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German property
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04-10-2011 2:48pm#1
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tommylimerick wrote: »sorry if this has been on a hundred times before
i have got some money saved and was thinking
of buying some property in germany
has anyone on here done this before and what has your
experience been up till now
was thinking of borrownig 1 euro for every euro i had
and buying a small apartment block in a city
hopefully recently refurbished or fairly newly built
any feedback greatly appreciated
Hi tommylimerick,
I saw your posting and thought that this is a great opportunity to finally register at boards.ie
I have worked (and still do) as an advisor to overseas investors, who are interested in investing in Germany and have assisted clients with all aspects of property acquisition and administration in Germany. I run a website with information on the German property market, but don't think that I am allowed to provide the link to it here ... But please feel free to ask any specific questions in this forum and I will try my best to answer them.
I take it from your posting that you intend to finance 50% of the acquisition costs (purchase price + other costs). Where do you intend to do this? Irish banks will only lend money on Irish property (if at all); as an overseas investor you may find it quite difficult to find finance in Germany. It is not impossible for overseas investors, but extremely difficult. In my experience, German banks will provide 50-60% finance to foreign investors, once they are prepared to do so at all.
You mention, that you want to buy a "small apartment block in a city". How much do you intend to invest? And where? Here is an extract from a posting that I wrote on a different board in relation to "property bargains" that you can frequently find on offer in Ireland and the UK and which are located in the eastern part of Germany:
Anyone that considers investing in real estate in Germany should be aware of the importance of the various property markets in - broadly speaking - what used to constitute former East Germany and former West Germany.
With very few exceptions, such as the area surrounding Berlin in the state of Brandenburg (but not the rest of this state), the cities of Weimar and Rostock (far too expensive at this stage) and - to a certain extent - Leipzig and Dresden, most areas and cities in the former 'East German' states saw a still ongoing and very significant outward migration to the conurbations in the former 'West Germany' since the early 1990s, resulting in dramatic drops in population figures. Accordingly, there is a significant oversupply in residential real estate in most of the eastern, so-called 'new federal states'.
While the 'East German' market often appears to offer quite attractive yields with up to 10% or 12% (in my experience you - unless you are an adventurer and can afford it - might as well forget about anything above this - remember: if it sounds too good to be true it probably isn't!), one should be very cautious about this market. It is not without reason that a lot of German real estate investors say that they will under no circumstances go East with their money!
Some people will nevertheless consider this market interesting because it allows them to acquire quite significant properties at what appears to be very reasonable prices or, more generally, to acquire property that they would never be able to acquire elsewhere. It is a buyer's market! A client of mine, for example, bought a fully refurbished property with 10 apartments and a (sustainable) yield of just above 10% for EUR 300,000. Three years on, he recently extended his portfolio by two other properties.
But you want to know what you are doing!
To start off with, do your research. Do not rely on one estate agent or advisor. Go there, walk the place, get a feeling for the place. Do you like it? If you don't like what you see, go away and find somewhere else! Trust your instinct when it tells you 'No!'.
Be aware of the risk that you are taking - 10% yields come at a price! There are good reasons why institutional investors invest big time in western conurbations at starting yields of 4%. They rely on the excellent lettability, frequent rent increases and almost guaranteed capital appreciation that will be achieved over time. You will not find this in most places in the East.
Property prices in most locations in the eastern part of Germany do not look likely to increase in any significant way in the foreseeable future because of the general lack in demand by both tenants and investors. The same applies to rents.
Be aware that it may take a long time to fill a vacant apartment in a lot of East German locations. Will you be able to sustain your mortgage - or simply the ongoing costs (a vacant property costs money!) - for extended periods of time (6-12 months +)? Remember, if you do not keep up your payments, your property may be foreclosed!
Also remember: in the East, it is a tenant's market. So you want a property that is in near-perfect condition (avoid properties that still need work as this will eat up your yield!), a great location (avoid busy main roads!) and that has a very reasonable rent (as determined by the tenant!). Did I mention the balcony?
Investors are currently achieving rents of EUR 4.-- per square metre (as compared to twice to three times this amount in western conurbations), a pretty much standard rent for a standard, refurbished apartment (your typical '1-Person-Household' apartment) in a medium-sized city in the East of Germany.
If you have an apartment like this, with, say, 45 square metres, your monthly net rent will be in the region of EUR 180.-- (when someone quotes rents to you, make sure it is the net rent - Kaltmiete - and not the gross rent - Warmmiete -, which includes heating costs etc. and which will totally distort your calculations. Find out how much will be deducted from that to pay for property management, repair funds, if any, etc.). Deduct from the net rent the management fees, payments into the repair fund, property tax etc. and you're left with approx. net EUR 150.-- per month or a true net before tax of EUR 1800.-- per year (not considering any financing costs).
