What if the property is located in an area called “Sanierungsgebiet“?

Positive: tax benefits & infrastructure improvement

Owners who invest in their houses for rehabilitation/modernisation typically qualify for tax benefits due to german income tax law § 7h EkStG.
Hint: Don’t start the rehab before you are the legal owner, otherwise you risk not to be able to collect the tax benefits, at least not fully.

What is the main activity of the infrastructure improvements

new sidewalks, mew street surfaces, new street light, more trees, schools refurbished, new kindergardens and new playgrounds. Maybe not all but some of those things.

Negative: fees for re-development

The municipality puts money in the infrastructure, and at the end of the status “Sanierungsgebiet” the owner has to pay a fee based on a appraisal which tries to show the value increase by the “Sanierungsgebiet”

When to pay the fees

Typically the area changes a lot, and at the end of this status (typically running for 10-15 years) the municipality collects a fee that is attached to the relative value increase due to this infrastructure and overall modernisation of the housing in the area.

How to pay in advance or post bone payments

The payment to the municipality can be payed advanced (e.g to avoid a provision of the municipality if you like to sell the building (over a certain amount)) or post boned by a dispute of the administrative decision.

How to avoid the fees at all

One of my lawyers even told me that one could argue that the value increase typically used by the municipality to justify the fees could be neglected at all, because the value in an area without this status went up in the same way.
If you like the contact to this laywer, call me.

How to collect the tax benefits, if you don’t pay tax/small tax

The argument that you don’t have to pay tax (due to your fancy holding structure) leads in the wrong direction, as european tax laws say that the land in which the rental income is produced has the right to collect the tax.

On top the tax benefits have a value and could be collected by another investor, so there is an option to sell the property to this investor, as the tax benefits could be prized in.

The end is near

If the termination of the re-developemt area is near, you should talk with the municipality about a special contract called “Städtebaulicher Vertrag” in order to be able to save the possible tax benefits for the future, or for a future owner.

The construct “Sanierungsgebiet” should be known by every Berlin property investor, as it opens potential as well as possible financial damage to your investment.

All things related to this status are published in the “Berliner
Gesetz- und Verordnungsblatt“.

As my readers know I am a big fan of investments in whole apartment blocks (vs. single units), mainly because its much better value and the investor is steering the wheel (and all involved parties now this).

Nevertheless bad things can happen.

Tip 1:
Form a new company for each property you buy.
This involves higher cost for accounting but, if you change strategy and decide to split and sell the units, this system prevents you from paying commercial tax an all your income within the same company.

The reason is very simple: If you hold income producing property within a asset management company the income is no subject to commercial tax, but if you start trading (aka selling) property than ALL income within the company is a subject of commercial taxation.

My advice as all ways: Get a good, trustworthy and experienced:

As brokers in Berlin tend to just market the property the have under contract (or even worth not under contract) its always a good idea to contract an experienced broker as lead broker to prevent you from the several possible pitfalls.

What are your experience on investing in Berlin?
Please send me an email or post a comment below. I would like to hear your thoughts and experience.

Today somebody asked my if I do own real estate, this questions in mind I wrote this post:

Actually as I mentioned in the past brokers who do not own real estate in Germany could be a big problem, especially because they do not know what problems the investor/buyer might face in the future.
Don’t get me wrong this is not about real estate ownership, its about knowledge.

Brokers often do not own one single flat, but think they can advice their clients on real estate investing.
Most of them are young and just a couple of years (or even month) in business.
Their approach is based on guessing and theory, because they have not experienced what it takes to run (their own) property investments properly. On top many brokers are foreigners and have no clue about legal issues in Germany. It just happened to one of my clients, that a non-german speaking broker sold a building to him and has not done the Due-Diligence right, because he just did not understand the papers presented to him.

But this is just the sales/buying process.
The real problem(s) with real estate occur often long after the purchase, sometimes even years after (while you try to sell it).

Most problems are of technical or legal nature, but brokers and investors often just think about returns and how the area might improve (capital gains/capital appreciation).

A technical or legal problem can generate bills in the region of thousands of Euros and if you put your income of the property against it, its clear that in this and maybe in the upcoming years your yield is zero or even negative.

But back to your question:
Do I personally own real estate ?
No, I don not own any real estate personally.
That has to do with my personal refinancing method, tax structure and especially with the situation that I am an entrepreneur with a family of four.

To protect my assets and my company from legal and tax issues I own real estate through companies.

But more important than that is that I have 20 years experience when it comes to real estate investments in Germany.

That is important, you could own 20 buildings, but as long as they are managed by somebody else you will not get as much experience as working on your own real estate.

I work on my own property and on my clients property.
Because we advice and supervise the assets of our clients after the purchase.
And this generates massive knowledge and practice what can happen in real estate investing.

We can give references any time, just ask.
And we will introduce serviceproviders that know their business and have tons of experience in real estate,
as there are real estate lawyers, real estate accountants, notary offices.

Emerging Trends in Real Estate® Europe 2010 Report

The prospects for development have declined fractionally, but as other cities
have declined further, Berlin has risen up the rankings
slightly, moving from 15th to 12th. Residential property is
favoured. As one interviewee comments, “Berlin is an interesting
market for residential, ‘It is hip to live in Berlin.’ ” This
is reflected in the investment recommendations, with 31
percent of respondents citing residential as the preferred
asset type, the highest proportion for any of the cities covered
by the survey.

