Is it possible to invest in German property online?
Only a few months ago not many investors were considering an option to invest in German property online, however, as things change globally, this question has become an important topic for many. Indeed, when the borders were open with hundreds of flights daily coming to various cities in Germany, why would you restrict yourself from the opportunity to combine the business with pleasure? Unless, sometimes finding suitable property became an endless quest around German cities and towns, names of which you may not even remember.
However, now with the COVID threat affecting all travel arrangements (which probably will last till the autumn), what should all the potential investors do? Especially those, who have already made the decision to invest in German property, and the “last thing” to do is to choose the right property?
Let’s dive into this issue a little bit deeper to understand, how much this new situation complicated things, or, maybe, the opposite – made it easier?
How important it is to visit the property yourself?
Seeing the property yourself before purchase, especially if it’s your first foreign investment may seem like a mandatory move for the majority of investors, but let’s think about it a little bit more. What can you actually see by yourself and what conclusions can you draw from it? Wouldn’t it be easier and more logical to hire a German-based lawyer, who will help you to organize the proper screening and help represent your interests with all involved parties?
Let’s imagine you are looking to purchase a Multifamily home with around 8-13 apartments. To be frank, the only thing that you can make sure yourself as an investor when visiting it – that the building exists and that it in general matches the one from the description. Making other conclusions which would be helpful when deciding whether you should invest, without professional help is less realistic.
First, it is highly likely that most of the apartments have been rented out and it won’t be possible to see apartments from inside. Secondly, the outer condition of the building won’t tell much even for the expert. On the contrary, the first impression is often false. For example, if you see, that the facade needs to be painted, it will trigger more negative emotions than barely noticeable mold in the basement. However, in reality, to paint the facade is quite cheap and a quick job to do if compared to waterproofing and repairing the drainage system of the whole basement.
In general, what can an inexperienced person without engineering qualifications tell about boiler room equipment, internal systems, and roof condition? And as of last, will you be able to locate the problems within a couple of hours being there? It will be even hard to conclude is it a comfortable place to live from the tenants’ perspectives regarding local infrastructure, public transport, and overall neighborhood.
All of the above need to be checked by professionals. That’s why for each of the projects it is necessary to conclude detailed due diligence regarding technical condition, micro and macro location, financial analysis of rental income, potential growth, and risks that might affect future revenue. So the German lawyer who understands all these factors and can help you to make a smart investment in a foreign country is a valuable asset to use.
All this information you need to be given before you are invited to visit the property. Without this, it is a waste of your time. And then comes the next logical question: if you have gotten all the reports in advance to review, why do you need to visit the property yourself? It is clear that if you plan to acquire property for yourself or your family to live in, then it is very important to see yourself the place, the surroundings and get the feel for it, but in case of investment property, you are basically acquiring revenue flow with certain potentials and risks. You need to look at the numbers and documents, not on the walls.
Please understand correctly, we never tried to discourage investors from taking viewing trips and are not planning to do that! Even more, for us, it is an additional opportunity to present to you the investment product which we offer. Also, for you as an investor, perhaps the most important task of all is to choose the right partner on the ground – the German investment company which will manage your investment property in the future. And if you have chosen your partner wisely, the right property will be chosen for you, especially with the right lawyer helping you to navigate these decisions.
What do you need to know about the property you are planning to purchase?
You should carefully analyse the documents and reports already prepared for you. Of course, a significant part of the information will be in German, but, let’s be honest, a good translation services are not a problem. Also, the majority of the mandatory work you can allocate to your chosen German lawyer, which based on your agreement can do all the practical work on your behalf here on the ground.
In general, there are 3 important things to consider carefully:
- Technical condition of the building
- Location of the building
- Financial forecast for the next 10-15 years.
The technical condition of the building can be concluded by the so-called TÜV report or any other independent technical diligence document. When you are reviewing this information the most important thing to understand is, will the building require a big refurbishment budget in the future. If the answer is yes, then what will it be and how much it will cost.
When you are reviewing location, you need to think about how convenient it is to the local inhabitants. How easy it is to get to the economically active part of the city (let’s say, their commute to work). When you are sure that it is possible for tenants to earn their income to pay their rent, it is also good to check on Google maps what amenities are around the place. What is there to make tenants’ lives as comfortable as possible, is there anything that would scare tenants away?
And last, and maybe the most important factor – the financial forecast. When you see the current information about rental rates, statistics for previous periods and see the expenditure on a yearly basis, you can make a prediction for the next 10-15 years. Then you can compare the results with the market average (in Germany this information is available for almost any location), you can predict the possible future growth on your income.
Of course, during this process of analysis, you can expect to arise many more questions, answers for those a professional and experienced partner should provide to you. Less likely this might be answered by the personal visit of the property and without a professional German-based lawyer.
So you have decided to go ahead with the purchase. What’s next?
Let’s assume, that based on the analysis of three factors mentioned earlier, you have decided to invest and purchase the property. The next question would be, can you do that from abroad? As mentioned above, for conducting all practical and mandatory processes in Germany you need to hire a lawyer. It is also necessary to assure that both parties are represented equally. The lawyer you can choose independently yourself or take one of those we recommend.
With the chosen lawyer you will need to sign the contract and set up power of attorney. Next, the lawyers on your behalf will check all necessary information and documents and will prepare contracts for the deal.
We usually recommend to our clients to organize investment structure by setting up a German limited company. Of course, if you are purchasing one apartment for 80,000 euro it is not necessary, but if you are purchasing an income-generating house, its ownership through a legal entity will give you many important advantages that can help you to increase income and reduce the risks associated with personal ownership. More than that, this type of structure will help you to open German bank account and organize a mortgage based on the conditions only available to German residents. Of course, you will still need to deliver all the necessary information about yourself and your source of the funds to suffice Anti Money Laundering requirements. If you choose to acquire property through a German company, it will be enough to transfer shares on your name. Based on the power of attorney the deal will be sealed by German notary after which it will be then registered into company register that confirms company share transfer into your name.
P.s. To purchase an investment property in Germany and go through all the necessary steps will take a considerable amount of time and effort. However, at the same time your personal presence in Germany won’t change things significantly. As previously said, the key moment for closing a successful deal is to choose your partners on the ground in Germany.