german residential investment

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snowdrop

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Hi All

My german husband and I are looking into investing in residential property in a nice town in bavaria, germany - something like what they refer to as a two family house - basically two apartments (one on each floor) with cellar. His parents would rent the ground floor from us (tenants all their lives as per most of the german population). The plan would be to hold on to it for long term - 15 - 20 years or longer - to supplement our pensions hopefully.

Can anyone direct me to a website or source of info that covers rights of tenants (all i know is that they're v.well protected) - taxation issues, costs of purchase, capital gains on disposal etc etc, allowable deductions etc.

Any advice much appreciated.
 
A google for "mietrecht" should find you loads of stuff on tenants rights - but in German. At least your husband should be able to read up on it. Not aware of any english language info if that's what you want. Look for a "steuerberater" or tax advisor for advice on tax etc. They're very common in Germany due to the complex tax system over there, and there are many that specialise in international tax advice. http://www.toytowngermany.com/ is probably the most active forum for native english speakers living in Germany. You may get some advice or recommendations for tax advisers there.
 
Just something you need to keep in mind - I assume you are resident in Ireland?

If so, you will need to pay tax in Germany on any rental income (under German Tax rules), but you will also need to declare your income in Ireland (if you are domiciled here, or if non-domiciled and remit the income to Ireland). You may be taxable in Ireland on this income, but receive a credit for any German tax paid.
 
Thank you both for your replies. I assumed there was a double taxation agreement between ireland and germany and will of course be fully tax compliant in both jurisdictions.

I'm also aware that tenants rights are much stronger than ireland and want to get detailed info on these and allowable deductions, tax rates etc so we can make an informed decision as to whether this is a goer or not.

My father in law is meeting with a local bank rep and adviser next week on our behalf to get some info on this too.

Thanks for the links and advice and if I find anything useful, I'll post it.
 
Bavaria in general is a good bet. Solid and well diversified economy and the second wealthiest state in Germany (after Baden Wurtenberg). However location within Bavaria is still important. Area's close to the Czech border, and close to the former border with East Germany are doing poorly and suffering population decline - due to lower wages in the Czech republic and subsidies in the former East Germany. Southern Bavaria and around the Nurnberg region are solid.

One of the main extra rights a tennant has is if/when you decide to sell the house. In general, you can only really evict the tennant if you can prove that an immediate family member needs the accomodation. If you sell the property with the tennant in place, the new purchaser doesn't even have this right for a certain period, and I think it's as much as 10 years. So the house will be worth less than an equivalent house without a sitting tennant.

Also, you can only raise the rent within tightly defined bounds based on inflation etc. There are ways around this, such as seriously renovating the property and then claiming that it's a higher class of accomodation and that you're entitled to claim higher rent. But not guaranteed to work.

Should a tennant refuse to pay rent, it typically takes between 6 and 9 months to legally evict them. And the real kick-in-the-teeth for the landlord is that the tennant can often force the landlord to pay the removal costs as well. There have been horror stories about tennants trashing properties, though this happens everywhere.

Make sure your tax advisor specialises in international tax affairs. Under certain situations your income earned outside of Germany can be taken into account when calculating your tax liability in Germany. It's called progressionsvorbehalt, and a good tax advisor should be able to clarify if it could be relevant in your case.

I wouldn't place too much faith in the local bank rep. There's been plenty of misselling scandals in Germany too, and the banks are often involved in the sale of the property too. I.e they stand to gain more than just the mortgage business.
 
Persius said:
One of the main extra rights a tennant has is if/when you decide to sell the house. In general, you can only really evict the tennant if you can prove that an immediate family member needs the accomodation. If you sell the property with the tennant in place, the new purchaser doesn't even have this right for a certain period, and I think it's as much as 10 years. So the house will be worth less than an equivalent house without a sitting tennant.
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Persius, most of what you say I agree with, but in the above case some investors would prefer to have a sitting tenant because it guarantees an instant cashflow and reduces the cost and trouble to the landlord of having to look for a tenant or having the apartment lying empty.
 
Hi can anyone recommend a contact(s) for English speaking German mortgage brokers/banks for investment mortgage in Germany? thanks
 
snowdrop said:
Can anyone direct me to a website or source of info that covers rights of tenants (all i know is that they're v.well protected) - taxation issues, costs of purchase, capital gains on disposal etc etc, allowable deductions etc.
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This website may be of some use.

There are other threads on AAM about this. If you go to the Overseas Property forum and search for Germany you should find some useful info too. Failing all of that try Google!
 
Actybod said:
Everyone seems keen on Berlin...any advice?
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Stay out of it! Remember that the city is located in the former East Grmany, and is not the best location for investment. Also, the city is 60 billion in debt, and the government has refused to bail it out, so increased taxes seem a certainty. As with anywhere, there are investment opportunities, but if you are going in there "green" you are likely to get burned.

