Why is it so hard to buy a flat in Munich?

157 posts in this topic

T the moment the time to buy is now, with the Property Prices plummeting and the Interest rates very low. I bought my dream flat at the end of last year, the price dropped by about 40,000 Euro on the beginning of the year price and with a lot of looking around I managed to get the finance down to about 3.2% for a 110% mortgage.

 

I now own a nice flat about 100 Square meters with a real bathroom in Eching. About 20 to 40 minutes frim the center of Munich....

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I don't know why you think prices are plummeting. For once, the prices are actually going up in Munich. During the financial collapse, house prices didn't move here, as usual.

 

Also, if there is so much demand here (which there is), why don't people put their prices up some more. I find it completely ridiculous that you basically need to decide on the spot whether you want to buy or not. If I was the seller, and someone bought my place within an hour, I'd feel like a fool, knowing that I could have got much more for the place. This exact situation happened to us a couple of times while we were looking recently. Gone on the day it's listed.

 

Also, days of 3.2% loans are now over. For a 10 year fixed rate loan you're realistically looking at at least 4% now.

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So for, say, a 100m^ at 5000/m^2 you'd pay about 300K just in interest. That's about 2500 per month. And unlike many other countries, the interest on mortgages are not (as I hear it from natives) tax-deductible. You can get a lot of rental for those Euros.

 

On top of that, you have to pay off 50K per year. If you were to invest that money in something reasonable, say 5% profit, you'd have 650K after ten years, enough to pay rent on a goodly-sized apartment.

 

Yes, I know things are more complex than this, with tax on profits and stuff, but without the deduction on the interest, I don't know why *anybody* wants to buy around here, unless they get a real steal.

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The only country I know of that lets you write off your mortgage on tax is America. I know for a fact that you can't in the UK, Australia and Canada (and Germany like you say).

 

Also, you don't have to pay off 50k per year. Usually the "tilgung" (amount you have to pay back) is 1% to 2% per year, so around 3k to 6k on a 300k loan.

 

Otherwise I agree with your post. Property does not offer a good return, if any at all, in most places in Germany.

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Property does not offer a good return, if any at all, in most places in Germany.

 

For the right people it does.

 

Example: a dentist or lawyer earns 250.000 E annually, tax would be roughly 111.000 E (Einkommensteuer, Solidaritaetszuschlag, Kirchensteuer).

 

Dentist or lawyer purchases a property to be rented out, cost: 2 Million E, finances it entirely, pays 5% interest on mortgage and a tad in principal back. Deducts 4% for the first 10 years (degressive Abschreibung), rental income estimated at initially 60.000 E annually, rising steadily.

 

His taxable income will be in the first year:

 

250.000 E

plus rental income of 60.000 E -> 310.000 E

minus cost of mortgage interest (5% of 2 Million E =>) 100.000 E, lowers it to 210.000 E

minus deduction (Afa 4% of 2 Million E ->) 80.000 E, lowers income to 130.000 E

-----------------------------------------------------------------------------------------------------

taxable income: 130.000 E, upon which he will have to pay taxes of roughly 53.000 E, or nearly 60.000 E less!

 

With the right construct, a well-heeled person can and will purchase a property every few years to have it paid for by the common taxpayers... His investment is basically his name, and the yield beats anything the capital market offers.

 

With a net cash flow of receiving several thousand EURO a month due to tax advantages, he will finally be the proud owner of a stable of steady cash-cows.

 

(Numbers don't match exactly, as I used the tax situation of some years ago and the income tax table of the current year. You'll still be able to get the idea.)

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In the case you mention above, don't forget that the guy is actually losing at least 40k a year with his "investment". He has to pay back 100k of interest, but is only making 60k. That doesn't account for any upkeep or extra costs either which could knock another 10k off his income from the property.

 

So in the end, although he's getting a load of tax write offs to get them he's sacrificing a load of real cash. Assuming a 50% tax, he would be earning 125k cash in hand if he didn't have his property, but only 65k with.

