Monday 31 December 2007

Real Estate Investment, Pre Acquisition Phase - Information Gathering (Part2)

In Part 1 of Real Estate Investment, Pre Acquisition Phase, Information Gathering I have shown why this is one of the most difficult phases, with far reaching impact on the entire outcome of a Property Investment. Based on your Investment Philosophy, the Property Market Research and the findings from your project related information gathering you make your first adjustments in the ranking of your pre-selected property. This second part of the article series will help to further determine which property would be the right choice.

I will provide some sources of generally available information about properties and the area they are located, e.g. rent tables. They are used to determine if the property is at its prime rent level or even at risk of being over-rented in the current property market. Is there a possible upside on the income side or has the property been set up for a sale by incentivized renting to produce high rental income? Berlin is the local market with the highest relevance in Germany this article will focus on Berlin. In other regions and cities in Germany there is similar information available. You will see [Tool] in the text. This indicates tools that will be provided in a more detailed e-book to be published early 2008.

Rent Information

Probably the most useful source of information on residential rents is the official rent table (“Mietspiegel”, For more information on translations and abbreviations common in the German property market also refer to “German English Property Glossary). For commercial rents the chamber of commerce will give guidelines but you have to keep in mind that the chamber of commerce is business minded which in this case will be their paying members, the tenants.

In this article I will focus on the residential market as the more regulated sector. The rent table is important in two ways: It gives you a first indication of the rent level of your property compared to properties of the same age and standard in comparable areas. At the same time it marks the legal limits of rent raises in the near future. The rent table is re-issued every two years based on micro census and statistics and as a result of a political process involving tenants’ and owners’ representation. It constitutes part of the legal framework for rent raises and their limitations. It applies to existing contracts only. For new rentals you can ask whatever the market will accept.

An obvious public source available information are “for rent” or “to let” ads. There are several online portals easily available. Keeping in mind that the rents quoted there are sometimes a wish list rather than reality it is important to look up at least 10 similar offers to develop an understanding for the market tendencies. These figures will most likely be higher than the rent table figures.

Why is this relevant to my intended purchase?

The information gleaned from the analysis of the rent table and ads will let you determine the

  • likelihood of improvements on the rental income (upside) or;
  • risk of possible yield erosion if the rent is currently pushed to the limit or beyond.

The evaluation of upsides and risks will enable you to review your Key Investment Parameters [Tool] you have set at the beginning of the Information Gathering process (see Part 1 of this article).

Operational Cost Information

In principle there are two basic types of rental contracts:

  • All inclusive contracts with heating and ancillary cost included in the rent and fully born by the owner (“Brutto-Warm-Mietvertrag”)
  • Net rent plus ancillary cost and heating advance payments with balance at the end of the year (“Nettomiete mit Nebenkostenvorschüssen”)

There are variations with regard to the heating (coal heating, central heating per apartment etc.) which will need to be considered but are not relevant to the description of the general process at this point. For both contract types you need reliable information about the actual costs for the property. In the case of the inclusive contract it is obvious as you will have to cover the costs from the incoming rent. In the case of the net plus contract you might be forced to ask the tenants for high bulk payments if the advances are not calculated high enough. If your rent is already relatively high this might drive your tenants out and produce vacancy and renting costs at the beginning of the investment.

For cross reference on the operational cost you can again use the rent table which provides crude benchmarks for ancillary and heating cost. Also reference to experienced property managers or property consultants can give some idea about the appropriate cost level for this cost.

Next steps

The operational cost is one of the key areas for the Commercial Due Diligence for any property you want to take to the next phase. Another main topic is entries in the deeds register:

  • Is the property located in an urban redevelopment area?
  • Is it currently subsidized or was it in the past?
  • Are the bank securities higher than the asking price?

The next part of this article series will provide a list of questions to be answered by the Commercial Due Diligence and how all the findings can be best used in negotiations and Smart Purchase Contracts.

Uwe Falkenberg, the author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor.
For Property Search we recommend Properties in Berlin


Thursday 27 December 2007

Property Performance Improvement


Germany and especially Berlin were the European Property Hotspots of the last 2 years with many private investors buying properties. Some investments were made under time pressure or without thorough knowledge of the contractual situation in Germany. This has led to a need for services to resolve the issues arising out of these investment decisions.