We recently received a quotation to the amount of EUR 1750.-- to replace four doors and door frames in an unrefurbished apartments, i.e. this would cost a full year's net rent. Then there are new floors, electrics, gas connections ... How many years does the apartment have to be let to make back the money of a full refurbishment/renovation? Get my drift?
Please don't get me wrong, I don't want to put anyone off investing in Germany or in the East of Germany in particular - there are certainly great opportunities everywhere and yes, it is a great market to invest in!
But I am of the opinion that it is important that people know what they are getting themselves into.
A good starting point to begin your research on the German real estate market in general is the "Deutsche Bank Research - German Residential Report" (Google it). This will give you some insight into the German residential real estate market as a whole. Read that report and take it from there ...
Just a few comments on some points that were raised in this thread:
Management - you will need a management company in Germany to look after your property. If you buy one or more apartments in an apartment block, there will already be a (professional) property management company. If you buy an apartment block, you will need a management company to handle tenant relations, maintenance etc. Calculate approx. 10% of your rental income for this (even though, there is usually a fixed fee per unit rather than a percentage).
Prime locations - your starting yield will be lower in the top cities, but you will have more security (also against inflation), capital appreciation and rising rents. There is quite a high demand for residential property in the top cities due to the low interest etc.
"Stay away from northern cities" - I would not agree with this. Hamburg is one of the top German real estate hotspots. Then there are Cologne, Düsseldorf, Frankfurt (Main) - all north of Stuttgart and all HOT
Rent increases are, of course, possible, but only within certain parameters and, of course, depending on location. You will not be able to raise rents now or in the foreseeable future in many locations in the eastern part of Germany. Rents in some (but not all!) parts of Berlin, on the other hand, have increased by up to 7% in the past twelve months.
Believe me, there are also bad German tenants ... :eek:
It is true, that German tenants have strong rights - but so have Irish tenants under the Residential Tenancies Act 2004. One thing I often hear and read is that it is almost impossible to get a tenant out. Why would you want to? As long as they pay their rent and don't wreck the place, why would you want to get rid of a tenant? If they don't pay their rent, they are in breach of the lease and you can evict them (which can indeed take up to a year and cost several thousand Euro, but this happens only in extreme cases).
German tenants - as do tenants in Ireland - have a right to the "quiet and peaceful enjoyment" of their rented apartment or house. This means that you or your property manager may only enter the rented apartment - after making an appointment with the tenant - if there is a specific reason for doing so (or in case of emergency). Lease agreements can often also include a provision, which will allow the landlord (or representative) to inspect the apartment once or twice a year.0 -
Hi KapC. I'm willing to buy a holiday property in Bavaria and use it couple of times a year(3 month in summer and couple of weeks in winter).Can you please give me an idea how much a year will cost me such investment(i.e.maintenance fee, property tax, min electricity charges(if I do not us it), local charges(bin etc.) etc.) Can the maintenance fees be reduced as I will not use water and heating most of the year? Many thanks in advanceHi tommylimerick,
I saw your posting and thought that this is a great opportunity to finally register at boards.ie I have worked (and still do) as an advisor to overseas investors, who are interested in investing in Germany and have assisted clients with all aspects of property acquisition and administration in Germany. I run a website with information on the German property market, but don't think that I am allowed to provide the link to it here ... But please feel free to ask any specific questions in this forum and I will try my best to answer them.
I take it from your posting that you intend to finance 50% of the acquisition costs (purchase price + other costs). Where do you intend to do this? Irish banks will only lend money on Irish property (if at all); as an overseas investor you may find it quite difficult to find finance in Germany. It is not impossible for overseas investors, but extremely difficult. In my experience, German banks will provide 50-60% finance to foreign investors, once they are prepared to do so at all.
You mention, that you want to buy a "small apartment block in a city". How much do you intend to invest? And where? Here is an extract from a posting that I wrote on a different board in relation to "property bargains" that you can frequently find on offer in Ireland and the UK and which are located in the eastern part of Germany:
Anyone that considers investing in real estate in Germany should be aware of the importance of the various property markets in - broadly speaking - what used to constitute former East Germany and former West Germany.
With very few exceptions, such as the area surrounding Berlin in the state of Brandenburg (but not the rest of this state), the cities of Weimar and Rostock (far too expensive at this stage) and - to a certain extent - Leipzig and Dresden, most areas and cities in the former 'East German' states saw a still ongoing and very significant outward migration to the conurbations in the former 'West Germany' since the early 1990s, resulting in dramatic drops in population figures. Accordingly, there is a significant oversupply in residential real estate in most of the eastern, so-called 'new federal states'.
While the 'East German' market often appears to offer quite attractive yields with up to 10% or 12% (in my experience you - unless you are an adventurer and can afford it - might as well forget about anything above this - remember: if it sounds too good to be true it probably isn't!), one should be very cautious about this market. It is not without reason that a lot of German real estate investors say that they will under no circumstances go East with their money!