 

Of course, if the place goes up in value, or if rents rise nicely, he might come out ahead in the end but maybe not. Either way it's not a sure thing.

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In the stated example, the dentist takes home without purchasing real estate:

 

250.000 E income

minus 111.000 E taxes

= 139.000 E net.

 

.

He takes home when applying my example:

 

250.000 E income

minus 53.000 E taxes

= 197.000 E net

out of which he has to cover the difference between rental income and mortgage interest, initially 40.000 E, but getting rapidly smaller, as the interest remains constant and the rents can be jacked up by some 10% to 20% every two years

minus 40.000 E initially

= 157.000 E net, or exactly 18.000 E more, after tax and tax-free. This is just about the money many laborers make - before tax! - for toiling another full year, without being able to afford living in one of his properties.

 

Yeah, I should charge for offering such examples... (but the rich know and do them anyway all the times).

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postmann's point about rental property is accurate, and is generally valid even at lower income levels than the one in his example. Frankly, for some people it makes more sense to be a landlord and a renter at the same time. For most people whose investments aren't grandfathered from the Abgeltungssteuer, owning rental property is the only legal personal tax and inflation hedge available.

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The only country I know of that lets you write off your mortgage on tax is America. I know for a fact that you can't in the UK, Australia and Canada (and Germany like you say).

for info, interest is tax deductible in Sweden too

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In the stated example, the dentist takes home without purchasing real estate:

 

250.000 E income

minus 111.000 E taxes

= 139.000 E net.

 

.

He takes home when applying my example:

 

250.000 E income

minus 53.000 E taxes

= 197.000 E net

out of which he has to cover the difference between rental income and mortgage interest, initially 40.000 E, but getting rapidly smaller, as the interest remains constant and the rents can be jacked up by some 10% to 20% every two years

minus 40.000 E initially

= 157.000 E net, or exactly 18.000 E more, after tax and tax-free. This is just about the money many laborers make - before tax! - for toiling another full year, without being able to afford living in one of his properties.

 

Yeah, I should charge for offering such examples... (but the rich know and do them anyway all the times).

 

Looks to me like you forgot that the guy still has to pay income tax, even if he owns an investment house.

 

So he's really at 197k before taxes, after which (using your percentages of 44%), he's down to 130k in the hand, of which he still needs to pay the 40k that he is short because the rent is not covering his loan (in the beginning anyway). So, in the end it's actually:

 

Without property investment:

250.000 E income

minus 111.000 E taxes

= 139.000 E net.

 

With property investment:

250.000 E income

minus tax breaks 197k

minus 87.000 E taxes

minus 40.000 loss on investments

= 90.000 E net.

 

or exactly 49.000 E less than if he didn't buy the property.

 

Yeah, I should charge for fixing all your examples.

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Also in Denmark.

 

The 50K pay off per year was based on the 10-year loan mentioned. If you only pay off 6K per year, you have a 50 year loan. That increases the interest costs a *lot*. However, if you have enough money that you can pay it off really fast, you can save a fair amount of interest.

 

Postmann: You're saying that if you buy specifically to rent out, you can deduct some/most/all of the interest? That explains how anybody can afford to rent out in the first place:)

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Hutcho: if there was confusion in play, better change your above post, or have it entirely removed. It won't help the readers trying to figure out whether they are in a situation to take advantage of the tax situation or not.

 

 

... if you buy specifically to rent out, you can deduct some/most/all of the interest?

Yes, that's the case. At the right income level, properties pay for themselves in Germany, without having to put up any own capital. That's why the market for neighbors John and Jane with a more average income is rather tight.

 

 

Assuming he is more busy than that half of the time, I would be surprised if a dentist invoices more than about E1000 per day.

That won't even cover his rent in places like Munich. Mine billed nearly 10.000 DM (currently that's some 5000 E) a day.

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Actually, I just looked again, and realised I misunderstood your figures. My sums above are indeed nonsense.