Not all properties are performing as was promised in the exposé. There is a wide variety of reasons why this could be the case.
Some examples:

* Incorrect information at the purchase (most frequent occurrence);

* Pressure pre-sale renting with incentives and collapsing results a short period after sale;

* Non-performing property management.

It will be part of the review to determine the reason or most likely combination of reasons for the failure of the property investment to deliver the planned results.

Our Service

We apply various approaches to get to the bottom of the issues of non-performance. Where applicable we check for claim opportunities against the vendor with a forensic approach.

At the beginning of a Performance Improvement Review stands a Property Health Check. We apply our proven check lists and deliver an Opportunities Report that covers areas like rent level, cost management, vacancy management, maintenance etc.. Based on the opportunities and their respective value potential on one side and the estimated time to achieve first results, "Quick Wins", we then agree an action plan to achieve

Property Performance Improvement.

To avoid the purchase of non-performing properties we recommend a structured Pre-Acquisition process.


Wednesday 19 December 2007

Real Estate Investment, Pre Acquisition Phase

The first article of the series is about to be published:

Information Gathering (Part1)

The Pre-Acquisition Phase in a Real Estate Investment is most likely the most difficult phase with far reaching impact on the entire outcome of a Property Investment. Your Investment Philosophy is set, the Property Market Research and the pre-selection are done. There is not all the money in the world to be paid on the elimination process and the vendors and agents will push for a decision because other investors are interested. Who knows, they might even exist and snatch the best property you have seen in years from under your nose. So there is the other factor next to money: Time - or more precisely speed. I will show which processes will need to be applied to make an informed judgement.

To receive the article and not miss the following parts we recommend to register here:
Real Estate Investment Research.


Tuesday 18 December 2007

Property Market in Germany - Record Year 2007

The German Property Market will see a result of for 44 billion € sales volume in 2007. A historic record high for Germany. According to Financial Times Deutschland (11.12.07) the volume will be an increase by about 20% in comparison to the same period last year.
International investors are still very active in the German property market but German investors are returning as well. However the result was mainly achieved before the US property market crisis but a real slow as was expected has not occurred. The financing process has tended to be longer due to funding issues in the financial markets due to the US subprime problems. This has effectively slowed down the purchase process and made financing more expensive.
This price increase in financing obviously has caused some re-negotiations of previously made offers. An increasing reluctance of owners to sell right now can be observed. When € 5 million were discussed and now € 4.5 million are discussed, an owner tends to want to wait until the price is back to 5 million. The new year should bring some interesting developments, especially for investors.


Sunday 16 December 2007

Rising residential rents in Germany

According to official statistics the number of new building permits has declined dramatically in 2007. In Bavaria e.g. by 40%. This is related to reduction in tax incentives for newly built property and modernisation on properties.
Property market experts already see significant rises in rents for residential real estate, in some regions by 5% compared to the previous year. Over the next years a 10% rise is deemed to be likely.

The positive outlook for investors is self evident. However the raise of the general rent level does not mean automatic increase in income. The opportunities and best approach need to be assessed and appropriately managed to receive the most drive on the value of the property. An effective Asset Management Strategy is key to get the most benefit out of this opportunity.


Thursday 13 December 2007

Property as subsidised Pension Plan in Germany adopted by the cabinet

The cabinet of the German Federal Government has adopted a draft which allows up to 75% of a subsidised pension scheme to be used for the purchase of a property for own use.

With Germany having a high quota of rented accommodation, in Berlin ca. 85%, this option will open a vast market as exit strategy for real estate investors. Details, especially taxation are still to be finalised.


Property Tools and Checklists

A new series of articles on The Do and The Don't of Property Investment in Germany is coming to the real estate market after years of market research and experience.
The articles will provide nuggets of tips and information for all phases of the property cycle:
  • Investment Philosophy - Setting up the right Search Profile;
  • Market Research - Finding Property;
  • Pre Acquisition - Information gathering and evaluation;
  • Purchase Process - Clever contracts;
  • Financing - Providing the right Information to get the Best Deal;
  • Taking Possession - Making sure all information is handed over;
  • Managing the Investment - Finding the right Service Providers;
  • Driving Value - Setting a Successful Asset Strategy;
  • Best Results - Preparing a Property for the Sale.
There will also be Specials on items like Subsidised Property in Berlin. More comprehensive information will be available as an E-Book beginning of 2008.
So stay tuned to this blog: for more information about the upcoming article series and the E-Book.