Among the top tips from the report’s respondents:

Get your copy here (PWC).

or here (ULI).

If you are bidding 1.250.000 for a property that is advertised with 1.700.000 with a 7.7% yield and a squaremeter price of 950 Euro in an up-and-coming area, then your yield expectations are to way to high at least for our company and the properties we are able to offer. We can try to find a property for you in an foreclosure or regular property auction. This comes with more risk but better yields (as always in life). We advice investors along this process based on consulting fees, charged by workdays, payed upfront.

Important note regarding buying property out of auction:
Please consider, you need to have 100% plus court fees as equity (=cash) available, because the auction process is like a black box for the bank, and they don’t even give money to Germans in this case.

on this website you can check wether a certain location is top, good, average or poor.
Immobilien Kompass

For people with in depth location knowledge redundant, but very good for a first pre-check.

Because this map from German based Capital Magazin is a little bit general,
we do have our own free map, about were to invest (or were to live),
we ask your email and your buying interest in berlin real estate (selfuser, investor, size of your budget, non at all e.g. journalist, appraiser, just researching) in exchange.

please send a map request to: map@reberlin.com (this is not an autoresponder, you talk to a human beeing, please behave like it )

According to German Income Tax Law (§ 7i EStG) Investments in the restoration of a heritage building are subject to faster than usally possible tax write offs.
The same applies for restoration of buildings in redevelopment areas [German Income Tax Law (§ 7 h EStG)].

Normal write offs are 2,5% per year for 50 years = 100%

The amount legible for write off is NOT the buying costs, nor the land, nor the buying side costs, BUT only the amount put into the restoration of the protected building after the sale.

Different write offs for different usage
Investments in buy-to-let property are handle little different than investments in properties for self usage:

Tax-write offs for buy-to-let investments
While renting the property the tax breaks are slightly different:
8 years with 9 % p. a. and the following 4 years with 7 % p. a. (§ 7 i EStG) = 100%

Write-offs for restoration in buildings for self usage
are 10 years with 9 % p. a. (§ 10 f EStG) = 90%

Because of this laws most heritage buildings are offered without restoration, and typically one signes a separate contract for the construction.
The start after the sale is very important to not loose the write off possibilities.

Assetz Germany – Legal Guide to Buying Property in Germany

This happens all day, somebody writes an email to us, after he came back from a Berlin House Hunting trip (via one of the big marketig maschines).

The situation is the following, after a presentation and the visit of two properties the people have signed a LOI and payed a Down-Payment to the agent (that they will loose if they don’t finally sign the deal).
The first property the yhave visited is in a good area like Charlottenburg, but sold out.
The second one is in a more or less good are like Schöneberg or Steglitz and here they are still some flats available. But the agent things its necessar to sign a LOI and pay a downpayment because all the guys in the group want a flat and demand is high.

All is risk free, the people don’t need to come back to Germany, the have a rent garantee, and a lawyer is available for the next 10 years. Potential is 5-10% annual, because of facts like the new Airport and overall demand in the capital of Germany.

Back home these people hav a strange feeling and start to do some research, some of the write us an email.

This is one of our original answers.:

Dear XX,
you obviously buy from one of the big marketing machines, like XXX.

P.S.: Do you get money out of the rent pool if the rent is higher than the garanteed one?

Do yourself a favour and sign up for your research material and our map that shows outperforming areas (in our opinion).

You find the Berlin Real Estate Research Material here: www.berlininvestment.com

tags: berlin real estate, rentpooling, berlin property

The main fact is there was virtually no output for new residential construction in Germany in the last years.
In combination with the international demand especially in Berlin Mitte, Prenzlauerberg and Pankow there is a market shortage and the result are strong and rising prices.

New buildings sell for EUR 3000/m² and more.
Rent for a new building in these areas start at EUR 10/m²
So do good renovated prewar houses, EUR 8/m² at least.

If you want to keep the property and rent it out
The Yield predictions go down because of rising prices but if you get into the game the yield won’t go down, because once you are invested the rising prices for buildings just help to grow your possibilities for rent adjustment.

If you want to resell:
The demand in Mitte and Prenzlauerberg is high to very high, People can afford to pay EUR 3000 and more per m².
This is not the case in the Rest of Berlin.

Why Mitte and Prenzlauerberg
There is just a small room for a movement into the neighborhood districts, Wedding and Friedrichshain have a social structure problem, that won’t vanish so fast because of the highly protective rental laws in Germany.
It will take ages, if at all to change this structure.

Pankow and Weissensee seem to gain speed as some developers discovered the area, the market is mainly driven by heritage buildings (the renovation of those buildings guaranties one of the rare possibilities to save tax while investing).
But even Pankow and Weissensee have a social structure problem, but its more likely that this will change in the future due to some parameter. For example a lot of commercial contracts in Weissensee, cancellation of rental contracts is much easier here.

A lot of my customers compare the prices with other major cities in the world, but I think this is dangerous because the local people have to pay the rent/or the house with money the ear locally. Nevertheless there is a wide range of people in Mitte and Prenzlauerberg who seem to have very deep pockets.