Some people will nevertheless consider this market interesting because it allows them to acquire quite significant properties at what appears to be very reasonable prices or, more generally, to acquire property that they would never be able to acquire elsewhere. It is a buyer's market! A client of mine, for example, bought a fully refurbished property with 10 apartments and a (sustainable) yield of just above 10% for EUR 300,000. Three years on, he recently extended his portfolio by two other properties.
But you want to know what you are doing!
To start off with, do your research. Do not rely on one estate agent or advisor. Go there, walk the place, get a feeling for the place. Do you like it? If you don't like what you see, go away and find somewhere else! Trust your instinct when it tells you 'No!'.
Be aware of the risk that you are taking - 10% yields come at a price! There are good reasons why institutional investors invest big time in western conurbations at starting yields of 4%. They rely on the excellent lettability, frequent rent increases and almost guaranteed capital appreciation that will be achieved over time. You will not find this in most places in the East.
Property prices in most locations in the eastern part of Germany do not look likely to increase in any significant way in the foreseeable future because of the general lack in demand by both tenants and investors. The same applies to rents.
Be aware that it may take a long time to fill a vacant apartment in a lot of East German locations. Will you be able to sustain your mortgage - or simply the ongoing costs (a vacant property costs money!) - for extended periods of time (6-12 months +)? Remember, if you do not keep up your payments, your property may be foreclosed!
Also remember: in the East, it is a tenant's market. So you want a property that is in near-perfect condition (avoid properties that still need work as this will eat up your yield!), a great location (avoid busy main roads!) and that has a very reasonable rent (as determined by the tenant!). Did I mention the balcony?
Investors are currently achieving rents of EUR 4.-- per square metre (as compared to twice to three times this amount in western conurbations), a pretty much standard rent for a standard, refurbished apartment (your typical '1-Person-Household' apartment) in a medium-sized city in the East of Germany.
If you have an apartment like this, with, say, 45 square metres, your monthly net rent will be in the region of EUR 180.-- (when someone quotes rents to you, make sure it is the net rent - Kaltmiete - and not the gross rent - Warmmiete -, which includes heating costs etc. and which will totally distort your calculations. Find out how much will be deducted from that to pay for property management, repair funds, if any, etc.). Deduct from the net rent the management fees, payments into the repair fund, property tax etc. and you're left with approx. net EUR 150.-- per month or a true net before tax of EUR 1800.-- per year (not considering any financing costs).
We recently received a quotation to the amount of EUR 1750.-- to replace four doors and door frames in an unrefurbished apartments, i.e. this would cost a full year's net rent. Then there are new floors, electrics, gas connections ... How many years does the apartment have to be let to make back the money of a full refurbishment/renovation? Get my drift?
Please don't get me wrong, I don't want to put anyone off investing in Germany or in the East of Germany in particular - there are certainly great opportunities everywhere and yes, it is a great market to invest in!
But I am of the opinion that it is important that people know what they are getting themselves into.
A good starting point to begin your research on the German real estate market in general is the "Deutsche Bank Research - German Residential Report" (Google it). This will give you some insight into the German residential real estate market as a whole. Read that report and take it from there ...
Just a few comments on some points that were raised in this thread:
Management - you will need a management company in Germany to look after your property. If you buy one or more apartments in an apartment block, there will already be a (professional) property management company. If you buy an apartment block, you will need a management company to handle tenant relations, maintenance etc. Calculate approx. 10% of your rental income for this (even though, there is usually a fixed fee per unit rather than a percentage).
Prime locations - your starting yield will be lower in the top cities, but you will have more security (also against inflation), capital appreciation and rising rents. There is quite a high demand for residential property in the top cities due to the low interest etc.
"Stay away from northern cities" - I would not agree with this. Hamburg is one of the top German real estate hotspots. Then there are Cologne, Düsseldorf, Frankfurt (Main) - all north of Stuttgart and all HOT
Rent increases are, of course, possible, but only within certain parameters and, of course, depending on location. You will not be able to raise rents now or in the foreseeable future in many locations in the eastern part of Germany. Rents in some (but not all!) parts of Berlin, on the other hand, have increased by up to 7% in the past twelve months.
Believe me, there are also bad German tenants ... :eek:
It is true, that German tenants have strong rights - but so have Irish tenants under the Residential Tenancies Act 2004. One thing I often hear and read is that it is almost impossible to get a tenant out. Why would you want to? As long as they pay their rent and don't wreck the place, why would you want to get rid of a tenant? If they don't pay their rent, they are in breach of the lease and you can evict them (which can indeed take up to a year and cost several thousand Euro, but this happens only in extreme cases).
German tenants - as do tenants in Ireland - have a right to the "quiet and peaceful enjoyment" of their rented apartment or house. This means that you or your property manager may only enter the rented apartment - after making an appointment with the tenant - if there is a specific reason for doing so (or in case of emergency). Lease agreements can often also include a provision, which will allow the landlord (or representative) to inspect the apartment once or twice a year.0 -
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