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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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

Berlin Property Crisis

The Berlin Property Market is swept clean of apartment blocks for sale.

• If you have considered selling your property in Berlin – now is the time!

• If you have not considered selling your Berlin property yet – now is the time!

We are experiencing high demand for Residential Property in Berlin and prices have risen steadily. Investors are biting their nails about the property they turned down half a year ago as being too expensive.
We have helped international property investors from the UK and Ireland to get their property ready for the market and have more than met reasonable expectations regarding the purchase price.
We provide all necessary services and support to bring your property to market and position it at its optimum. These services are free if we are then allowed to sell your property as agents.
If you want to find out more please leave your contact information below and you will receive a more detailed description of our services.

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Berlin Property Crisis

City of Berlin has extended protection of condo tenants to 10 years.

The Berlin City Government has signed off a new regulation today starting 1. October 2013 protecting current tenants of a property newly divided into condos from being given notice for the purpose of own use for a period of 10 years after the division. This new act replaces the last 2011 regulation which only covered 6 districts and 7 years whereas the new one applies throughout the city.

This protection is for the residents at the precise moment of the division only. In case of new rentals the new tenants should be made aware of the fact that their new home is actually a rented condo, buy-to-let apartment or investment apartment as they are called as well. There is no influence on rent levels, contract durations or any other contract matter through this regulation.

The purpose of this act is said to address issues of so called "gentrification" in popular central locations and the impact of current short supply of affordable (low rent) apartments on the rent level inthe city.

For support in the identification of the right investment targets please visit our website at www.berlin-portfolio.com. Especially for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities. We provide independent support for the property search including foreclosure or auction properties and their valuation or appraisal. (Also see our free property market Research Service) Please use this link to the contact facilities provided there to place any requests .
Uwe Falkenberg 

City of Berlin has extended protection of condo tenants to 10 years.

Rise in Porperty Prices and Rents Flattens Out in Q2 / 2013

The much scrutinised rise in property prices and rents over the last months is taking a breath in the second quarter of 2013. This is the result of a regular study performed by Empirica  (click for full report in German) looking at advertised offers.

Investment Apartments

For condominiums, prices went up by 0.1% compared to the previous quarter 2013 but up by 5.1% for the German average compared to the second quarter 2012 (YTD). For the big cities this YTD figure is even 6.7%.

click to enlarge
 

Interestingly the Berlin market for condos does not appear in the top 10, yet neighbouring Potsdam made it. Common view is that Berlin will catch up soon and at high speed. Berlin being traditionally a city of renters (more than 80% are renting) there is a high influx of international money looking for investment after the stock markets are getting more and more volatile due to uncertainty about the duration of cheap money from the Federal Reserve in the US.

The demand of international investors is mainly targeted at buy to let apartments in preferred locations in Berlin.

Rents

There was virtually no change in rents compared to the previous quarter detected by Empirica. Compared to last year the average rise in Germany was  3.3%.

click to enlarge

The graph shows Munich ranking in No.1 as has been for years now. The Berlin Rental Market is still behind but the catch-up over the last years has been enormous.

For support in the identification of the right investment targets please visit our website at www.berlin-portfolio.com. Especially for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities. We provide independent support for the property search including foreclosure or auction properties and their valuation or appraisal. (Also see our free property market Research Service) Please use this link to the contact facilities provided there to place any requests .
Uwe Falkenberg

Rise in Porperty Prices and Rents Flattens Out in Q2 / 2013

Update: Increase or Property Sales Tax in Berlin

www.properties-in-berlin.com

The Berlin Senate has now decided to raise the property sales tax (stamp duty) in Berlin from 5% to 6% taking effect 1. January 2014.

As a compensation the Senator of Justice will introduce a legislation for agent's commission to be limited to 5% plus VAT. Currently there is no regulation but the custom is 6% plus VAT - negotiable, especially for bigger investments. In Berlin as in most parts of Germany the commission is fully paid by the buyer.

Both the level and the fact that the buyer is paying the full commission is a "surprise" for many international investors but in the current "seller's market" situation hard to negotiate.

See the previous posting in this blog.

For support in the identification of the right investment targets please visit our website at www.berlin-portfolio.com. Especially for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities. We provide independent support for the property search including foreclosure or auction properties and their valuation or appraisal. (Also see our free property market Research Service) Please use this link to the contact facilities provided there to place any requests .
Uwe Falkenberg 

Update: Increase or Property Sales Tax in Berlin

Increase of Property Sales Tax in Berlin!

The Berlin Property Market
is very popular with
Inernational Investors

According to several Berlin newspapers the Berlin city government is planing to raise the property sales tax from 5% to 6%. This is to compensate for a reduction in subsidies Berlin receives from other German states like Bavaria in the 2014/2015 budget.
It is not clear yet when this increase will take effect. The Christian Democrats in the government want to compensate this by reducing agents commissions but there currently is no legal tool to achieve this.

Anyone considering a property purchase in Berlin might want to speed up the selection process to save that extra 1%.

For support in the identification of the right investment targets please visit our website at www.berlin-portfolio.com. Especially for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities.
We provide independent support for the property search including foreclosure or auction properties and their valuation or appraisal. (Also see our free property market Research Service)
Please use this link to the contact facilities provided there to place any requests .
Uwe Falkenberg 

Increase of Property Sales Tax in Berlin!

Berlin's Housing Market - Skyrocketing Prices | Made in Germany

This article was shown on DW - Deutsche Welle. It characterises the situation in the central districts of Berlin and highlights the fact that compared to other German and European cities this is only the beginning.

Use this Link if the video does not show: http://youtu.be/mIokc-VFKRA

An overview of price developments is available on our website. Provide your details on the left of the page and have the latest report sent by email.

For support in the identification of the right investment targets please visit our website at www.berlin-portfolio.com. Especially for international Private Investors and Property Funds we provide a task force service for quick reaction to interesting opportunities.

We provide independent support for the property search including foreclosure or auction properties and their valuation or appraisal. (Also see our free property market Research Service)

Please use this link to the contact facilities provided there to place any requests .


Uwe Falkenberg 

Berlin's Housing Market - Skyrocketing Prices | Made in Germany