Uwe Falkenberg

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Monday 10 December 2007

Foreign buyers attracted to Berlin real estate, Housing, Germany, Expatica

Foreign buyers attracted to Berlin real estate, Housing, Germany, Expatica
With some of the lowest real estate prices in Europe, Berlin is an attractive option for foreign investors interested in buying property. Maren Martell looks at the American and British buyers wanting a piece of the German capital.


German Real Estate Terminology and Abbriviations

A forum for English translations of German real estate terminology and abbreviations as used in ads. Is intended to grow through readers contribution. Complete list is downloadable after registration on the website associated with this blog.

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Friday 7 December 2007

Berlin Real Estate Market Sees Ongoing Influx of International Investors

Stenham has announced further investment in Residential Property Portfolio in Berlin. The Press release confirms their confidence in the market and demonstrates that the Berlin Real Estate Market is for both "Income Investors" and "Capital Investors" making biggest part of their profit after capital appreciation.

Stenham Press Release


Monday 3 December 2007

Berlin Real Estate Purchase Cost

One of the most asked questions by investors new to Berlin is regarding the typical cost involved in making a real estate investment.

The cost depends on the price of the property and the cost tables for the notary public and the land register. They are digressive, in other words, the higher the price, the lower the percentage of the cost.

For a property with a purchase price of € 1 million the cost would be roughly:

Notary Public

for the contract


For an escrow account if required (based on $ 500k)


Land Register


Property Sales Tax

4.5% in Berlin

(3.5% rest of Germany)


Agent Commission

Between 4 and 6 % plus VAT,

(assume 4%)




For a property with a purchase price of € 2 million the cost would be roughly:

Notary Public

for the contract


For an escrow account if required (based on € 1 mill.)


Land Register


Property Sales Tax

4.5% in Berlin

(3.5% rest of Germany)


Agent Commission

Between 4 and 6 % plus VAT,

(assume 4%)




For the quoted size of investment as a rule of thumb it is safe to use 10 % purchase cost for an initial calculation, with higher values reducing the percentage slightly.

These figures also identify the items where savings can be achieved:

  1. If it is a straight forward purchase an escrow account should be avoided as the saving can be quite substantial.
  2. Traditionally in Berlin the commission for the property agent is paid by the buyer. For a long time 6% plus VAT was custom and practise. With the recent influx of international investors these margins have come under pressure, especially with the agents not assuming any responsibility for the information provided by them.

The cost of financing will depend on many factors like the amount of equity used etc.. There will be cost for Technical Due Diligence and valuation, "handling fee" between 0.25 and 1 % of the loan charged by the bank and entry of the loan into the deeds register. With the right approach and experience there is also a money saving way of doing this.

Naturally there are many more aspects to be considered before making a purchase: Review of the rental contracts, maintenance, ancillary cost to mention only a few of them. Language can be quite an obstacle because an investor can not expect every property manager or care taker to speak English.

Businesses like
Berlin Portfolio Ltd. and their network of Real Estate Professionals from Notaries to Tax Consultants and Finance Brokers are specialised in assisting international investors in their investment decisions, providing a "home base" for their activities in Berlin -- before and after the purchase.

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German Property Terminology and Abbriviations - Glossary and English Translation

If you are at Rome live in the Roman style; if you are elsewhere live as they live elsewhere. [Lat., Si fueris Romae, Romano vivito more; Si fueris alibi, vivito sicut ibi.]
Author: Saint Ambrose
It is our policy that we provide information as much as we can in the English language. However our clients will obtain information and property offers from other sources. To help them to understand the main parts of that information we have provided a German-English Property Glossary which also includes abbreviations commonly used in German property ads and rental ads.

The following list is a short example, the full list has over 100 items. Getting the free German English Property Glossary will be a useful action for those that have already invested in Germany property and even more for those planning to make this exciting move. You will find the access to the complete German English Property Glossary on our website. All you need is register to get your copy by e-mail. Also staying registered will give you the benefit of getting updates.

German term
English term
Period property

Car parking space
Year of construction
Operating cost
Borough, City District

Gross Rent without heating expenses
Penthouse apartment

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