The one with a list that has a lot of steps
The one with a list that has a lot of steps
Nobody said that buying an investment property in Germany was easy - but this should make it bearable!
There isn’t a ton I want to remember about my ex-boyfriend, a man who was as unfaithful as he was funny (the latter making me not fully see the extent of the former for way too long). He did, however, leave me with a couple of gifts and one saying that collectively still hold up all these years later. The photographs he gave me for my birthday still hang on my dining room wall. And the quote, I still bust out on plenty of occasions. It’s the short and snappy “5 P-rule” - proper preparation prevents poor performance. True in life, true in love, true in real estate.
I would argue that especially in real estate, actually, proper preparation is key. I mean, can you really ever prepare for dating a cheater? And while there’s plenty of lists out there that sound a lot like “the 14 steps to buying real estate in Germany'' and are meant to help with the preparatory part of your property decision, we have found that none of those reaaaally prepare you for what's coming your way. Take it from the horse’s mouth, this stuff is hectic. Let’s get to it.
In our experience, there’s basically four phases, all with their distinctive steps and action items and plenty of more sub-steps to be aware of. As a high level overview, though, this hopefully is helpful and not super scary looking. I have named these four steps (without thinking too long an hard about creativity here):
Financial preparation
Searching and finding property
Due diligence
Financials - the real deal
What’s important to know is that there’s a real difference with regards to timelines in these different phases. If you wanted to take away anything from reading, I think it’s that: while step 1 and 2 are on your own terms, take all the time you need. 3 and 4, however, are happening all at once and mostly with tight turnaround times - which is a stark contrast to how important the decision is and how much money you are potentially spending. Striking a balance between moving things along swiftly enough to not miss out on a great deal while still doing your due diligence, to me, not only has been the greatest challenge in purchasing real estate but more often than not was also the reason something that we would have been interested in fell through. Turns out: time waits for now man - and neither does real estate.
1. Financial preparation
It goes without saying that you need to be well aware of your financial situation before even embarking on this “journey” (for lack of a better term). Your salary, your monthly expenses, how much you have been able to save and how your savings are invested currently - all will determine what kind of loan you can secure, which in turn determines your budget. The earlier you’ll start this process, the better. If you start reeaally early you might even be able to save some more to improve your standing from the get go. The more questions you ask (yourself and others) the better. The more realistic you are about what you can and can not afford the more pleasant this whole experience is going to be. Unless, of course, you like self-deprecating humor and are in for a cringey party story in which case I can recommend doing what we did: being driven around by posh agents to look at houses we DEFINITELY couldn’t afford (which they probably knew well before us).
It doesn’t hurt to start compiling paperwork. The list of what you’ll need is extensive and roughly falls into three buckets: Personal documents, financial information (which is different depending on whether you are employed or a freelancer / business owner) and documentation on the property (which you will only obtain later). A good overview here.
Pro tip: Set up a clearly labeled Google drive with subfolders and start putting stuff in there. Color code those documents that you only need to upload once (like your passport copy) and those that will need to be kept current (like your monthly payslips)
All the above changes if you are not a German citizen - it’s still possible to secure a mortgage on a temporary residence permit but there’s limitations to the amount you can borrow. As banks want to minimise their risks (and are already pretty conservative in Germany anyway) your so-called loan-to-value (LTV) ratio that determines how much money you can get from the bank for any given property will be lower than if you were a citizen.
It doesn hurt to start building a relationship with banks - start with a real estate expert at “your'' bank and make an appointment to discuss options. The next step could be a few phone calls with other banks, just to start to get the ball rolling. When things need to move fast later, it’s good to have something in place already.
The internet is teeming with loan calculators - we like this one.
2. Searching and finding property
Once you have a rough idea of your financial situation you are off to the races and can start the part that (to me at least) is the most fun. Finding that damn house! There’s a couple of ways to go about it which you are probably well aware of:
Property platforms like Immoscout24, Immowelt and Immonet are probably the most obvious choice and will give you a TON of listings as well as good filter functions - which you will need because the downside of a lot of supply is that you’ll have to sort through a ton of stuff that’s not what you are looking for
Real estate agents and property developers will most likely list all their supply on the above mentioned sites anyway but it’s not a bad idea to sign up to their newsletters as well - if only to get a better sense of who is peddling what. Once you know who’s in your wheelhouse comes the next step which is building a relationship. If you brief them well they might be able to alert you to properties that you might have missed! The clear advantage of going straight to a developer? You are most likely going to save the agent’s commission - which is 50% yours to pay otherwise.
Other (social) platforms might not be as straightforward as the dedicated ones above - but don’t count out Facebook, eBay (or it’s sloppy cousin eBay Kleinanzeigen) as well as more obscure neighborhood groups etc. After all, you ideally wanna hear about a property being sold before anyone else (like you would want the good gossip before anyone else) - and this could be the slog you need to deal with to get there.