 

That said, I think your sums are still painting too rosy of a picture.

 

For example, you're not able to write off 4% depreciation for no reason. You get it because your 2 million will likely lose 4% in value each year unless you're pumping money into it to keep things up to date.

 

Further to that, you don't actually own the property in your example, the bank does. You never get closer to owning it because you're not actually paying off any of the loan that you took, just the interest. If the property goes up in value (which in real terms it likely will, but not at more than the rate of inflation), you'll make some profit but how much is pure speculation.

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Do dentists really make that kind of money?

 

Last time I went to the dentist, I was in the chair for about 30 minutes, and it cost me about E100. I was the only client in the office when I came in, during my entire visit, and when I left.

 

Assuming he is more busy than that half of the time, I would be surprised if a dentist invoices more than about E1000 per day.

He incurs quite a few expensis for that money, including premises, insurance, and secretarial staff. So I figure right off the top that is down to about E750 per day.

 

Estimating 220 working days a year, that would give him a pre-tax income of about E165,000.

Assuming he has a good tax accountant he should take home about 60% of that, so that leaves him just about E100,000.

 

Now he has to pay for his mistresses cheap flat in Feldmoching, and probably her petrol card too, so that comes to about E10,000 per year, leaving him only E90,000.

 

His wife's boob job, and tummy tuck cost him about E4,000, and his Penis Mobile (aka Audi A8) costs almost E20,000 a year (lease, insurance, and petrol costs.) That leaves him E66,000.

 

He still has to pay his own mortgage on his primary residence in schwabing - an over-priced luxury apartment overlooking English Garden, and that costs him about E40,000 per year, leaving him E26,000.

 

That E26,000 still has some claim against it, because he has to periodically splash out on the latest scarf, and matching Adidas sonnenbrille, as well as steak dinner at least once a week at Brenners; not to mention being seen quaffing Prosecco at Tambosi on Sunday mornings. That adds up to about E1,500 per month, or E18,000 per year, leaving him a measely E8,000 for his ski trips, and summer holiday.

 

You expect him to buy investment property too?

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By the way, did anyone searching for newly built house check this website?

 

Neubau Immobilien

 

I always check this an find it very helpful. The star ratings are quite spot on to the general news about the area we hear.

 

Hope it helps.

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I found our apartment for sale by owner on www.quoka.de three years ago now. A fixer-upper, 'Altbau' from the late 19th century, it was well below mkt price at 2700/m, located a block and a half from Mayor Ude's home.

 

There are some interesting private listings on Quoka although they are increasingly cross referenced to many immo 24 offerings such as this: cheap and cheerful by the Ostbahnhof or you could think outside the box with a business listing.

 

I found financing to be fairly straight forward. We even qualified for part of our loan to be through the low interest KfW program. Also, rent to own or 'Mietkauf' is becoming more common in Germany. We took a percentage of the renovation off our taxes and the 'Hausgeld' also comes off each year.

 

Best of luck with your search!

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Today was a feature on BR2-Radio about real estate in Munich and Bavaria:

 

http://www.br-online.de/podcast/mp3-download/bayern2/mp3-download-podcast-nahaufnahme.shtml

 

this is available as a podcast , select "Run auf Immobilien"

 

this will answer all your questiones( in German)

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http://www.conceptbau-premier.de/muenchen/reihenhaus/wohngut-alt-riem.html

 

did anyone planning to buy a house in Munich checked the above Row house project? Any feedback positives and negatives about this?

 

I see that it is very near to Riem S-Bahnhof.

 

Thanks

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I haven't had a good look at them, but the fact that they are only building to KfW 85 Effizienzhaus makes me think that maybe they're on the cheaper end of the market where quality is concerned.

 

Normal these days would be KfW 70, and good would be KfW55. Reihenhaeuser are particularly easy to get energy efficient because two sides of them border other houses, so there must be basically no decent insulation or energy saving features in the house at all if it only hits KfW 85.

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