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Inherited apartments in Berlin - keep or sell?

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Folks,

 

First time posting here, but have been reading through the forums for the past couple of months.

 

My wife has a very close family friend who owns four apartments in Berlin (near SchlossStrasse).  She and her sisters will inherit the apartments as part of the family friend’s estate.  Three of the apartments have been rented for 15+ years and the other is on a yearly lease.  They’re in an older building (without a lift) that was built sometime before WW II.  The apartments are 30-33 square meters: one room, small kitchen, small bath. 

 

In the future when the apartments are passed to my wife and her sisters, how difficult will it be to maintain the properties remotely (from the United States)?  Are there management companies that can handle any issues (plumbing, electrical, etc.) and handle the rent/building maintenance fees?  I’m trying to figure out if it would be easier/better to sell the apartments OR to keep them as an investment?  I’ve read PandaMunich’s excellent post on Rental income calculation.  It sounds like we would have to file German taxes on the rental income and include it on our US taxes if we keep them? 

 

I’ve been to Berlin several times in the past couple of years and really enjoyed the city.  I could see keeping the yearly lease apartment as we could possibly use it in the future.  I’m not sure about the rented apartments:  From what I’ve read, it is difficult, expensive, and timely if you wanted to move the long-term tenant out?

 

This is all down the road 5-10 years from now.  I’m just trying to figure out what we should do when the time comes.  Any suggestions and/or advice is greatly appreciated.  Thanks!

 

S.

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Why would you want/need to move the tenants out of the long term contracts down the road?

 

I can't imagine the income on these places is very high, given the tenants have been in place for 15 years a piece.  oder?

 

ETA: and do you have reason to think the tenants will continue to rent these places indefinitely?  Single room apartment makes me think of quite young or quite old tenants...

 

I guess I'm trying to understand why you would consider keeping them, instead of just selling them outright, when the time comes.

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Lisa13,

 

I don't think we would need to move anyone out of the apartments unless one of my wife's sisters wanted one of the apartments to use as a vacation place for herself.  And from what I've read, that most likely would be difficult.

 

From what I know, current rent pretty much covers the building/maintenance fees.  I'll know more when I'm in Berlin this Fall.  

 

Thanks.

 

S.

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I think claiming eigenbedarf to use the place for vacations only would be more than difficult, I think it would be impossible.  Eigenbedarf is really the only option you have if you want to evict a paying tenant, and you have to really justify it with something pretty convincing.

 

wow - if current rent only covers the basic costs, it does not sound like you are in good shape as they are essentially paying no rent (nebenkosten/maintenance/water/heating vs base rent are split here - not sure if you know how that works, if you don't I just wanted to mention it!)  

 

You can't raise the rent on a sitting tenant more than 15% (in berlin) over 3 years, regardless of what the going rate is for a similar apartment.  

 

So that sounds pretty bad - I hope you are happily surprised after your visit! 

 

 

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Lisa, if these flats have been rented for the last 15 years if not longer then the tennants could be paying as little as €150.00-€180.00 month for 30+sqm, this is what I think the op means which really is nothing given todays prices of €350 upwards depending on location.

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Just now, Sir Percy B said:

Lisa, if these flats have been rented for the last 15 years if not longer then the tennants could be paying as little as €150.00-€180.00 month for 30+sqm, this is what I think the op means which really is nothing given to prices of €350 upwards depending on location.

 

absolutely, but what's not clear to me is if they are paying the nebenkosten on top of that.  That *can* include almost all the maintenance fees (the future improvement contributions are not chargeable to the tenant as far as I know, which could be significant).  The question is, is there any profit at all here?  If they are just covering the maintenance with their cold rent, I think likely no, there is not.  Which is not great :(

 

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Do you understand how inheritance tax work out on inherited property?  I know that if you don't live in Germany you can avoid tax on some inheritance, but in-situ property is different.     As non-relatives normally fall into the lowest level for inheritance tax relief: 20,000 tax free.  The rest gets taxed at 30 to 50 percent depending on its value.  Not sure what happens when property is rented out.  So you need to explore this side of things too.

