How to Prepare Your Property for a Sales Transaction

Another “How to sell your Property” –You don’t want to miss this one!

The property / real estate market is a fascinating place and there is no limit to the variations of how people can get it wrong. In my professional career I have come across unbelievable attempts to sell a property profitably. There are numerous publications about the performance of a due diligence process for buying residential or commercial property / real estate. When it comes to selling most of it is aimed at selling a private home and gives the advice to make fresh coffee before the viewing because it gives a homely feeling. When you are selling an apartment block or a commercial property it would be a tough co-ordination job to get your tenants to do this in time for the viewing and would most likely not make a big difference because whoever is viewing will not move in.
However I would like to use another analogy going forward where most would know what to do: Selling a used car. When people are selling a used car they know to wash it, empty the ash tray (assuming it was used) and get the papers including proof of inspections etc. in order. You just don’t say: “It’s a nice car and when you wash it is actually red”. You make sure it looks red.
Now why don’t people do this when they want to sell their apartment block? Here are some of the answers I’ve heard:

• I don’t want to spend the money; I just want to sell for top dollar!
  Really? But you want the best possible price, right? This attitude will cost you because the buyer’s estimate is going to be very cautious and then double to make sure.
• The new owner should do it as he thinks it is best.
  So you owned the property for how long and still don’t know what is right for it? Must be a difficult property – why should I buy it then?
• The list is endless – believe me!

These are just some examples and I don’t want to bore you with more because you already understand where this is going.
No matter at what scale a sale is negotiated; the game plan is always the same: A potential buyer likes a property but not its price tag. So he employs an army of technical, legal and commercial consultants to find “risks” or arguments to reduce the price. The name of the game is “Due Diligence” and believe me, there is a fortune to be made or lost in this game if played right. I am not talking about the consultants who are happy when a deal falls through because there is no risk for them if they missed something. They get paid anyway.
Keeping this in mind, what should you do when you want to sell you property?
Well, many things; first of all, have a close look at the property yourself! Don’t let your property manager tell you that ‘it is just fine’ because he/she is blind after managing the property for some time and might be in trouble if it was not. It is like that letter on your desk that becomes invisible after two or three days, it just becomes part of the landscape. Pretend you are looking at your property for the first time and you are considering buying it (again), or let someone professional do it for you. I am sure you are not surprised, but I am actually offering this service. [link to website]
What in the world is the purpose of due diligence?
Well, to me it’s one of those “Games People Play”. It is all about negotiating the price.

The traditional division of the skills is “legal” (most expensive), “commercial” and “technical”. This is justified when you are buying a shopping centre or a portfolio of 100 apartments or more, but what do you do when you want to buy an apartment block of say 10 apartments?
Here are some of the punches just above the belt I like to place, when I am managing a due diligence on behalf of the potential buyer:

• What are the tenants’ complaints over the last twelve months?
• Which repairs are outstanding?
• Show me your planned maintenance plans.
• Show me your rent-review plan.
• What does the vacancy look like, any contract notices?

These are just a very few examples. When you are selling, you need sound and quick answers to all of these questions or your asking price is crumbling before your very eyes. Does your property manager know them and is he going to provide the right answers? Is he professional enough not to sabotage your sale because he does not want to lose the contract? You have to answer these questions for yourself I’m afraid, but I think I would know the answer in most cases.

SUMMARY:

If you or your property are not well prepared for the sale you will suffer totally unnecessary price reductions or even loss of promising sales.
During the next few weeks I would like to take you through the process necessary to achieve the best possible price for your property – not just in Germany. For any questions or suggestions please contact me through the contact facility of our website, it goes directly to my iPhone and computer.

How to Prepare Your Property for a Sales Transaction

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.

Reserve your seat

We will shortly run a webinar on how to get your information from the Berlin Rent Table even without knowledge of the German language. If you subscribe to this blog at the bottom of the right hand column of this page you will not miss the announcement, you will not receive any other mail from us other than the blog updates, unless you sign up for one of our mailing lists.



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

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

Investment Barometer on the assets of private investors in Europe and the USA

The top priority for private investors in Europe and the USA is the safety of their investments. To achieve this, they are willing to accept moderate returns. Approximately half of the Europeans and almost seven in ten Americans have invested money in savings deposits. At the same time, the proportion of non-savers has decreased on both continents. These are the findings of the Investment Barometer survey carried out by GfK Custom Research on behalf of The Wall Street Journal Europe.

One of the safest investments is into the German Property Market with its stable legal and commercial system. Provided a technical, legal and just as important financial due diligence is performed independently the robust economic environment provides ideal conditions for a safe and prosperous investment.

As a Home Base in the German Property Market for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities.
Independent support for the property search including foreclosure or auction properties and their valuation or appraisal.

For the purchase phase we provide an Investment Management Service supporting the gathering and submission of any project related information to banks and act as local contact for the investor and the bank. We also assist in finding local finance institutions and possible government subsidies for renovations.

Last but not least we provide support finding the appropriate arrangements for the management of the investment and Asset Management Services.

For more information please visit our website http://www.berlin-portfolio.com/.

Uwe Falkenberg

Investment Barometer on the assets of private investors in Europe and the USA

Residential Property in Germany - Better Performance

According to a current IVD study tenants in Residential Property in Germany have to spend more than one third of their net household income for rent and operating costs, in Berlin 40%. IVD is Germany's biggest organisation of property professionals like agents, property managers, valuation experts etc.. According to the study, the biggest factor for increases in the area of operating costs ("Betriebskosten" *)) was fossil fuels. The cost of heating alone rose by an average of 38% during the past five years and now has a share of 40% of all operating costs. The second largest block in the operation costs is water and sewage at 20%.

Even though there was a rise in the net rent in big cities, especially Berlin in the last 2 years the scope was limited by the sharp rise in operating cost. A good Property Asset Management will have to apply measures of Property Performance Improvement to create options for an increase in the net rent. For the tenants the bottom line of net rent plus operating cost determines the budget. A decrease in operationg cost will create scope for further increases in the net rent.

Uwe Falkenberg

*) For a free Glossary of German-Englsih Property Terms and a property newsletter you can sign up on our website www.Berlin-Portfolio.com

Residential Property in Germany - Better Performance

Service Level Agreements in Real Estate Asset Management

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 10^th 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 10^th 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!

For Property Search we recommend Properties in Germany.

Service Level Agreements in Real Estate Asset Management

Foreign Investors are looking for German Compentencies

Especially foreign investors are currently looking for a "Home Base" in Germany. They do not have their own offices here but bought substantial property portfolios throughout the last months. Just Property Management does not achieve the investment objectives of stable development of the portfolio value. A growing number of Investors are looking for experienced partners in Germany.

The German market is reacting by establishing the service providers to meet the growing needs. Just renaming a property management will not do the trick!

Foreign Investors are looking for German Compentencies