Why do you invest in property??

176 posts in this topic

I never bought property before and now that i have some cash at hand i was contemplating buying a flat in Berlin, for investment.

I wanted to buy a small flat, 1 or two rooms and rent it out.

The initial thought was - i will own property AND will make revenue at the same time. cool!

 

Started looking at mortgages, small flats, Hausgelt, Taxes - and adding up numbers I realized - the income is sooooo low!!

 

i cannot now remember the exact numbers, but if i buy a flat let's say for 200.000 euros and then the actual income from it after taxes is 3.000 euro a year, or even if it is 4.000 a year - what is the point?
In other words:

One invests a huge amount of money in a flat they do not live in, paying all the fees involved, (State Taxes, Notary, Makler)
taking risks with the property itself, hoping there are no roofs in need to be replaced or surprise elevators to be built,
Then all the administration and time involved with tenants - all this for 300 or 400 euros profit a month?

 

So my question to any of you who bought a flat and rented it out - 

WHY do you do it?

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It's a good question. The hassle is unlikely to be worth it. Which is why I have got to the age I have without buying property. A lot of people are speculating that in 10 years time they will be able to sell at double the price. Instead it can happen that they cannot sell for half the price when they want to cash in. Reminds me of those stocks and shares I bought 20 odd years ago...

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51 minutes ago, KimKim said:

i will own property AND will make revenue at the same time. cool!

 

hahahahahahahahahaaaaaaaaaaaaaaaaaaaaa

 

I'm only partly joking.  being a landlord is the biggest pain in the ass known to man.  Especially in Germany where tenant rights are so strong, you might not make out with the sweet sweet deal you envision.  

 

I didn't buy real estate with the intention of renting it out, but it became necessary for me to rent out my house in the US when I moved here.  After 6 years I had "net" 1.5 - 2k in the bank,  but most of that would have been eaten up to repair damages caused by the last round of tenants if I hadn't just sold it (admittedly at a very very nice profit - that was the only reason I held onto it - I was waiting for the market to bounce back so I could sell)  I could stomach the same scenario again if push came to shove, but I would never intentionally be a landlord.

 

The only property I'll buy is one I intend to live in.

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1 hour ago, KimKim said:

So my question to any of you who bought a flat and rented it out - 

WHY do you do it?

 

I think many don't crunch the numbers before buying in Germany, especially considering tenants' rights here. 

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I am an incidental landlord, like lisa13. I moved and I felt nostalgic about selling my old flat (although it was on the market for a while), so I decided to keep it and let it. If it becomes too much of a pain in the ass, I'll either leave it empty when the next lot of tenants moves out or sell it.

 

I don't see myself as a buy-to-let person. It doesn't suit me, but it can be the right thing to do for someone who has some seed money, enjoys renovating properties and is a good decorator.

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Thanks everyone, so this confirms my understanding that buying a flat for "investment" is just not worth it.

Can anyone tell me otherwise from personal experience?

 

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2 hours ago, KimKim said:

I never bought property before and now that i have some cash at hand i was contemplating buying a flat in Berlin, for investment.

I wanted to buy a small flat, 1 or two rooms and rent it out.

The initial thought was - i will own property AND will make revenue at the same time. cool!

 

Started looking at mortgages, small flats, Hausgelt, Taxes - and adding up numbers I realized - the income is sooooo low!!

 

i cannot now remember the exact numbers, but if i buy a flat let's say for 200.000 euros and then the actual income from it after taxes is 3.000 euro a year, or even if it is 4.000 a year - what is the point?
In other words:

One invests a huge amount of money in a flat they do not live in, paying all the fees involved, (State Taxes, Notary, Makler)
taking risks with the property itself, hoping there are no roofs in need to be replaced or surprise elevators to be built,
Then all the administration and time involved with tenants - all this for 300 or 400 euros profit a month?

 

So my question to any of you who bought a flat and rented it out - 

WHY do you do it?

You have 200,000 euros ?

Buy a nice..but really nice place...on Crete, don´t rent it out, live there and enjoy the sunshine! QED!!;) NO tax stuff..just quality of life...

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6 minutes ago, john g. said:

You have 200,000 euros ?

 

2 hours ago, KimKim said:

Started looking at mortgages, small flats, Hausgelt, Taxes

 

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3 minutes ago, PandaMunich said:

 

 

:P

" surprise elevators " is also delightful!!

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well i don't have 200.000 cash, i have a very small down payment and a very supportive bank ;-)

but that is not the point. 

I still did not get an answer to my question - what is the reason people buy flats (Nowadays, not 10 years ago) for investment if they don't live in the flat and if the return is so low.

and it would be better to hear from someone who actually did it...

 

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4 hours ago, KimKim said:

well i don't have 200.000 cash, i have a very small down payment and a very supportive bank ;-)

If you relate the €3000 profit per year to only that small downpayment the yield may be decent. But if you can afford only one property (and most private people do) and therefore not be able to spread the risk I´d never do it. I´d rather buy shares of a property company or a REIT.

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Depending on how big your mortgage is then you might consider it not be worth it, or too high a risk (can you afford to pay the mortgage if there is an issue and you have no tenants for 6 months?)

 

But a lot of people who have a second property which they rent out either have no mortgage, or a relatively small one.  And they are investing for the long term and consider also the property value increase which you have not considered.

 

Let's say you invest 200k and have no mortgage.  If we assume that after you have paid all costs (including tax) maybe you only make a small profit per year.  Of which, maybe you put aside some of so that you can improve the property in the future or deal with any problems (maybe in 8 years you need a new roof, maybe in 5 a new boiler, new flooring etc.).  

 

So after 10 years the property has not made much profit from the rent, but that little extra has paid for a good holiday or two.

