Purchasing property is one of the most important, exciting and beneficial investments a person can make, and the current situation in Germany, where the population is expanding and mortgage rates are low, make this an even more attractive prospect. However, it is also an investment that people need to consider carefully.
If you are thinking about investing in German property, this beginners guide can help. Here, we provide you with the information you need to work your way through those essential first steps.
Motivation For Investing
When investing in property, one of the most important things to be clear on is your motivation for buying in the first place. In many cases, this will be to rent the property out, in order to make a profit and if this is the case, you need to be clear on what your goals are and who you are targeting.
It is not enough to simply state that you want to rent the property out. Instead, you need to think about who you want to rent it to. The type of property you buy to rent out to students will be very different from the type of property you rent out to corporate clients, so your property search will largely depend on your motives.
Once you are clear on your motivation, it is time to start researching potential areas to invest in. The key here is to look for areas where the conditions for investment already exist. Examples of things to look out for are good transport links, prestigious schools, commercial areas, cultural landmarks and an expanding population.
Think about the clients you are hoping to target and consider whether an area has the infrastructure in place to appeal to them. Banks and building societies can be useful sources of information, as can the internet.
To identify the absolute best investing property Germany has to offer, you may need to find a town with an expanding population, but little room for more residential buildings. You will also need to find a street that is within walking distance of public transport stops, and close enough to shops and other amenities.
Your Own Finances
Next, you need to think about your own financial situation and consider whether you have the resources to invest in German property. When you factor in things like estate agent fees and property purchase tax, closing costs can actually be fairly high and most lenders will like to know that you can cover these.
Prospective buy-to-let investors should research local property prices and compare those with the average rent in the same area, in order to arrive at an estimated profit. The costs of any renovation or maintenance work should also be factored in at this point, especially when purchasing older property.
Crucially, investors need to be sure that they can afford to cover the costs associated with the property for any periods of time when it is empty.
Think Things Through
Regardless of your own personal ambitions, property is a serious investment, with significant consequences, so it is extremely important to think things through carefully. Is this really the right time for you? Are your German language skills up to scratch? Can you afford to tie your money up for the long-term?
The idea of buying a property may seem attractive, but have to considered the potential problems you may encounter? Do you have the ability to cope if renters are difficult to find? Do you have the patience to deal with difficult tenants, who you may even need to evict? How will your circumstances change if prices fall?
Investing in property can be extremely rewarding, but it isn’t something to take lightly. Nevertheless, many problems can be handled with prior planning and careful timing. Speak to professionals, take your time and make sure you have contingency plans for every eventuality.
Finding the Best Deal
When you are sure you have the financial resources to make the investment, it is time to find the best deal. During this stage, it is sensible to speak with an independent mortgage adviser and explore the full range of options available to you. You should never just settle for the first offer you get from your own bank.
If you are a domestic buyer, it may be possible to source 100 percent-plus mortgages, although these will not be available to overseas investors. With that said, non-domestic buyers may find up to 80 percent mortgages.
With demand at its current level, the property market can get very competitive, especially in cities like Frankfurt or Munich. In fact, demand can often be so high that sellers ask for sealed bids. Moreover, the country has a number of tax incentives for residential investors, so it pays to speak to a qualified tax adviser too.
Do the appropriate research, speak to various professional advisers and try to negotiate reservation agreements to secure your desired property, as long as it makes financial sense to do so.
Finding An Agent
While many property investors decide to handle their investments personally, it often makes sense to secure the help of an agent. If you decide to go down this particular path, be sure to shop around first and find out exactly what you will be getting for your money. Not all agents provide the same services.
The benefits of having a good property agent are too numerous to mention, but you should enter into any agreements with appropriate care. Make sure you check any referrals and do not enter into any contract unless you are sure you can get out of it. If you do decide to go without an agent, make sure you know what you are doing!
With the current conditions in place and property prices in key cities on the rise, the timing could hardly be better for buying German property. Indeed, the low mortgage rates available are attracting a large number of foreign and domestic buyers, who are keen to take advantage of the high-yielding investing property Germany can provide.
Nonetheless, property investment is a serious business and not a decision to be taken lightly and it is difficult to predict how long the current conditions will remain. If you are interested, remember to take the time to speak to advisers and do the required research before diving in.
Find a trusted mortgage broker
Find out what mortgages are available to you from our mortgage broker partner at EichenCredit, specializing in mortgages for international home buyers.