Our real estate knowledge, network and experience as well as our execution and deal closing powerare the main reason to work with us. But after I have listen to the latest story of one of my contacts about a property manager cheating on a overseas client, I realized:

The most important asset is integrity.

What are your thoughts and experience while investing abroad.

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.

Talking to entrepreneurs in cities like Munich, Stuttgart or Mannheim, its always the same picture. Because of very low unemployment rate in the south of Germany its hard to find qualified people. If they find people they have to pay much higher wages because of higher costs of living in the rich cities of the south. Alone 30% up to 50% of household income is due for the monthly rent and side costs. Now look at Berlin, scary high unemployment rate, even among academics. Because of the magnetic power of the city thousands of young academics rather choose to be “poor but sexy” (as the major of Berlin use to say) instead of staying well payed in an unchallenging (in the meaning of creativity) inviroment. On top Berlin rents are way smaller than Munich or Frankfurt or Hamburg rents. My conclusion or rather question: When do national and international decision makers get the point that they can get professional much easier in Berlin on a lower wage than anywhere else in Germany (and even anywhere else in Europe?) Just pay your people with the Berlin Bonus.

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.

Berlin-Mitte and especially every location below Torstrasse is gaining momentum while locals as well as international buyers demand drive rental prices to so far unexpected hights.

Especially big flats with miore than 3 rooms, as well as flats offering barrier-free features are in high demand. TLG Immobilien a big real estate investor (strong in East Germany) just finished an heritage building in Max-Beer-Str. 3. The 4 vacant flats were advertised for 4 days, 40 people showed up at open house and 30 people actually showed interest in renting.

Astonishing enough the flats had no balcony and no elevator, but are nicely restorated.
Nevertheless the formerly named 10 Euro frontier even for good located well equipped flats seem to vanish. In this case TLG asked and got 10 Euro per sqm cold rent.

A new builidng in Ackerstr. is rented for EUR 13 and the renter had to bring his own kitchen.
At Elisabethkirche asking price is EUR 15, and I am sure they will get it.

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.

The real question was:

While we did not see anything we liked, the area we are interested in is the Mitte. Do you have any property in this area?

The Mitte of Berlin seems to be a great location and as we all learned Locations is everything (which by the way is complete nonsense). Another thing we know is that the higher the risk the higher the yield will be. (this time the learning is right)

The bottom line
Mitte is to expensive for investors, and befor you even ask
Prenzlauerberg is to expensive, too.
The yield you get there reflects the fact that it is a very risk free investment.

The most promising Alternative to Mitte and Prenzlauerberg
Why don’t you have a look on Whitelake (Weissensee) its the neighbour area of Prenzlauerberg and to my opinion the only way to go, if you want to invest like you should:

“Buy low, ahead of the market and never behind the market”.

The basic idea
My basic idea for Whitelake is very simple.

high quality of living
Mitte and Prenzlauerberg is expensive because its the city center and all the nice things like galleries, cafes, restaurants and pubs are there.

Inhabitants of Mitte and Prenzlauerberg
But did you notice that most of the inhabitans are (very) young.
A lot of them are in their earliy 30ties and on the way to change hapits radically, because a lot of them have kids, not less do have 3 and more.
The birthrate is 3,0%

I talked to our locale (protestant) pastor Hartmut Scheel and he told me he will have his third funeral next week. He told me this at the end of June 2007! While in some areas of Berlin, like Wilmersdorf and Charlottenburg they have 3 funerals a week!
Average age in Berlin-Mitte and Berlin-Prenzlauerberg
The average member of the protestant church community in Berlin-Mitte is 34 years (2007) and 31 years (2007) in Prenzlauerberg, the average of any other district in Berlin is much higher.

How do they want to live?
They want to live
a) quite & save (as all people do when they have kids)
a) good schools
b) green areas
c) organic shopping possibilities (that’s one reason why Prenzlauerberg has the biggest orgnaic food market troughout Europe!)

but most important to your investment decision they want to life in big flats!
The size of flats increased over the last 10 years and even singles live in 2 room flats.
Married with 2-3 kids those people are looking for 5 rooms and plus.

What they don’t want.
while asking what they want is crutial asking what they don’t want is important too.
They don’t want to loose their old lifestyle(s) and their not-yet-married friends.
The ONLY way to have it a little greener, bigger flat and be close to Prenzlauerberg is Weissensee.

5 Minutes bike ride and you are in your old quarter.
You got the point?
Please ask questions by commenting this articel.

With his three key investment factors in mind, Lu’s tip for 2007 is Berlin. Property prices in the German capital, which start at around £690 per square metre, are on a par with emerging Eastern European cities. Compare that with other Western capitals, with average prices of £3,440 per sq m in Paris or £9,000 per sq m in prime central London.

“Before reunification, most of the property on the West side was owned by big private institutions and property in the East was Government-owned, so German people did not have the opportunity to own homes and the market has been depressed for a long time,” Lu explains.

“The city has the cheapest house prices in the Western world and the lowest rate of home ownership at just 10 per cent,” he adds. “Prices there have hit rock bottom after falling every year for the past decade, but now they are on the turn. Buy now and you are entering the market at the beginning with a chance of good capital appreciation.”

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