Wednesday, 25 April 2012

How to get a Mortgage for Your Property Investment in Berlin 2012



Even for a local professional, the Property Financing for international investors is an ever changing picture. Going back to a bank where we had previously successful arranged financing for an apartment for an English investor we had to find out: “We don’t do apartments for foreign investors anymore, only multi-tenanted apartment blocks”. So a permanent scan of the usual suspects is necessary to be able to come up with the financing in good time when a good investment opportunity is found. At the current market situation these opportunities wait for no man.
Living far away does not make it easier to find the right financing and going with the friendly recommendation of your agent who brought the property to you does not necessarily mean the best deal for you. So getting someone independent to support your purchase and financing process is not a luxury but common sense.

How high can I expect my mortgage to be?

This is a bit like asking: “How long is a piece of string?” The answer is: “It depends”. Here are some key factors that apply to any lender. There will be a “Loan to Value” (LTV) rate set, which will say: “We will finance up to 60%...70%...80% of the collateral or loan value”. This value is not to be confused with the purchase price. It is determined by the technical state of the building (state of repair) assessed by a building surveyor instructed by the bank at the buyers cost.
The next factor naturally is the rental income of the property. In the case of a foreign investor this is the source the bank will focus on to get the interest payments from and ultimately their mortgage. The rental income will be discounted by 20-25% for repairs, vacancy risk and other operational cost. The remaining 75-80% of the rental income sets the maximum loan as it is the amount the bank can expect to be available for mortgage payments. These mortgage payments again are determined by the interest rate in the mortgage offer. For Updated Reference Interest Rate click here.

Will I be personally liable?

In most cases: YES. There are hardly any banks around anymore that will do a “non-recourse” financing where all security comes from the property. So make sure you have a good look at the performance of the building you are about to buy. A good but well supervised property management will have to ensure that the performance of your investment is constantly improved and your personal liability never becomes an issue. We recommend a local expert to have an eye on the property management from time to time and agree goals and measures for the development of the performance of your property.

What else should I look out for in my financing?

In some cases you will decide knowingly to buy a property with a repairs backlog because you negotiated a good discount on the price for that reason. Most likely the bank will require that this backlog is fixed in an agreed time span and will hold back part of your mortgage in a low interest security account. This is ok but make sure that you agree that this money can be used to pay the repairs and that the bank is bound to set criteria as to when to pay out, never at their own discretion. We have seen cases where banks still sit on money in this security account with an interest rate of 0.5% while at the same time 5% is paid for the mortgage.
There are obviously other important issues which cannot all be mentioned here. A professional advisor will help you to avoid these traps and should be a worthwhile and cost effective investment.

To find out more about our services during the Purchase Phase, the Operational Phase and Property Performance Improvement please visit our website www.berlin-portfolio.com.


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