FAQ on German properties

Will I be able to source local finance for my German property?

Yes. We have built up strong relationships with local German banks. Before approaching these for a mortgage you must have already found the property you wish to purchase. When determining the loan-to-value (LTV) figure, they will take into account factors such as amount of capital, property income, location, condition of the building, mortgage volume, whether you are seeking recourse or non-recourse financing, and your relationship with the bank.

How much capital will I need to get local finance?

The loan-to-value figure varies typically between 40% and 50% of the purchase price. Transaction costs have to be paid with equity capital and cannot be financed. It is important that you have equity available for the balance.

What is the role of the German Property Trust?

We specialise in helping clients invest in the German property market. We source and check out the properties, we organise viewings, we can advise on sourcing contacts for arranging local finance, legal procedures, property management services and other useful local contacts.

How are property viewings carried out? Can I see inside the properties?

Unfortunately, viewings are a somewhat sensitive issue in Germany: The tenant has a right to decline such a request and the vendor might not even want his tenants to know that the property is for sale. The following procedure has proved in the past to be the most pragmatic solution:

  1. Property selection: At this stage you are offered a number of properties that fit your investment profile. While we provide background information and rent lists for these properties, you are then free to visit those properties for external viewings.
  2. Viewing of the common parts: When a property has been chosen for purchase, we accompany you on an inspection of the common parts (including stairwells, basement, and attic).

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What rental yields can I expect from a German property?

The rental yields are dependent on property type/condition and area. Blocks of flats in less prosperous areas yield as high as 6-10%. More affluent areas can yield from 5-7%. On individual apartments the yields can fall to around 4-8% dependent on the location and condition of the property. At the German Property Trust we focus on refurbishment properties in Germany’s newer states, as we believe this is the most attractive real estate market in Europe, given its high yields, low financing costs and high affordability.

What are the fees for purchasing a property in Germany?

In Germany all the fees are paid by the purchaser. The transaction costs are: Stamp duty (4.5% of purchase price)

Notary and registration fees (1.5% of purchase price)

  • Agent fee (approx. 6% of purchase price excl. VAT). Additional costs can be incurred for any additional due diligence necessary.
  • Lenders charge an up-front fee of 0.25% to 0.75% of the mortgage amount. This usually includes the cost for the bank’s valuation (cost: EUR 1,000 to EUR 3,000). Some banks charge for the valuation separately.

What are the fees for owning a property in Germany?

During the holding period the services of a property manager are required. Their charges are approx. EUR 24-40 per unit per month (excl. VAT).

What running costs will I need to take into consideration?

The landlord has four types of running costs: maintenance, property management, interest payments (if you have a mortgage) and consultation fees (legal, accounting, tax). Everything else is paid by the tenants as part of the service charge.

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What do the tenants’ service charges cover?

The service charge includes building insurance, ground tax, cleaning of the common parts, gardening, housekeeping, electricity for the common parts, regular inspection of the heating system, water, chimney sweeping, cable TV, snow and waste removal.

What are the fees for selling a German property?

There are no fees for selling a property in Germany; all fees are paid by the purchaser.

How does the purchasing process work?

Once you’ve identified your chosen property, we’ll ask you to send us a non-binding letter of intent and proof of equity. After the offer has been accepted, we start with the due diligence and set a date for signature of the purchasing contract in the notary’s office. Until the contract has been signed there is no legal certainty that the transaction will take place. The offer and acceptance of the offer are not legally binding. After the contract has been signed, the purchaser has between 6 and 8 weeks to provide the funds and pay for the property. A proportion of the transaction costs are due after signing the contract.

How much time will I need to invest in my property?

It’s up to you. Most investors like to get involved in the decision making process, but if you choose to limit your participation, we can manage much of the process for you and put you in touch with relevant contacts in Germany. It is advisable to plan for at least two trips to Germany in order to find the right property and to sign the purchase documents.

How do I find a reliable German property management company and what is included in the service?

We work closely with a number of carefully selected property management companies. Their services comprise re-lettings, running tenant accounts, overseeing maintenance work, rent reviews, representation of the landlord in legal cases, document administration, and consulting the landlord in all aspects of the strategic property management.

How can I increase rents?

The term of a residential lease contract in Germany is usually indefinite; only the tenant can give notice to terminate the contract. For a vacant flat, the landlord can set the rent at market level. For an occupied flat(s) he can increase the rent by a maximum of 20% over every 3 year period until the market rent level has been reached (many rents in Germany are significantly below market level). If the landlord modernises a flat, he can increase the rent by 11% of the modernisation costs. As an alternative to the annual rent review the landlord can agree a step-up rent with the tenant.

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How easy is it to find tenants in Germany?

As in the UK and other western European countries, properties are usually adver tised via the internet. There are numerous dedicated websites for advertising your property. A good property at the right price can attract tenants within 6 – 10 weeks, bearing in mind that in Germany tenants have to give 3 months’ notice before vacating a property.

The vast majority of Germans rent their homes (70%+). Many people live in the same property long-term (the average tenancy period exceeds 8 years). An advantage of the longevity of tenancies is that people tend to take good care of the property because they see it as their home.

How has the property market in the new German states performed over recent years?

In the six or seven years that followed German reunification in 1989, property prices increased by some 40%, before dropping back to their original level. Rents also dropped but not by as much, creating a situation of rental yields at an all time high with interest rates at an historical low. Prices have been fairly stable since 2003. The German property market is not driven by wild speculation. Due to this fact the asset volatility is very low in Germany. How much tax do I have to pay?

Income generated in Germany is taxed in Germany. Although income tax rates are marginally higher than in the UK, there are substantial (virtual) expenses that can be deducted from your income (e.g. building depreciation) which will reduce your tax bill to below what you would pay for an equivalent property in the UK. However, if you repatriate money to the UK you will have to pay UK taxes. The taxes you have already paid in Germany would then be refunded, as there is a double taxation agreement between the two countries.

How much tax do I have to pay?

Income generated in Germany is taxed in Germany. Although income tax rates are marginally higher than in the UK, there are substantial (virtual) expenses that can be deducted from your income (e.g. building depreciation) which will reduce your tax bill to below what you would pay for an equivalent property in the UK. However, if you repatriate money to the UK you will have to pay UK taxes. The taxes you have already paid in Germany would then be refunded, as there is a double taxation agreement between the two countries.

Disclaimer

The information in this document is correct to the best of our knowledge. We do not guarantee its correctness or completeness. We recommend you consult an international tax adviser to analyse the tax implications of any investment.

Bargains, Bargains!!

“Imagine knowing what you know about UK property prices and being able to pop back in time to buy up half of Notting Hill at 1995 prices... Many think that opportunities on a similar scale might be on offer in Berlin today”.

Buying to let in Germany will reap a return of between 5-10% on your investment.

Click here to view our German properties

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