Buying multiple units building up to 20 units.

[shyguy]

Hi there,
I need your help please. I just came back from Germany Wiesbaden and I am interested in investing there. I need your help on the following questions:
1- if I have 20% of the actual budding cost or value, can Germany banks allows me to borrow finance from them?
2- I know interest rate is around 3%, is this fixed or variable and for how long?
3- how is the law with tenant? And if tenant is paying a low rent rate, what is the way to get the tenant paying up to date rent rate?
4- how much is going to cost a a building between 25-30 units and I do understand some units comes single room, some with two rooms, and three rooms and etc.

Any help please

 

[kap-C]

1) I am not familiar with your personal situation, but I think you may find it difficult to obtain 80% finance in Germany as an overseas investor. In my experience, German banks will only provide up to c. 60% of the purchase price as finance, if they do so at all. This depends, of course, on the individual person and the circumstances.

If you are interested in buying individual units, why not buy what you can afford, run the apartments for a while and then go back to your German bank (where you have your bank account in which the rents are paid into) to talk about finance. They may look at you more favourable then as you have a "track record" with them.

2) Typically, finance conditions for real estate will be fixed for a term of 10 years. After the expiry of the term, the conditions will be renegotiated. Bear in mind, that if you want to repay the loan before the expiry of the 10 year term (for example, because you sold the property) you may have to pay a penalty, which can be quite significant.

3) Tenants enjoy great protection in Germany. I don't think there is anything wrong with that - as long as they pay their rent and look after the property everything is good, if they don't, they are in breach of their lease terms and you are entitled to terminate the lease.

If a rent is significantly lower than the average market rent for a comparable property ("ortsübliche Vergleichsmiete"),you can increase the rent up to the comparable rent. These rent rates are determined in rent tables ("Mietspiegel"),which are frequently published by the local authorities. However, you will not be able to increase the rent by more than 20% within a three year period. A good property management company will handle this for you.

If the rent is very low in a West-German city, it may be that the property consists of former social/publicly funded housing, which means that the rents may be fixed, i.e. you will not be able to increase rents for a number of years to come. You want to check that.

4) It is not possible to give a price for a property without knowing the full details of same. Property prices are often calculated on basis of the size of the property in square metres. This square metre price depends on in which city your property is located in, what location within the city, how old the property is, what condition it is in etc. You can determine the square metre price and then compare it with other, similar properties, that are for sale in the area.

I hope this helps!

 

[shyguy]

Dear Kap-C
Thanks for the reply and sharing your advices and much appreciate it.
Yes indeed these info are helpful. What is your thought on foreigners rights to invest in Germany within properties lets say in Wiesbaden city.
For example, I am Australian citizen and if I invest in Germany, when I travel in and out of Germany, do I have to leave Germany every three months or would I be able to get a longer term visa?

 

[kap-C]

There is generally no restriction on overseas investors acquiring property in Germany. As regards visa regulations / residence permits for owners of property in Germany, I am not sure about the exact situation. I would recommend that you contact the German embassy in your country to find out.

 

[shyguy]

Thanks for the info
I got a tax question, and I've contacted number of charted accountant from Frankfurt which is been recommended to me from a friendly staff from German embassy in Sydney, but these charted account seem unable to respond to my email with the below question. All they say is when to make an appointment when I am in Germany

I need to find out some information prior to the purchase, if you can provide me with the following information:

The building selling price is let's say €900,000.00
€200,000 is cash deposit
€700,000 finance from Naspa bank
The building is in Wiesbaden and all units are rented out, total monthly income rent is €15,000 per month

can you please let me know what items or expenses I can claim on monthly bases such as monthly bank repayment, interest, management cost, house master, electricity, water, insurance cost and,,,,,,

If I give you an example:
Rental Monthly Income: €15,000.00

Insurance monthly cost: € 700.00
Rental Management Cost: €600.00
House Master Monthly cost: €400.00
Water & electricity cost: €500.00
Bank Monthly Repayment: €6,760 (loan finance €700,000.00 at 3% interest rate for 10 years fixed)
Monthly Interest occurred: €1,750.00

The €15,000 income is taxed before the above expenses or you minus expenses from income and pay tax from remainder???

from the above how much is going to be tax payable to Germany taxation department?

