Sunday, 29 September 2013

Yield vs. Multiplyer (Faktor) and how to Monitor your Property Manager

In this short article I will define the difference between the terms "Faktor" and yield in Property investment in Germany and how you can use the Faktor as a tool to manage your property management and monitor the value development of your property without having to get an expensive valuation.

Receiving property offers from Germany you most likely will come across the term "Faktor" meaning multiplier. It describes the rental income of a property (net rent without ancillary cost like heating) through the purchase price divided by the annual net rent



 purchase price
annual net rent

Often you will also get the figure for "Rendite" which is a percentage figure and the word for yield. However this term can lead to misunderstandings between parties: Is it calculated before or after purchase cost like property sales tax, is it before or after property management charges etc.? The definition should always be clarified before discussions.

An active property management will have to look to raising the rent in an appropriate way which is legally sound and does not scare away the tenants you want to keep. One of the mostly used references are rent tables which are published by local authorities for big cities. If your property manager is not keeping the rent for your property at least at the level of the rent table they are throwing away your money. Most likely they will come up with lots of reasons why it is hard to get the rent you could expect according to the rent table. If the reasons are based on the state of the property the reasons need addressing. Otherwise you can show the damage the property manager is causing using the "Faktor" mathematics. An example:

  • A 100 m² apartment is rented for 5.50 €/m² per month.
  • The rent table states an average for the building age and location of 6.50 €/m².
  • The "Faktor" when you bought the building was say 18.
  • The "damage" caused by the property manager is calculated as the difference between the actual rent and the table rent 1.00 €/m² times the rental area 100 m² times 12 months = 1,200 € -- quite a figure already. But to arrive at the value you multiply this annual figure by the "Faktor" and arrive at a damage of 21,600 € just from 1.00 €/m² in one apartment.
If you were to sell your property now you could get 21,600 € more without any discussion or any investment while it certainly would be nice to have the monthly income in the first place. These facts will change your position in the discussions with your property manager
The view above is on existing rental contracts only. For new rentals the impact of underselling by the management company can be much greater. In our experience the new rental price is determined by the rental agent the property management is "associated" with. The driver of this process is usually more for an easy rent and a quick commission rather than the best result for the owner.

This "Faktor" method also allows you to assess easily the likely market value of your property by applying the "Faktor" and the annual net rent.This will give you an idea if your location value has not changed significantly, e.g. closing of an airport nearby or major improvement or decay of your property itself.

I have shown how the "Faktor" compares to yield and how it is calculated. Furthermore I have shown how it can be utilized to monitor the performance of your property manager as well as the value development of your property. However "the devil is in the detail", you still need to get all the information and it would most likely be more reliable if you don't have to ask you property manager for it, only the actual figures need to come from him.


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For support in the assessment of the performance of your property and your property manager please visit our website at www.berlin-portfolio.com. Please use this link to the contact facilities provided there to place any requests .
Uwe Falkenberg


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