Government sponsorship of real estate purchase

Hi-
I have been approached by a tax adviser to understand how can I best invest my money-
Apparently in Germany there is something called "Government sponsorship" for real estate. Return on investment in very interesting whereas I don't see any particular high risk .. and that's why I don't know if I can trust or not.
Basically, to give you an example. You can buy a flat for 200.000 e- you are the owner but are not allowed to live in. The bank is supporting the loan at 6% interest rate, and you need to give back 1000e / months for x period of time. You have to rent this flat for let's say 400 euros; the state is giving then 400e .. meaning that you need only 200e from your pocket to cover the amount. At the end of the period, the flat is yours .. or youo keep it or you resell it (meaning profit). Of course, during that time, you are covered with the interest rate fluctuation and inflation.

Somebody familiar with this practice who could advise?

Tks.

Hmmm, no idea what this is, but if there was something like this I'm sure I would have heard about it and probably taken advantage of it by now. Details?

The nearest I know is Eigenheimzulage which is (or was?) a few thousand euros cash to buy a property for your own residential purposes, but a 40% subsidy for an investment property?

There is no eigenheimzulage anymore ,been stopped after 01.01.2005.If however you are renting property you can offset yome of your expenses although i ma not sure how much

What he probably means is that the financing costs and the amortization of the purchase price are tax-deductible, if you buy the house for investment purposes (instead of own-use). So depending on your tax-rate, you reduce your yearly income-tax bill accordingly.

There are also some subsidies if you rent out based on a "social welfare" rent which means you will not be able to select the tenant but the local authorities will do so for a couple of years. But I am not sure that this would really make sense to a single small investor, to be quite frankly. if you have received something in balck-and-white, why don't you scan and email or fax it to me and I'll do a short double-check for you. because it could also be some form of scam, even though I do not think so when it comes from a tax adviser...

PM me for contact details if you want to send me something,

Cheerio

not sure whether they still do but for many years after reunification the government gave massive tax credits to people who bought property in the "neue Bundeländer" and rented it out. They set up a number of Treuhände do deal with this.

Nope, since too many tax money was wasted in bad allocation of money for overpriced and unnecessary buildings in the east of Germany and since there are too many empty buildings available anyway, these kind of tax subsidies have ceased to exist according to my knowledge.

Thanks for your replies-
I got the exact name of the program; it s called "WOHNRAUMFOERDERUNG PROGRAM"

Does it ring a bell for you?

After a bit of internet research, I'd say it boils down to government subsidies for low-income families. The income-ceilings seem to be really low, i.e. people with a reasonable level of income do not qualify. And the program is apparently funded on a state-level, i.e. it can vary from Bundesland to Bundesland and is probably not available everywhere. (From what I can tell, it's not for rent-out property, but for own-use, which seems to contradict what you stated in your original post. But then, terms and conditions may vary...)

Bayerisches Wohnraumförderungsprogramm

meant to help people in need (poor, families with children, handicapped, old, students, construction industry )
- helps people in need to buy their own appartement
- helps investors to build appartement houses to provide people in need with affordable appartements to rent (of course the investors are then legally bound to rent to that kind of people and cant use the appartement themselves)
- helps landlords to renovate appartements according to certain rules (make it usable for handicapped, save energy, ...)

by providing cheap loans...

Thanks
Need to dive deeper into that - My income is actually pretty much high. Maybe they play with my family siuation ( I am tax 3 as my wife doesn't work and I have 1 kid).
I am trying to make a reseach as well, not easy as I don't speak German ;-)
Cheers

There used to be programs which subsidised the construction of apartments dedicated to low-income families (i.e. the owner/builder got subsidised if he committed to renting the apartments to low-income families). Maybe the programs you quote also offer this kind of option.

I think the catch was that many of those low-income families didn't behave very well, so after the dedication period was over, investors were reluctant to buy such apartments, and the resell value typically wasn't all that great.

At that point, could be a good deal if you know people that would rent the flat .. ideally some friends with low income-
Will have another appointment tomorrow to learn more
Thanks for you inputs on that topic

You seem to have your head screwed on properly, which is the best way to avoid getting screwed in every other sense. I've seen some horrible advisors in Munich (names provided on request), many nothing short of criminally deceptive, and had the good fortune/sense to walk away from them all. One even told me, while providing 'advice' about a scheme similar to the one you describe that 'banks won't lend money on bad investments' meaning if they secure the loan I can be sure it's good. Totally false as the bank owns the flat as security and doesn't give two shits if the investment works for me.

