reberlin

Investors are facing company structure decisions effecting taxation, profits, liability and exit possibilities.

As a family office for wealthy private investors we could gain a lot experience in the last years regarding those issues. This article is a basic introduction and doesnot substitute professional advise.
The article is suitable and addresses the needs of investments between 500k and 20 Mio Euro.

Executive summary:

• Company and tax structure have to be decided before acquisition, otherwise decisions are made under (time) pressure.
• German corporate law offers flexibly company structures to minimize liability and taxation.
• German tax law offers very convenient tax rates especially for foreign investors.
• Cross border and double taxation treaty experienced advisors are needed to set up the corporate and taxation structure.
• To keep strategic options open and to avoid negative effects on taxation a separate entity for each property is highly recommended.
• Advise of a cross border tax structure advisor is highly recommended.

You will face competition whether you want to rent or buy space.

Typically renters or buyers of flats (and even investors with deep pockets) tend to view the real estate market from the point of view of a normal consumer. So they end up hoping or asking for services which in most cases won’t be provided. The property market doesn’t necessarily follow the rules of a typical consumer market. In a consumer market, supply is typically not a problem, and sellers with similar products focus on distinguishing themselves by service or other factors. The client is king – and could walk out of your door at any given time and buy somewhere else.

But the property market does not work like this. At least not in Germany. The products are not similar, as the location is a big factor for the buyer/renter. On top of that supply is very limited, in time and quantity. Typically you would search within a certain geographical range and in a very short time period. So walking out of the door is not really an option.

Also, the German fee structure for brokers is highly regulated. A broker can only ask a fee from you if successfully closed a deal. And most brokers don’t share deals, especially not in a tight market like Berlin. In other (more mature) markets like the USA, agents share deals and a broker with a buyer, works with the broker of the seller. In Germany, brokers tend not to share their deals with other brokers.

All these factors together lead to the real estate service providers to focus on the property and not on the clients or their needs.

Let’s face it, there will be no service provider that will search for you. Brokers or landlords will offer the property they have available right now. Take it or leave it. At least in a sellers market like Berlin. By the way, the same applies to the rental market (which is a landlord market here).

And the sooner you face this, the sooner you will succeed.

I will explain the “Do’s and Don’ts” or better “How to successfully rent a flat in Berlin, Germany” in this post and in the following post I will explain “How to successfully act as a real estate buyer”.

As someone with deep insides of the real estate market, I experience problems people have with customs and habits in this market daily.

Originally written for a friend I thought it might be use full information especially for foreigners new to Berlin or Germany.

Related Posts:

Post 1 is for renters:
1. How to successfully rent a flat in Berlin, Germany

Post 2 is for self-user / flat buyers (but not published yet):
2. How to successfully buy a flat in Berlin, Germany.

Post 3 is for investors (but not published yet):
3. How to successfully acquire real estate investments in Berlin, Germany.

This post is written by Alexander Korte. I am a Berlin based property developer and investor, I regularly contribute to real estate relevant themes in the international press.

This post was originally written for a friend, but I thought it might have some useful information for people new to Berlin or Germany. It relates to crucial points in the rental process.

You might want to read this post to get a bit of a background.

Typically a landlord or seller of real estate wants as little trouble as possible before (and after) the deal.

The German real estate market is highly regulated. For example, it is more or less forbidden to ask the renter to sign a self-terminating rental contract. Unterminated rental contracts seem to be very nice pro-renter friendly, but it does create several problems.

Once the landlord signed a lease agreement it is hard fro him to get rid of the tenant (if the tenant pays the rent regularly).
Because it’s hard to evict the tenant, therefore, a landlord or his property manager/letting agent will back round scan the tenant, in order not to acquire a “problematic” tenant.

Why should a landlord consider you as a renter?

An owner will make assumptions about you based on your behavior.

If a potential renter asks silly questions or behaves in a strange way, it is likely that he or she will also act strangely after the rental contract is signed. A landlord will always check the tenant’s background and ask as many questions as possible – before the contract is signed.

Apart from some soft factors like the way you communicate, dress and act, the landlord will also check hard facts.
You can, therefore, prepare the data to make it easy for the owner, and gain a small advantage over the competition.

Here are some typical hard facts landlords love to check:

1. Proof of Income (in German: Einkommensnachweis)

Purchase power – can you afford the rent and all the side costs?
Typically the rent payment should not exceed 30% of your overall income. You should be able to show a paper that proves your income, in the best case the typical German “Lohnbescheinigung” or in case you are self-employed a letter of your tax advisor testifying your income.

Extra tip: If you don’t have a high enough income, or you can’t prove it, you could provide a guarantee from a third party, for example, your parents or a friend. We call this in German “Buergschaft”.

2. Rent Payment History (in German: Mietschuldenfreiheitsbescheinigung)

Your past rent payment behavior – did you pay your rent regularly?
You should be able to present a letter from your last landlord(s) that testifies that you always paid the full amount on time and that you don’t owe rent to him or her.

3. Credit Report (in German: Schufa-Auskunft)

Credibility- a landlord who wants to check your credit report might sound crazy, but remember that he has no chance of getting rid of you once you are his renter.
You should have a paper ready to present your latest and current credit report.
If you already own a German bank account the easiest way to get a credit report is www. meine-schufa.de.
I agree that it is a pain in the neck for a non-resident to get a credit report. I will address this problem in a later post “How to get a credit report in Germany”.

