Buying real estate in Gemany - home loan, German interest rate, renting out apartment, checklist
Home loan for foreigners in Germany
Can foreigners get loan from German bank? The short answer is yes, whether you live in Germany or not. However, only condition that I know is that the investment should be in Germany. If you are buying a real estate, an apartment in Germany you can get a loan from German bank. If you a resident in Germany, the process is easier and interest rate might be a little better. However, if you are living abroad and want to buy an apartment/flat in Germany, still you can get a loan from German bank. The interest rate as of 2015 is around 1.5 to 3% depending on how much money you put in for the investment. For instance, if the property costs 100,000 and you put in 10,000 and bank give 90,000; the interest rate is completely different to the situation when you put in 50,000 and bank give 50,000. Germans call it 'eigenkapital'.
If you live in Germany and you are foreigner, you can get upto 100% of the cost of the apartment financed by the bank. However, if you are living abroad, all my clients got only upto 63% investment from bank with 2% interest rate. This was the best offer I could get for my clients (as of 2015).
The list of German banks and their fixed interest rates for 5 years, 10 years and 15 years are (this is not a fixed rate, it changes all the time. I gave this table, just to give you an idea about the interest rates from German banks)
Things to consider while buying investment property apartment in Germany
No doubt, German properties are the best for investment in Europe. You still need to be careful while making your investment decision. Here are some of the tips from our experts:
- Look through local newspaper archives: This is to check how good the area and neighborhood is. You could also check if there are new properties or property constructions going on. All these will give you an idea how good this place is for buying the house/apartment for renting it out or for living.
- Talk to neighbors: If you are buying an apartment in a building, it is highly advised to speak to a neighbor. Ask them if there are problems related to Mold ('Schimmel') , water drainage or other problems.
- Ask the owner about the recent renovation: When was it done, what type of renovations are done, how much did it cost for the renovation and which company did it. You don't have to be afraid about these specific questions as Germans are used to answering specific questions. Some of them will even provide you with proof for all these.
- Proof for land ownership: If you are buying an apartment block, you can ask for the paper from the land register for the proof that this belongs to them.
- Rental details: If you are buying an apartment block, ask for rental details. This gives you the complete details about the rents from each tenant. Reconfirm it when you visit the apartment by asking some of the tenants about their rent.
- Visit the cellar: Many foreigners forget to visit this part of the building. Look if it is moist, if it is kept clean, if it has rat problem, if it is renovated recently and there is lighting in the cellar
- History of ownership: If possible try to get the history of ownership. Usually the house-master knows about this. A property that is held for a long time (above 10 years) is much more reliable than the one sold very frequently. In Germany if the apartment block is held for more than 10 years, you don't have to pay capital gain tax.
- Rental increase and price increase in the last 2 years: If possible try to get these details. This will provide you will an idea about the demand for properties in the region. For instance at the moment (2013) Kreuzberg in Berlin is one of the highly sought property in Berlin, Germany.
- Airport: Germans hate loud noise. Areas around the airport are less preferred by Germans, especially if the area is in the route where planes take for landing (e.g some of the regions in Pankow, Berlin)
- Greenery: Germans love green areas. Green areas with lot of parks (e.g Prenzlauer Berg, Berlin) are highly preferred.
- Tall ceilings: Germans love buildings with tall ceilings. These are buildings made during 1900s. They have tall ceilings, tall windows and doors. There are not many of these type of buildings in Germany as most of them were bombed down during the world war.
- Wooden -floors: Many of the buildings from 1900s have wooden floors. Many Germans love this area. One of the reason why areas like Kreuzberg in Berlin is becoming the booming area these days is because of the presence of old buildings there.
- Tenants: Who lives in your building matters a lot. Germans prefer to live with Germans, both as a tenant and as an apartment owner.
Average price increase in Berlin real estate is around 50% annually (2014-15)
Rental income breakdown for investment properties in Germany
Rental income breakdown for investment properties in Germany
Rents in Germany has two parts
Cold rent (Kaltmiete)
Running-expense (Nebenkosten + Heizkosten)
The monthly rent the tenant pays (Gross rent / Warm rent) is Cold rent + Running-expense. The Gross rent is the monthly revenue of the house owner. Every house owner has to pay a monthly fees (Hausgeld) for the building maintenance. This is the monthly expense of the house owner for owning the apartment. Hausgeld consists of two parts
1. Running-expense (varies every month)
2. Deposit for the renovation of the building (fixed)
Running-expense includes cost of garbage pickup , cleaning of the staircase, maintaining the cellar, electricity cost in the corridor, staircase and elevator, water usage cost and the gas/oil heating of the building. Except the water and heating cost, other Running-costs are fixed. In some building, running-cost for the whole building is shared equally among the apartment owners. However, most often it is individually calculated for each apartment depending on water and heating usage.
Typically the breakdown of Running-expense is not available. Hence, while fixing the rent the owner sets Running-expense = Hausegeld. However, for apartments where tenants have been living for very long time (say since 1980s), very often the Hausegeld is a little more than Running expense. Hence investors buying apartments with older tenants, the rental breakdown should be made clear before investing in the property. It should not be misunderstood that older tenants are bad tenants, in fact they are the best tenants, who often do minor renovations without troubling the owner. Getting the rental breakdown will help in more accurately predicting the net cash flow.
One more additional expense the buyer needs to remember is the the land tax which is around 150 Euro/year. In summary, the revenue from an investment property is the Gross rent (Warm rent). The expences for the property is the Hausegeld and the land tax.
The foreign buyers are recommended to hire local consultants to help you with the property acquisition. The money that you will save during the different steps and negotiations towards the property acquisition will be far more than the consulting fees that you pay to the consultants.
Buying a rented out apartment (Kapitalanlage) in Germany
Advantages of Kapitalanlage ( tenented apartment)
Rental income from the first month of property purchase
Contract has already been made and no need to make a new one
If the tenant has been living in the apartment for long time, he/she might have done some renovations.
No need to spend time to search for a new tenant, do the background check and make contract agreements.
All the smaller issues while moving to a new apartment has already been sorted out
Difficult to evict the tenant in Germany. Rental laws are very strict and tenant has several rights. Tenants also have organizations and have lawyers (e.g http://www.berliner-mieterverein.de/) .
If there are solid reasons, the owner can request the tenant to move out. As per rule, the tenant has 3 year time to move out of the apartment. For this, the owner has to prove in the court that he needs the apartment for own use.
The apartment may be badly maintained. For instance, in Berlin older apartments have mold (schimmel) problem in the walls. The apartment need to be aired and heated regularly.
Non-paying rents: It can be that the old owner is selling the building because the tenant is not paying the rent. Even for non-paying tenant, it is not easy to evict a tenant.
Are you planning to buy a property in Germany
Buyers' agent (consultant) for buying property in Germany
If you need consulting service for buying a property in Germany for living or for renting out, feel free to get in touch with me. Leave your contact email in the comments section below and I will get back to you.