After years of stagnation, Berlin’s housing market is prospering again. Rents and purchase prices are rising in a growing number of locations, and only a minority of districts are still suffering from declining rents and prices. That’s the result of the second Berlin property market analysis put together by Berlin’s leading private housing company, GSW, along with consultants Jones Lang LaSalle.
To download the full report please visit our website www.Berlin-Portfolio.com
Due to market request a well know overseas finance provider is making this offer:
If you are purchasing a property in Germany, German Mortgages are available for UK & Irish based Employed or Self-Employed Residents (who appear on that Country's Electoral Roll) or non-German Nationals living and working in Germany for House Purchase - other purposes on a case by case basis.
Loans are not currently available for Stage Payments or Buy-to-Let purposes.
Type of German Mortgage: Repayment Mortgage only
Minimum: € 40,000, Maximum € 1,000,000, but must not exceed 70% of the purchase price.
Proof of Income: required in all cases (can be made up of Earned or Pension Income and up to 80% of any Rental Income from the new property, if there is an existing Rental Contract in place).
Term: Minimum 3 years; Maximum 30 years
Currency: Euros only
Current Variable Interest Rate is from approx 5.70%.
Example German Mortgage: Repayment Mortgage of approx €70,000 over a period of 25 years at an Interest Rate of approx 5.70% variable = approx €444.00 capital and interest per month = a total approximate amount payable over the term of €135,900 including capital, interest, arrangement and survey fees.
Part 1 of this article series has explained some commonly used fee models for property management services and the going rates for these in the Berlin property market. This second part of the article will identify areas that frequently are omitted in management contracts and will lead to extra "surprise" cost that in most cases is not budgeted for. It will also provide guidelines how to prevent such surprises. Other areas of concern are not directly property management related services provided by the property manager and how this can undermine an initially competitive fee.
What is included in the agreed fee?
A healthy balance between what is included in the fee and what is included in the contract but for an extra fee and how is that fee calculated is key for cost control. If you want too much included you pay for it every month even when you are not using it. If you have too many extra services you are not in control of your cost and have to spend time signing off for extra delivery often not being in full possession of information needed for said sign off.
An example for useful extras: The writing of a rental contract should be included in the fee. The actual renting commission should be paid extra which also leaves you the option to use an external rental agent but still have the property manager responsible for the content of the rental contract. Similar regulation could apply to repairs once they exceed a certain amount.
I recommend agreeing a fee structure for extra services likely to be needed at some point during the contract during the competitive phase before the management contract is signed. You are likely to get better deals than asking for extras after signing.
Fee related performance measurement
I always integrate output orientated service descriptions or Service Level Agreements (SLA)and performance measurement tools like Key Performance Indicators (KPI) in the contracts I negotiate for clients. This way it can ensure that the property manager knows what is expected from him and also knows exactly what happens (to his fee) should he not perform as agreed.
Other services provided by the property manager
It is popular amongst property managers to have their own or be in partnership with all kinds of facility service providers like cleaners, landscaping, plumbers etc.. Without clear regulations on the letting of contracts a very compatible property management fee could easily be over compensated through these extra services.
Kick backs from suppliers, insurances etc.
It is not a general practice but not uncommon either that discounts, tip provisions etc. are paid out separately. It has to be made clear to the property manager that it would be seen as a conflict of interest if the property manager would not pass these benefits on to the property.
Overview of results
The two parts of the article Berlin property -- Cost of property Management and the best way to control it, have provided examples to illustrate the diversity of factors that influence the cost of property management and at the same time the quality of service. There is the fee model, fixed rate or percentage, no less important the contract specifications and last but not least other services provided by or under commercial interest of the property manager.
Especially international private investors will find it useful to have a local representation and an extra pair of eyes on their investment and the performance of its management. For single apartment buildings or small portfolio a full property asset management will not be affordable. In this case I recommend
International property investors as well as German property investors are permanently facing the issue of getting value for money from their property management.
Which is the right fee level that does not absorb high proportions of the rental income but enables the property manager to provide the right service level required? How should the fee be calculated? What is the going market rate? What is included and what is extra? This article will give an overview of the rates an investor has to be prepared for and some existing fee models.
Every property investment needs a property management that is right for the property, right for the investor and right for the budget available. The requirements regarding qualification and quality are not discussed in this article and will be addressed in an upcoming publication. I will provide some examples fee payment models and then provide a fee span for the going rate for each model and an evaluation from the investor's viewpoint.
Fixed rate model
In the fixed rate model the property management fee is based on the number of units no matter whether rented or not. There is no relation to performance of the property manager or even the performance of the property. In other words you still pay the full fee, even if half the tenants move out. A variation on the theme is a slightly reduced fee for vacant units. Quite often this model does not differentiate between residential property units and commercial property like retail or office. It is only used when the commercial property has a relatively small share of the total investment.
The going rate in
The service provided by the property managers with this type of fee model seems to correlate with a quite basic service level. It is a preferred model used by small one man band or so called kitchen table managements working in a semi-professional manner.