Better head to more solid areas; as other posters suggested, Bavaria is a good bet. My own favourite destination for investment in Germany is Frankfurt. Munich is also good, and don't overlook Hamburg.
 
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15-20 years is a long time and it should be a good investment over that period - Berlin is in both East and West Germany so the last poster seems to be wayward (Thats why there was a wall!!). Berlin will be very different in a few years with the plans for the place and it's level of debt will be of little consequence to an investment as long as yours.
There is a lot of talk on this forum about different locations re investment - I will just say one thing. I have been to Sofia and Bucharest and Berlin just to pick 3 cities are a spoken about and all I will say is Berlin is by miles the best investment. You only have to see them and their sourrounding infrastructure to see that. The rental laws are weighed in favour of the tenant but if a genuine yield is important, combined with the fact that you are in for the long haul makes it a no brainer.
I know investors who have bought in Romania and Poland and the rental yield is only covering 40% and 55% of repayments respectively.

Be carefull of Paddy prices and get some recommendations and non agent advice (pay for it) with Bi Lingual and preferably german operator. Germany is waking up and banks are opening up and so will the market regardless. Berlin has areas like all cities that are not so good but yields are high in such areas. With the term you are investing for it may be worth checking whats planned for some of these areas as it could be a good opportunity. Most of all, unlike some other locations, Germany has an economy - one of the largest...
 
barryo said:
15-20 years is a long time and it should be a good investment over that period - Berlin is in both East and West Germany so the last poster seems to be wayward ...
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Not wanting to split hairs on this, but that statement is incorrect. Berlin (east and west) is situated in the former east Germany. That is a basic fact that any student of geography knows quite well -- even the wayward ones!

While I have problems with the medium to long term potential of most of Berlin as an investment destination, a lot of the property that is being peddled to the Paddy market is in the east of the city and/or in the outskirts -- i.e. in the former east german state. A lot of it will never give any kind of decent return on investment.

I have never denied that the German economy is large and has potential, but only in the better locations. Believe me, Berlin is not one of those.
 
Brilliant posting auto320.

This map from Wikipedia gives a good indication to investors how far behind the Iron Curtain Berlin was, I'm not sure how far but at least hundreds of miles. This isolation was one the reasons the West German government had to supplement the rents of West Berliners to keep them there and leads directly to some of the issues that affect the city today. West Berlin is the small green/blue/orange area within a sea of red in the north east of the country.

http://en.wikipedia.org/wiki/Image:Deutschland_Besatzungszonen_1945_1946.png

As far as I am aware the former East German area is still suffering from depopulation to the wealthier west of the country.
 
That kind of "seat of the pants" investing by Irish buyers is typical of the current market for overseas property purchases, and represents a deviation from the criteria used by serious investors when committing funds to a project. Just looking around and making snap judgements is not enough; you have to look at underlying factors that affect the future of your investment. Places like Bucharest are expensive and don't make for a great comparison with Berlin, but even in making these comparisons you have to look at more than the rental return -- the potential for growth over the life of the investment is equally if not more important than rentals in the residential sector.

However my comparison was not with other countries; I made the point that other cities in Germany offer better potential, and I believe this to be a more valid comparison. There are good reasons to avoid Berlin, and in particular the suburbs and suburban towns in the former GDR (which is where much of the Irish money is now going). It is a flat market with the possibility of downturns, and the best advice is to avoid it. Go to Frankfurt, Munich, Hamburg or one of the other cities if you want to invest in Germany -- keep out of the east of the country.
 
I totally agree. The cities you mentioned are heart of the German economy - definitely a worthwhile target for any investor to shoot for no matter how 'wayward' their aim.
 
Don't forget that Berlin is the capital city. Government departments and agencies are still being moved from Bonn and other parts of the country to Berlin. There is low-scale "centralisation" going on in Germany. Last year the government even ordered the majority of BND (secret service) employees to relocate from Pulach in Munich to Berlin.

I think increased centralised government presence in Berlin will result in increased economic activity in general in the city. When Germany is forced to lift its restriction on workers from the EU accession states working freely in Germany (2013), I think Berlin may benefit disproportionally from this based on its proximity to Poland.

The risks and negatives, such as Berlin's debt and general depopulation in the former East Germany, have been pointed out. But I don't believe that it can be called with certainity that Berlin is a poor investment.

As an aside, if you go to the local EAs, expect to pay an extra 12% on toop of the quoted price. 5% for SD and lawyers free and 7% for EA commision, which the purchaser must pay. This has an obvious effect on capital appreciation.
 
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