think we have figured it out. We have clustered potential investment locations within Germany in three subcategories. Yes, of course size plays a role, but it can’t be the determining factor alone, simply because infrastructure, employers in the vicinity and demographic trends all have to factor in. We call it: Großstädte, Mittelstädte und Speckstädte - which roughly translates to big, medium and bacon cities. You have read that right. What do we mean by that and which cities fall in which category? Well the rough outline goes something like this: of course, real estate in one of the major cities is very often a great investment - super fast moving markets, stable demand and rising rents take a lot of risk out of your investment. However, it’s very rare that you can generate cash flow immediately, simply because the purchasing prices are too high and rents won’t cover your costs. That’s where the medium-sized cities come in that very often allow for purchases that can generate you cash flow much faster. You do need to do your homework, though - as viability depends on many factors that you need to take into account. Same with our third and bonus cluster by the way. You might just have to stay tuned til next week to find out what we mean in detail. We’ll dive deeper into each of these categories in the next three editions. I know, so convenient that we said we’ll do four posts in a series and there’s exactly three categories to look at, right? Teachers have always been more cunning than we have given them credit for.

One last thing, though, before the bell rings (I am going to stop with school allegories now, I promise). We said we would give you more details on how we are going to structure our subscription going forward and how we’ll make sure that you, who have supported this newsletter from the very early days, will be able to get a discount as a big, fat Thank You. Starting with our March editions, only the first of four posts on a topic will be free. Think of that as a teaser if you will, outlining what’s ahead and giving you an idea of what to think about as you are purchasing real estate. I’d like to think that there will absolutely still be a benefit to reading those but you might have to do more of the work yourself. If you want to receive the deep dives as well you’ll need a paid subscription at 7 Euro a month (or 70 Euro per year). This is where you would expect me to say “so every newsletter is just the price of a cup of coffee” - but the reality is that I don’t know what a cup of coffee costs where you are and that I sincerely hope it’s actually less than the rip off you get across the street from me. In either case, we are hoping that less than 3 Euro a week is a fair price for something that hopefully changes your financial situation for the better in the long run. As for the Thank you - you guessed it, the code is THANKYOU and it will give you 30% off the subscription if you purchase it between now and the end of March - meaning you’ll pay less than 5 Euro a month (or less than 50 Euro if you want to support us for a full year and get an even better deal). Also, thank you.

With that, I leave you. Am I the only one still having Gimme, gimme, gimme stuck in my head?

Next week, on Rente aus Stein: The real life geography teacher might be retired, but my imaginary alter ego is just getting started! A closer look at how to think about investing into big cities and how they’ve been faring, real estate wise. Make sure to subscribe to not miss this.

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.