 

 

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Germany has the inheritance tax taxation rights on those flats, see article 5 of the inheritance tax double taxation agreement between Germany and the US: http://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Internationales_Steuerrecht/Staatenbezogene_Informationen/Laender_A_Z/Verein_Staaten/1982-09-29-USA-Abkommen-Erbschaftsteuer-Gesetz.pdf?__blob=publicationFile&v=3

 

They only tax 90% of the market value of rented property, see §13d ErbStG: https://www.gesetze-im-internet.de/erbstg_1974/__13d.html

 

At these property values, the inheritance tax rate is 30%, see §19 Absatz 1 ErbStG: https://www.gesetze-im-internet.de/erbstg_1974/__19.html

 

If you cannot afford to pay the inheritance tax without selling the flat, you can pay the tax in 10 yearly rates, but after the first year you will also have to pay 6% per year interest on the outstanding tax amount, see §28 Absatz 3 ErbStG: https://www.gesetze-im-internet.de/erbstg_1974/__28.html

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Folks,

 

Thanks for the additional information in the subsequent posts.  My wife's sisters have agreed to let my wife make the decisions on the apartments: whether to sell them and split the money or keep them as an investment (If it's really going to be an investment).  Her sisters have never been to Germany or Berlin, and at this point in their lives, most likely will never go over there.  

 

When I briefly spoke to their family friend last Fall, she mentioned that the rent pretty much covered the building/maintenance costs.  There was a little left over, but not a lot.  When she bought the apartments 15 years ago, they were already rented to the current three tenants.  The fourth moved out about 5 years ago and she has been renting that on on a yearly lease.  I'll find out more about the situation when I'm there this Fall (rent income, building/maintenance costs).  She wants to sit down with me and go over everything on the apartments.   What Sir Percy B mentions above about the rent and length of time they have been rented is the case with the current tenants.  

 

Thank you PandaMunich for the links for tax information.  I'll bookmark them and read through them.  I do pretty good with US taxes but have no idea on German taxes.

 

As I mentioned in my first post this is going to happen sometime in the future.  Hopefully I can figure out in the next year or so what needs to be done If they want to keep the apartments or if they decide to sell them.  

 

Thanks!

 

S.

 

 

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On 17/05/2017, 15:55:09, Shenandoah said:

 how difficult will it be to maintain the properties remotely (from the United States)?  Are there management companies that can handle any issues (plumbing, electrical, etc.) and handle the rent/building maintenance fees?  I’m trying to figure out if it would be easier/better to sell the apartments OR to keep them as an investment?  

 

Very easy, Germany is a long distance landlords dream, at least compared to a hell hole like Ontario. Short version is the building is maintained by a management company which is responsible for all aspects of it including utilities (this varies a bit from place to place) once a year The company will send out an accounting of all costs and at which point you will need settle with your tenants. See this post for an explanation Understanding NK Germans also tend never to move so it's entirely possible you'll never have to look for new tenants.  Our 79 year old neighbour has lived in her place for 52 years, and probably has the same wallpaper! German Landlords tend not to raise the rents either so it wouldn't surprise me if the rents have never been raised. 

 

Main issue I could see if getting a bank acccount and doing online transfers. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Editing isn't taking but cold rent is what you pay each month for rent. Warm rent is rent plus utilities. 90% of the building costs are passed on to the tenant in the form of NK. 

 

As an example and ignoring taxes if the warm rent is 500€ a month and the NK is 150€ a month than the tenant is paying 350 a month in rent. The NK can be adjusted each year to reflect costs, ideal is to charge a bit more so the tenant always get a refund. 

 

An even better Explanation

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Tim,

 

Thanks for the post and additional information.  You make it sound "not so complicated" being a landlord from the US.  I've also seen where it is now difficult for a US citizen to open a bank account overseas due to FATCA.  When I'm in Berlin this Fall I'll have more information on the situation.  I'm also going to check with some of the nearby banks, explain my situation, and see if I can open an account.  Thanks.

 

S.

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