Percentage model
At the first glance this seems straight forward and fair but it depends very much on the parameter the percentage is applied to. Let me show you some variations on the fee model:
There are many more iterations possible but these are the most common ones. Again there will be VAT at the current rate of 19% added to the fee.
So if you are discussing property management fees and someone boasts that he is only paying 3.5% management fee what does that tell you? Right! It tells you almost nothing, only that they are using a percentage model.
Only the last option mentioned above based on the net actual rent really ties the fee a property manager receives to the rental income he helps to raise as a performance measurement. It is also the only model providing an incentive to not only sign nice rental contracts but to make sure the money is coming in every month. There are constellations like a renovation period when this fee-model would not be fair and another approach could be required that should be limited to the time of the exception.
Taking the just said into account it is a complex task to provide a guideline on going rates. There are guideline tables available but most are influenced by property managers associations. Also the size of a property or the fact that there is a portfolio with a single owner and one type of reporting will influence the fee calculation.
For a single apartment building with 20 to 40 apartments you should be able to get a decent management with simple reporting and bookkeeping for a rate of 4.5 to 5.5 % of the net actual rent. It will be some negotiation but is achievable. If you need balance sheet bookkeeping because you have a legal entity like a GmbH as owner it will be more to the upper end of the fee span.
A mix of fixed rate model for the residential units of a property and percentage model for the commercial part are quite widely spread in Berlin since many of the inner city apartment blocks will have some retail units on the ground floor and some other commercial units on the first floor while especially side wings and rear buildings will be predominantly residential.
In part 2 of this article series I will investigate
For a check up on the content of property management contracts and related costs please contact the author.
Everyone looking for properties in the Berlin property market will sooner or later come across information about property auctions, private voluntary property auctions or forced court auctions / foreclosures. I will focus on the latter because this is where the real opportunities lie. There are various lists available and some agents are instructed by the banks involved to find sufficient bidders for the auction. This article will provide a step by step check list to pilot an investor through the thicket.
Every foreclosure requires an independent valuation with a description of the technical state and a tenant list and information on the deeds register. This will naturally be in German. Another issue is the fact that by the time the auction date is set this valuation will be easily one year. During this time property is under forced administration with hardly any money spent on the smallest of repairs. Further information gathering and updating is required and obviously a viewing of the property.
As a private investor or a property fund manager you are hardly in the situation to achieve all these tasks without travel and a considerable commitment of time. This will easily lead to discarding of what could be a lucrative investment.
The service required will have to cover these 5 steps to avoid and manage risk:
These are five key items other may evolve in the process.
To cover these items you need local knowledge, bits of time here and there. Unfortunately it will be almost impossible to co-ordinate all these items to be taken care of in a short visit so local support is inevitable for a foreign investor. Some of the work will be offered by the agents who in the case of a foreclosure are paid by the bank --- only if sold though. The motivation is clear so independent advice is highly recommended.
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.
He offers a "Property Health Check" and problem solving for non or not as good performing properties as promised at the outset. This includes "forensic" review of the information provided at the purchase and review of the performance of the property management - all in English!
Performance measurement is key to a successful service philosophy:
What you measure is what you get!
We have developed a system of Service Level Agreements (SLA) with Key Performance Indicators (KPI) for Property Management and other property related services like facility management. A vital part for the system is the inclusion of performance reviews and evaluations. We always incorporate a performance based element into any management or service fee.
In order to be able to measure results these results have to be defined and just as important a measurable unit has to be associated to it to determine the fulfilment of degree of fulfilment of the desired results.
An example: You want correct and timely reporting because that is also what your bank or your shareholders expect from you. So you have to define what the content of the report has to be. This would be your very rough service level for “reporting” in your service level agreement. The next steps are the measurements for the delivery of the results (key performance indicators, KPI): There should be no errors in the report. The report for the previous month should be delivered to your e-mail or uploaded on a reporting portal at the latest by the 10th of the following month and in hard copy 2 days later.
But of course this is only half the job. Thanks to the KPIs you can measure the fulfilment: Number of errors and days of delivery after the 10th of the following month. Now you have to define the consequences of this non-compliance. This is done by attributing points to the various KPIs, say per error 10 points reduction and per day of delay another 20 points. If the amount of points reaches a certain level there will be fee-reductions. If it becomes unbearable you have measurable results as grounds for a contract termination, a very strong argument should there be a discussion or even legal action.
These service level agreements and key performance indicators are very powerful instruments for managing the performance of your property portfolio and services generally. They should not be seen and used as a means of fee reduction after signing a contract. Actually you want to pay the full fee agreed because then you know that everybody is performing as they should. The setting of the points for the KPIs requires some skill and a clear strategy of what you want to achieve. By giving certain areas like renting of sales support special weight you set the points high. This will be a strong motivator for your property manager or asset manager to perform especially well in these areas as there is a likely punishment for failure. This aligns the actions of your service providers with your goals.
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.
He offers "Health Checks" and problem solving for non or not as good performing properties as promised at the outset. This includes "forensic" review of the information provided at the purchase and review of the performance of the property management - all in English!
The gap between supply and demand in the Berlin Property Market keeps growing. According to the Housing Market Report Berlin 2016...
