When it comes to investment in German property, because of the make-up of the market, which will all be explained below, buy to let investment mainly consists of the former rather than the latter.
Overseas property pundits have been predicting a boom in German property for decades, indeed people had all but given up on it in 2008, then after the worst financial crash in the history of man Germany booms to life. In order to explain this ironic happening and why Germany is such a great buy to let investment destination lets go back to the beginning.
To the 80s, when Brits first started buying up German apartments on the promise of good rental incomes and a possible boom on the horizon. These owners got their reliable rental income, because of the large percentage (50-60%) of the German population that rent their homes. But this high percentage of renters also stopped them from getting the boom, because the German government is forced to impose strict controls governing rent increases in line with wage growth.
The restrictions in turn kept a lid on price growth, and with no real profit to be made from the sale of housing developers have no incentive to build to the extremes we see in other European nations. So, supply stays low, prices are kept-a-lid-on, and rents grow slowly in line with wage growth; investors get reliable if low-yield rental incomes and the market goes on like this for some very boring years.
At intervals interest in German property would pique and a boom would be predicted but hopes were slowly dashed as it always failed to materialise. But then the world suffers a catastrophic implosion and booms became a bad thing, in fact since 2009 a boom would be impossible because rapid growth is almost always called a bubble. Suddenly the slow, steady and reliable rental income and growth of German property is just what investors are looking for.
Germany never boomed and so Germany never bust. Resilience to the crash became one of the top items on every overseas property investors' checklist, and so Germany received new-found interest. At the same time the German economy recovered strongly from the crisis and restrictions on rent growth were eased. This brought an increase in rental incomes and yields, rewarding those who had already invested, and making it even more appealing to those considering it. Now Germany has become known as a safe-haven, but with a price-tag that is more affordable than most of its peers in that niche, which has seen the popularity of buy to let investment in Germany continue to soar.
Buy to Let (Example Only)
John decides to purchase an investment property and he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.
Our investment advisors suggest property development X as a solid investment opportunity and meets with John's deliverable criteria.
Investment property X is a plush modern city centre apartment priced at €110,000.
Initially John pays his reservation fee of €1,500 to hold the property.
Next John pays a 30% deposit of €33,000 (minus the €1,500 reservation fee already paid)
Our investment specialists negotiate a mortgage for John for the remaining €77,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of about €250 euros per month (interest only).
The average rental rate for such an apartment in a city like Berlin or Hamburg would be around €700-€1000 per month for long term rental. As a residential buy to let investor, if you can find a good tenant it is possible to have them for years, which means no overhead on finding new tenants, and also good tenants keep the place maintained. But as we don't live in a perfect world let's say John rents for an average of 10 months per year.
Total Rental income = €10,200 (€850 * 12) after subtracting the €3,000 Mortgage repayments John has made a profit of €7,200.
During this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 10 months of the year, which is very conservative on long term lets of the €110,000 city-centre apartment variety in undersupplied and high demand cities like Berlin and Hamburg.
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