The one where terrible things happen to our house
Of course you’ll run into issues along the way - but are they big and scary enough to stop you from investing in real estate altogether?
We are feeling frisky in our little home office slash newsroom over here, throwing all caution to the wind and all restraint over board! This is RAS, the clickbait edition! Come in, come closer, you won’t believe your eyes! What you also won’t believe: Click here to find out the shocking things that happened when these two friends spent all their money on a house! And here’s 12 surprising facts about real estate in Germany (how crazy is No 9??). Should we let you in on the secret to becoming rich (if only I had known earlier!)?
Seriously, though, there is a list of things we REALLY didn’t see coming when investing in real estate and it absolutely is worth sharing - for the fun of writing this alone but also because, as always, there are lessons to be learned here (before you think about investing in real estate, read this!). Let us deal with the crazy so that you don’t have to, that kinda thing. First learning: man, it would be fun to write for Buzzfeed, no?
Clickbaity headlines aside, this very real story did make my jaw drop: While every fourth person in Germany theoretically has the disposable income to invest in property, only about 12% actually do own real estate that’s currently rented out. These numbers are from a few years ago but I can’t imagine that the discrepancy has become any less pronounced (it probably actually increased, seeing that the average German has seen a steady increase in median income for years). What’s keeping everyone, then? Luckily, Institut für Demoskopie Allensbach, a renowned institute for consumer insights did a study, asking exactly this question. And this is the answer: About a third of those asked why they weren’t investing in real estate said they simply didn’t feel like they had enough information to confidently make such a big financial decision (a fact that we are trying to change, obviously). But even more of those surveyed - a whopping half of all of them in fact - said that the reason they are shying away from real estate is the fear of tenants destroying their property. Gulp. Are we disgracefully naive in undertaking our little real estate adventure ? Or are Germans just a bunch of doom and gloom-loving pessimists, perpetually preferring to see the glass half empty and the apartment half trashed?
Whatever the answer may be, the phenomenon that half of the population seems to be afraid of has a name: while it’s unclear who coined the term “Mietnomade”, an insensitive coupling of the words for “tenant” and “nomadic people”, its sensationalist leaning has made German media jump at the chance to revive the kind of urban legend that leaves everyone shuddering. For a while there, in the early 2000s, it felt like every tabloid-y news show had its own version of the “tenant scamming landlord by trashing apartment and vanishing into the night” story. Whether it’s actually common to happen? Who is to say. A bit of research suggests that the numbers you will read very largely depend on the author’s agenda: landlord and agent lobby groups a few years ago pressured the government to change laws to protect those renting out from what they say are between 15 000 of 30 000 cases a year. Groups representing tenants on the other hand claimed that, over the course of five years, there were only 200 cases of tenants leaving a trail of destruction and unpaid bills in their wake. Quite a difference. I know. No matter what the scale, though, it’s clear that on an individual level, these occurrences cause enough damage to jeopardise people’s investment and potentially financial future. To be honest, it didn’t even register as a real risk when we started out and I think that’s an okay notion to go by. Sure, you can stress about every eventuality (and that’s what the insurance industry thrives on) - but luckily it’s not something we have encountered in the years we have been renting out. So let’s turn our eyes towards the things that happened, to and in our house? Not as devastating financially, but certainly some headscratchers that left us scrambling to find solutions.
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Take the case of the mysteriously smashed door for example. It belonged to our tenant on the third floor. Barkeeper, paid his rent on time, never an issue. But for the one exception, a gaping hole in his apartment door. Further investigation and a conversation with said tenant revealed that we hadn’t serendipitously arrived at the very moment an angry postman or scorned ex had kicked in the door. The hole had been there for over a half year. How it got there? Unclear. Why it wasn’t fixed? Yeah … same. He supposedly had mentioned it to the property manager but then “forgot about it”. As did they, very apparently. Did he like what seemed like a DIY cat-flap? Was he cold at night with a draft coming in from the front door like that? Suffice to say, we called a handyman immediately and had the thing fixed. Wild. And a good reminder that property management companies are not necessarily incentivised to put in a lot of work and that it’s a good idea to stop by your property regularly if you can.
Other surprise crises weren’t quite as easily remedied. One of the biggest of those happened relatively soon after we had purchased the Hamburg house. Within a few weeks of having introduced ourselves to the tenants as the new owners, we received several complaints about piles of trash bags being stacked up in a little alley next to our house. It became clear that neighbours from the property next door were throwing their trash into “our” bins as they hadn’t been provided with sufficient opportunities to dispose of their refuse, in turn creating a Mini-Naples on our property. There simply weren’t enough bins provided for the number of people our neighbour was housing next door - and our tenants had every right to be annoyed. Unsightly, smelly and a potential feast for pests of all sorts (yuck!) - this really had to be addressed. We tried talking to the neighbours first but realised quickly that the colloquial approach wouldn’t really get us anywhere. Getting in touch with the city’s waste management and environmental offices also did nothing but lead us down Kafka-esque rabbit holes. The solution we finally went with, simply because we didn’t want to risk our tenants being frustrated with us this early in the game, was costly but did the trick - we installed quite a sturdy gate at the entrance to where our trash cans are.