Do you advise I put the company on my private name or my company name?
What are other items I can claim for so I can pay less tax?
Can I pay myself wages so I can pay less tax?
I will be leaving in Australia while my building will be operated and producing rental income is there any tax benefits?
When I buy the building, there an extra 10% cost of the actual building value, can I claim for those cost?

 

[kap-C]

Generally (and everything I say should be verified in respect of the specific property!) all ancillary or operating costs are paid by the tenants. As a landlord you are **generally** only liable to pay the property management company and make payments in a repair fund if the there are several owners. You may also have to pay property tax, but this is often also paid by the tenants. You will, of course, have to repay any bank loans. But the interest on these loans can be applied as an expense in your tax return. Therefore, electricity, water, heating, insurance, caretaker, waste removal etc. are **generally** all paid by your tenants.

The rent German tenants pay **generally** consiststs of the net rent (Kaltmiete) plus ancillary/operating costs (Nebenkosten). The two together constitute the gross rent (Warmmiete). When looking at properties, make sure that you are quoted the Kaltmiete, as this is the only factor that will let you objectively assess the return of the property. So, if the rent, that you are quoted includes all the above, you (i) wonder why this is the case and (ii) request full accounts for the properties in order to see what is left at the end of the year (which you should do anyway).

I hope this makes things a bit clearer.

It may under certain circumstances be advisable to form a company ("GmbH") in Germany. That company can pay you wages or not. In your home country you are then probably only liable to be taxed on the money you draw out of the company (but please verify that in your home country). If you decide to follow this route, you should definitely come to Germany first and sit down with accountants to discuss which option is best for you. You're talking about a 900,000 Euro investment after all ...

One last word of caution - I just looked at your figures (and they may just be examples, as you say, but please consider the following): if you buy the property for 900,000 Euro and have a monthly rental income of 15,000 Euro, that would give you a yield of 20%. I would be very, very careful about this! Rents in the Western German conurbations (Wiesbaden would be part of the Greater Frankfurt Region) currently yield 5%-6% (and less for new buildings). I am currently looking at a property in Frankfurt on behalf of a client, that yields 8.3% and I am not sure about it. But with anything going above these kind of returns I would very seriously ask myself what is wrong with the property ... Remember, if it sounds to good to be true ...

 

[shyguy]

Dear Kap-C
I really appreciate your feedback and advises.
You mentioned about a client of yours in Frankfurt.
Do you operate a business from there? I mean are you an accountant ? If so please let me know your contact number or email address and I'll contact you.
So you are saying a building cost 900,000 and it's monthly rental return 15,000 euro is very low?
Looking forward to hear back from you

 

[kap-C]

No I am not an accountant and I do not operate from Frankfurt ;-) Unfortunately, the forum rules do not allow users to advertise professional services or products ...

A monthly rental return of EUR 15,000 gives you an annual return of EUR 180,000. In consideration of an investment of EUR 900,000, this is extremely high (20%). I just find such a high return a bit unusual ...

 

[shyguy]

Ok ic
What is usual return on an average unit renting?
Do you recommend of investing in two or three units and buying them with cash and this would make 20% of the actual deposit to the bank when investing in a 900,000 euros.
Then the three units paid in cash can be utilized as a security worth 20% and so you can get the full 100% finance from bank?

 

[kap-C]

Ok ic
What is usual return on an average unit renting?
Do you recommend of investing in two or three units and buying them with cash and this would make 20% of the actual deposit to the bank when investing in a 900,000 euros.
Then the three units paid in cash can be utilized as a security worth 20% and so you can get the full 100% finance from bank?

As mentioned in one of the previous posts, the return for residential properties in Western conurbations (and Wiesbaden would be in one of them) are at the moment generally around 5% - 6%, with some properties achieving slightly more and others slightly less.

As regards your questions whether to buy just three units to provide them as collateral, it is probably best to speak with the bank, that will be financing the deal, to find out what they would prefer ...