Your personal network is another resource to tap into - this could include your current landlord and/or property management company. Sometimes parents of friends are looking to sell? In my experience, just tell as many people as you can and you might be surprised … whether you believe in manifestation is yours alone to decide ...
No matter where you’ll look for a property, the “what are you actually looking for” is something you need to have figured out beforehand. Obviously. You already know your budget from step 1. As for location, we already talked about how your own backyard (figuratively speaking) might be an easy place to start. Alternatively, we have a ton of research on which German cities still make for good investments coming up (don’t ask me when, though, okay?). Beyond that, I wouldn’t go too granular on specific neighborhoods once you have zeroed in on a city, though. With limited supply and a budget in place you probably won’t be overwhelmed by too much choice anyway. Look at a lot, enquire about many and then finally view a few. Classic funnel.
3. Due Diligence
With all that out of the way, here’s where things get a bit more serious. You have seen the property, maybe several times, and you know you are interested. Time to make some moves. No dating allegories needed.
There’s definitely info out there that talks about reserving a property as a sign of serious interest and that there’s standard contracts that will be signed and possibly even associated fees that need to be paid. I am here to tell you - we haven’t encountered that. It just wasn't a thing. Instead, we just made our interest known and tried to move ahead with next steps as quickly as possible while at the same time being as thoughtful with due diligence as time allowed. Sure, that’s stressful. But on the flipside, if nothing gets signed and or paid you have more wriggle room to change your mind. I think that’s a good thing.
The biggest advice for this step is to get an appraiser into the property as quickly as you can. We found ours by googling around and making a few calls. Explain your situation, discuss their fee and then let the expert do their work. While you might expect to get a full report, this is the second bit where our experience deviates a little. Instead of a full appraisal, we got a less formal write up of what he thought the biggest issues were. This serves two goals that I think you can still reach - without the super hefty fee. A) you can rest assured that the purchase you are about to make is legit, without any major surprises coming down the pike. Secondly the appraiser’s opinion also gives you a solid foundation to negotiate price. Yes, you want to buy the property and there’s nothing seriously standing in the way of that - but the smaller things he or she points out can serve as a basis for going back to the seller with a revised offer.
While all this is happening - now is a good time to get in touch with banks and send them all the info you already have. Because you are getting dangerously close to …
4. Financials - the real deal
If real estate purchase was a movie, at this point it’s definitely more action movie than romcom. This is the part towards the end when the music swells dramatically. Cuts get a lot faster - and a little confusing - as our heroes and heroines stumble through scene after scene, tormented to answer life’s most pressing questions while simultaneously cutting their path ahead with a machete. The plot thickens. Or in less dramatic words: the appraiser also didn’t see anything majorly wrong with the place and while you still doubt the validity of your assumptions at every turn you also want to move ahead and transform this very theoretical endeavour into a reality already. Time becomes the most important factor here, as you want to not lose the seller while at the same time having enough space to get a mortgage ironed out. Finding the right balance between that crushing panic that all your work up to this point was in vain because you will not be fast enough and someone snaps up the property in front of your very eyes - and the equally crushing fear that you are moving ahead with something that’s not right - yeah, it’s a LOT.
The steps, fast and loose as those action movie scenes (I mean, have you SEEN Tenet??) - and in no particular order
With the appraiser’s opinion in place, finalize your offer and negotiate the purchasing price. Making a final offer to the seller is actually quite anticlimactic - and done through a relatively informal email that you send to the agent.
The banks you are talking to already know something is coming down the pike (see step 3) and you have sent most of the info available to them already. Stay in close contact and make a running list of info that is still missing. In our experience, most real estate agents will not have everything you need just ready to hand over, especially with topics that come up during viewings for example. Have you seen the minutes from owners’ meetings for example? Now is the time to follow up closely and close any gaps.
Banks love that you are on top of your paperwork - now is the time to go back into that folder, update everything and send it to your bank. Have a conversation about the exact mortgage conditions for this specific object and make sure to understand what that means for your calculation. If there’s ever a moment to take time (in this phase where you don’t really have that luxury) - this is it.
With mortgage offers rolling in, your last job in this preparatory phase is to closely compare the offers. Ask all the questions! Do they finance an entity (as opposed to a private person) if that’s how you want to structure your investment? How does that affect mortgage conditions? How long will interest rates be fixed and are there opportunities for out of schedule repayments?
Congrats! You have made it this far. Revel in your success: You have officially mastered the preparatory phase of the German real estate purchase, my ex-boyfriend would be extremely proud. Howeeeeever …. you are not quite done yet and the next phase isn’t a cakewalk either … There’s still a whole lot of German bureaucracy to contend with. How is that for a movie like cliffhanger?
Next time, on Rente aus Stein: German bureaucracy can be confusing. Fret not, we are here to talk you through it, step by step!
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Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advise. We are simply telling our story in the hope that it’s inspiring to you.
Very clear and helpful. Would enjoy seeing you do a Swiss version. Many similarities on the process but, of course, a different world in terms of nationality restrictions.