 

But, the value of the property has increased.  So if the property value increased by an average of 3% per year over 10 years it is now worth 268k euros, after 20 years 360k, which is a yield of 180%!  Albeit over a long period.

 

 

Over time the rent will also increase, so your profit goes up.  So if you retire then you could either;

 

1)  Sell the property to invest the money in your pension (or just stick it in the bank and live off it)

2)  Use the profit from the rent as your pension, and then pass the property to your family in your will.

 

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9 hours ago, KimKim said:

Nowadays, not 10 years ago

 

I don't have a nowadays story but we are retired and are able to pay our marina fees every year from our little rental. 

 

It seems that you are expecting to make € 300 - 400 each month profit from the beginning. We took out a 10 year loan and made no profit for the first 10 years. We actually had to throw in ca. €100 each month. After that, we got the entire rent minus whatever needs doing which has been nothing up until now but we have money put back just in case. So we had extra income way before retirement which we invested for retirement.

 

We did choose to do a 5k renovation (tax write-off) some years ago and were able to raise the rent. We got that money back pretty fast.

 

The value of our property has doubled so if we run low on money during retirement, we can always sell it. As is, it's just a little money maker. Every Euro counts when one lives off of a pension. In the worst case, one of us could live in it if we had to.

 

I wouldn't recommend doing it for instant gains but rather as a plan for the future.

 

My only regret is that we didn't buy one or two more.

 

 

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Thanks DJ Jay Smith, your explanation was great!

 

so now i conclude this type of investment is not for me after all

This is for people who have a long breath, patience and think about retirement...

 

I still want to buy property but i will do it in another way.

for example - buying a much bigger, more expensive flat for myself and then renting out a part of it for a while.

(perhaps making sure that there is enough privacy for me and the tenant with separate kitchens/bathrooms?)

the rent income will cover up the mortgage difference.

 

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9 hours ago, KimKim said:

well i don't have 200.000 cash, i have a very small down payment and a very supportive bank ;-)

 

And a very good job? You could afford the mortgage payments (plus your own rent and expenses) if you were not receiving rental income from your property?

 

9 hours ago, KimKim said:

I still did not get an answer to my question - what is the reason people buy flats (Nowadays, not 10 years ago) for investment if they don't live in the flat and if the return is so low.

and it would be better to hear from someone who actually did it...

 

 

Read this thread:

I asked the OP in that thread the same question. He was only looking at the cost of buying the property and the expected income. He also doesn't live here, doesn't speak German, and is not able to manage the property himself. He still hasn't understood that being a landlord in Germany is not like investing in stocks in a limited company. Landlords (especially in Germany) need to take the time, effort, and expense of maintaining the property, administering the property, etc.

 

Furthermore, with rentals there is always the risk that you end up with tenants who don't pay and/or destroy the place. See this thread for an example, 

 

https://www.toytowngermany.com/forum/topic/373944-bad-tenants-insurance-the-law/?page=1

 

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There are 4 main reasons why properties are a super investment here.

 

  1. Tenants have a homeowner mentality and often live in the same place years if not decades. 
  2. The majority of running costs including property taxes are paid by the tenant
  3. Very generous superficial loss rules. 
  4. Tax free after 10 years

The main risk is a bad tenant, unfortunately this is true anywhere. Thankfully it's very rare. I'm in the process of writing a book (hense the new logo), actually 3 of them.  2 free or 99 cent kindle books, Tricks and Bricks, 72 tips for German Landlords, and Tricks and Bricks for Tenants ( so many problems can be avoided following a few simple rules). And the main book, the complete guide to German Property investment This  one will include several spreadsheets to help with managing the property. The first 2 will be released beginning of Feb and the main book a month or so later depending on how long editing takes. It should answer the bulk of your questions. 

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You forgot to mention the folks that are sick and fed up of paying the landlords mortgage---

 

I invested in my property cos I didnt want a landlord...  I continue to invest in it to increase its value

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7 hours ago, Tim Hortons Man said:

The main risk is a bad tenant,

Or not finding a tenant. I bought a nice flat with a nice old lady as a tenant. Then the old lady had to move to a nursing home and meanwhile the neighbouring property had been rented out to very problematic people from Russia (Russlanddeutsche)  who littered the surroundings, loitered around drunk etc. That gave the neighbourhood a bad image so I was struggling to find another tenant. The flat was empty for almost a year. The next tenant was an apprentice who fell pregnant after 3 months, cancelled her apprenticeship  and moved back to her parents after not having paid rent. Standing empty again for 7 months at the end of which  I accepted a Hartz IV recipient who turned out to be an alcoholic. That exposed me to problems with the neighbours who wanted me to evict him. On top of that he didn´t bother to apply for his benefits so that I again didn´t receive rent. He finally committed suicide in the staircase after having trashed my flat. The current tenant  has also been on Hartz IV for what has now been11 years and also doesn´t bother to apply for utility bills to be paid or answer the phone. Selling the place is impossible. The neighbouring flat was foreclosed and as nobody made an offer the bank got it for € 3500.- . I have another property in another country also with a tenant who tends to pay very belatedly (at least he doesn´t give other problems and so far in the end he has paid up except for last month). In summary: never again would I buy to rent.

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You could rent out an apartment and everything will go well and you could rent out an apartment and get a nightmare tenant.  There are some anecdotes on this forum somewhere.  In Germany tenants have loads of rights.  You could have a tenant who starts cutting rent claiming that there is something wrong with the place even when there isn't.  You can take them to court but it can take years.  You could have a tenant who stops paying alltogether and it could still take you up to a year to get them thrown out.  And you don't even want to think about what kind of damage they can do to your place in the meantime.  You may eventually get it back and have to renovate it completely.

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