There are some schemes for attracting people like you to invest, with the carrot of you saving taxes, essentially the government is encouraging people to invest in things they think are important. The ones I heard about were things like renovating 'historic' buildings, buying freight ships, making films and buying flats to rent out, and I believe there was talk about adding 'green' energy initiatives like wind farms too. Generally they're kosher schemes but there are some really bad ones and the risk has to be viewed as very high to anyone like you or me. The only advice I can offer is to tell you to be very very careful, which it seems you are being.

A basic advice on "tax saving schemes" for investments: in the past 10 years or so there have been a number of investment schemes on the market based on real or assumed tax breakes and tax loopholes. Some of those "loopholes" have been sewed tight by the governement (especially investmend funds for film productions) and a lot of people now face loosing money big time. Same was true in the 1990 with tax breakes on real estate investment in East Germany and there a lot of people face severe losses or personal bankrupcy because they fell for such schemes. Unfortunately you can obviously sell any form of gilded shit in Germany if there is a big "save taxes" label sticking on it.

Therefore some basic, important advice: if you are looking to invest your money, only invest where the investment is profitable in it self without the tax advantages. Those advantages (still existent for instance on investment in ships (tanker, container, bulk)) should be a nice cherry on top but not the main and only reason for such an investment.

What happende with real estate in East Germany was, that people got up to 50% tax breakes, but the properties were in fact overpriced by 100% so that even after deducting the tax money safed this is still a loss. With the Media Investment Funds the law makers cashiered the rule in such a way that even existing contracts fell under the new rules and now thousands of people face paying back taxes big time while the investment as such failed and therefore they are loosing doubly.

If you want to make sure that you get a lot of real tax breakes and it you want to safe money for old age, check out RIESTER or RÜRUP plans where you can indeed get up to 40% subsidies from the governement (with the caveat that the money should be used for pension), otherwise there are indeed some limited options with renovation of historic buildings (Denkmalschutz) or ships, but the guideline for you should be: is the investment profitable by itself or only through tax breakes ----- if the latter, keep off.

Cheerio

The nasty thing about this tax saving schemes is, it can take years until you find out the truth. It might take a while until an tax inspection raises questions. Then it takes a little longer until the courts decide the "Finanzamt" is right and the scheme was actually flawed. Then you get a nice letter by your own "Finanzamt", telling you that your income declarations of the last ... years will have to be reevaluated. And finally you´ll have to pay up (sometimes huge amounts of money) for your stupidity.

Alright- need to be very very careful then-

Could you provide with the list of those criminal agencies ( in Munich) ?

Oh yes, and to those I sent a PM to up to now naming the 'advisors' I forgot to add the tax 'advisor', reccomended by the Pr. Co. company, who completed a work of pure fiction for me, which I then signed and sent to the Finanzamt. It took two years to sort the ensuing mess out, which involved me paying back everything he'd claimed for me. I was, I understand, lucky that it stopped there and lucky that the other advisor who sorted it out for me didn't charge me extra (out of pity I assume).

The 'advisor' only prepares the form, but the signing and legal responsibility stays with you so you'd better understand what he did before signing it, as you're responsible for everything that happens next. Once the Finanzamt started asking awkward questions about his 'creativity', ie. lies, he just forwarded their letters to me and asked me to explain his fiction. Simply shocking in his spineless responsibility dodging.

I'd love to name and shame these b******s. Can I do this on a public forum? My blood is boiling now I think of them again.

I don't know if you can .. up to you!
Could you at least PM it to me?
thanks a lot

General advice from the mods is... Better not to name and shame, however tempting and however sorely these shysters deserve it. PM on its way...

fede78: it is kinda hard to keep track of all the bogus and treachery investment-schemes and the organisations most concerned with selling it because they grow faster than anyone can believe. However, a good point to start is the blacklist of FINANZTEST, they have one that you can download or get faxed at reasonable costs and if you see anything mentioned there you better stay way-way-away from it.

You could of course always ask a honest independent broker for help, basically only a click away

Cheerio

Thanks starshollows-
I am still trying to find out what is wrong with this type of investment- The advisor I am talking to is to fake because to nice. Last time she came with the contract ready and appointment with notary already fixed... with a translator on top of that!
She suggested me a 2 bedroom apartment, new building, paying 250 euros during 30 years- On top of that, she added a free kitchen plus 1200e tax claim (because I would buy a new property before end of the year), and 12.000 e discount! Of course I didn't sign, she called me the following day to apology she s been too pushy...
Anyway, I am here to listen but won't sign anything till when I understand the truth behind that! Because at the end it would be to easy and everybody would buy new flat for half price ;-)

THANKS ALL FOR YOUR ADVICES

I just got the info from a friend that this company is BLACKLISTED

My feeling is that they use foreigners to sell ideal investment plan ... with some illegal operations behind you are not aware of.

Be careful with who you are dealing ...

if you still are looking for really good investment opportunities... a good, unbiased and professional advice is just a click away