Other things we had to deal with over the years, in no particular order: the neighbour on the other side who wanted to build a new house and contractually agreed to have an expert document the demolition process to ensure all insurance requirements were met. Only to quietly do the Miley Cyrus thing one night and bring in a surprise wrecking ball without telling anyone, making us wake up to a pile of rubble (and no documentation, obviously). The tenant that hasn’t let anyone into his apartment to carry out building maintenance work, some of it legally required and, thus, a serious problem. And the property manager who has taken several months to research a tiler to replace a broken bathroom floor that we’d really like to get fixed for the tenant (if you know anyone, comment below, we are still waiting).
None of these are life and death situations. All of these are fixable - and, quite frankly, what you’d expect in return for the privilege of providing housing and turning aprofit at the same time. Yet, if you come at it like we did, without a ton of experience and expectations, you might find yourself stumped at times. And surprised at the amount of brainpower and work it takes to come up with creative solutions and make those a reality. So what have we learned, really (I know, enough of the grandmotherly storytelling-ramble already!):
You do eventually need a lawyer, it just won’t work without one. Ask around for recommendations and keep looking if you are not 100% vibing. For us, the trigger happy neighbour and his nightly demolition party was that line - we just needed some solid legal advice. And yeah, a good lawyer charges a ton of money and bills by the hour. Bummer. But given your overall investment, it’s worth it
Don’t forget your moral compass. Yes, this is an investment for you but as I said above - it’s also housing for others and that makes it a huge responsibility in my opinion. It’s great that we are tenants in our respective flats because that makes the “what would we like our landlords to do?” question super easy and that’s always a good guide. Of course you’ll save some money if you don’t fix a problem - but is that the kind of landlord you want to be? Nah …
Lastly, and this one is kinda obvious, you will avoid most of the biggest problems if you put a lot of effort into choosing the right tenants for your property. No surprise that most of our disasters involve neighbours, not tenants. In fact, finding and choosing those you are going to rent out to will warrant its own post in the future I think (makes mental note)
So back to our list of phobias and the German angst (I love that this is an English word) of real estate disasters. It’s hard to tell whether the fear of Mietnomaden is justified or not. That of tenants not paying their rent (without the destruction part) certainly is much more realistic. So realistic that there’s insurance policies against loss of rental income - which experts contest are hardly ever worth it given the fact that policies are narrowly worded and offer protection in very specific cases only. We don’t have said insurance - what we did have, however, is a tenant that doesn’t consider rental payments a binding obligation - which can turn into a nightmare. You have the moral issues to contend with (why is someone not paying their rent and how do you want to react?) as well as the fact that the German law heavily protects the rights of tenants. They are, in fact, a bit of a sacred cow in German jurisdiction - which is why we have always tried to find amicable solutions first (but then get a lawyer quickly). Will that always work? Sadly, no. But we can’t really discuss it now, which is why I am making a second mental note to discuss what we learned in dealing with a tenant who just wouldn’t pay his rent once the very real case we are dealing with right now is over. As much as we appreciate all subscribers, we wouldn't want him to read about his story here … as Germans, we take tenant protection and data security equally as seriously.
Before we leave you, one last thought: what if the real risk of investing in real estate doesn’t have anything to do with your tenants? Or even your neighbours? What if there’s additional scenarios one should think about when contemplating buying property and renting it out?
Socio-economically, I believe, the country would benefit if more people owned real estate, yet here I am, adding to a list of (unjustified and exaggerated?) anxieties that might have the opposite effect. Honestly, that’s exactly why I am keeping this one brief - it just doesn’t feel right to detail something that hasn’t had a tenable effect on how we think about our investment. Yet duty of care dictates that I at least mention those whispering voices that believe political decisions to in fact have the biggest impact on real estate returns in the long run. Sure, the Berliner Mietendeckel has been declared unlawful by Germany’s supreme court. But affordable rents, gentrification and equity in urban living are red-hot topics and at the time of writing this our new government is a few days old. So it’s not completely unfathomable that policies aimed at bridging the economic divide might bring about changes to those owning real estate in the mid-term - as might raising interest rates in the future.
We have all learned to resist the sweet beckoning of a clickbaity headline and move on with our lives. If that means investing in real estate without any fear of scary things happening - even better. Whether it’s anthophobia or emetophobia or taphephobia - these fears are common enough to have real names. The fear of something bad happening to your real estate does not (I checked). Which we should probably take as a good sign.
Next time, on Rente aus Stein: a super handy list of things that are VERY easy to forget when you have just bought a house.
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Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advice. We are simply telling our story in the hope that it’s inspiring to you.