4. Identification (in German: Meldebescheinigung/Kopie des Personalausweises)

Who wants to rent the place?
Typically you hand in a copy of your ID. In the case of it being a passport, you should also attach a copy of your residency registration (Meldebescheinigung). Again, it might be a problem for newly arrived people to present such a record. We will deal this issue in a later post.

The easiest way is to rent a room in a shared flat, get a contract and a letter from the owner/property manager that you are living there. The contract is not enough since they changed the rules a while ago. The letter of the owner of the flat is crucial. Then you go to the municipality (Einwohnermeldeamt), to get registered. As a result, you will get a certificate of registration (Meldebescheinigung) from the municipality.

5. Insurance Policies

The two insurances named below are not needed, but could help to stand out. Every good property manager advises the landlord to make this insurances mandatory for every renter anyway. If you present those insurance papers right along with the documents mentioned above, you show that you are a serious, hassle-free renter (and have an advantage over the competition).

5a. Household contents insurance (Hausratversicherung)

5b. Casualty insurance (Haftpflicht)

Why have all those insurances? Its’ easy: like everything in life, some small things can cause big trouble. Remember that your landlord wants to make money with this investment. An innocent candle could cause a fire, and the water from the fire brigade causes a 250.000 Euro damage. If you are not insured, you will probably have to declare bankruptcy and your landlord as well. But don’t worry, those insurances are both around 100 Euro/year. If you have kids under the age of five, you should tell this explicitly to the insurance broker.

I recommend you have all those documents printed with you while you visit the flat – and have it ready to be blown out digitally by email if asked.

Make it as easy for all involved parties and put all the documents in one PDF file.

I am totally aware of the fact that these documents are not easy to get, especially if you are a foreigner.

However, if you can’t present this documents, it will be very hard for you to find a flat.

Make sure you read the more general text by Joseph Parson “Guide for Moving to Berlin 2014“.
I also enjoyed “A Guide to renting in Berlin” by Marcel Krueger.

And give the Official Berlin Senat “Welcome to Berlin” PDF a try, especially section “Housing in Berlin”.

This post was written by Alexander Korte. I am a Berlin based property developer and investor, I regularly contribute to real estate relevant themes in the international press. Press inquiries via this form, please.

Related posts
How to successfully rent a flat in Berlin, Germany

How to successfully act as a flat buyer in Berlin (not published yet)

How to successfully act as a real estate investor in Berlin (not published yet)

Its quite interesting to see real offers in tide markets, especially in areas with very high demand and less to no offers. We posted about the hidden and central pearl of Tempelhof, the so called “Fliegersiedlung”.

View Larger Map

On 16. Feb 2014 I found this immobilienscout24 offer in my inbox:

“Rohjuwel in der Fliegersiedlung *Westausrichtung*”

Askingprice/Kaufpreis: 325.000,00 EUR
Residential space/Wohnfläche: 101,00 m²
rooms/Zimmer: 5,00
plot size/Grundstücksfläche: 200,00 m²
Scout-ID: 73349591
Adress: 12101 Berlin, Tempelhof (Tempelhof), Leonardyweg 20

101 sqm for 5 rooms seems small, but the floor plans are quite good.
However taken into account that this house needs rehab and upgrading 3250 Euro per Sqm, doesn’t seem cheap. But if you want to live in this conservative yet cosy neighborhood, in a house with garden, with its central location, this might be a deal.

The offer mentioned above is not longer available on Immobilienscout 24  (18. Feb 2014).

Please read this upfront: I am an estate agent and asset manager in Berlin, I sell blocks and apartment buildings to private investors and institutional funds, with an equity base of at least 350k Euro, I cannot help you find a flat, but if you send me an inquiry regarding the purchase of a flat or an apartment (please only trough this from) I will transfer you to honest and good estate agents, whom I know in person and I will supervise the process on the line, nothing more, nothing less. Please understand that I cannot meet you, nor talk to you on the phone, best way, really, really is this form, I will reply fast and ask you additional questions to narrow your search.

How-to-do a proper legal due diligence for a flat purchase in Germany

Rule No. 1: Don’t believe what you don’t have in writing

You need hard facts, and that means copies of the contracts/documents.
If they won’t send you copies go to the owners/property managers office and look at the originals.

Rule No. 2: Talk to the renter

or any other party that you meet in the house, ask them if the ylike to live there, just start talking to them after a minute they will tell you about the bad and ugly, but take into account that most renters complain always. Just listen carefully and see if something really bad comes up, something that yu cannot change, or will affect the rent/fluctuation of renters heavily. It might be enough to walk trough the building with open eyes :-)

Rule No. 3: Talk to the Property Manager

Try to talk to the property manager of the co-op/building in person, and check his flexibility and willingless to talk to you (at all) and in English. Remember if the broker tells you the guy talks English, doesn’t mean he is willing to..

Rule No. 4: Let the legal stuff be checked by somebody who knows how to check legal stuff

The documents should be checked by a lawyer NOT your broker, nor the property manager, the person checking this for you should talk German!

Keep it simple for you and your lawyer

Send all the documents listed below to the lawyer at once and ask him/her to have a preview and give you an appropriate lump-sum fee up front. You should give or at least ask for a timeframe for the procedure.

List of documents needed for legal Due Diligence – English/German version –

These papers should be provided by the broker (or owner or property manager), you find the right German terminus technicus in brakets):
1. the offer (issued normally by the broker/estate agent) (Expose)
2. the 5 or at least the 3 last reports of the meeting of the owners (5 letzten WEG Protokolle)
3. the co-op contract agreement (WEG Satzung / Gemeinschaftsordnung)
4. last annual statement of the whole building (Jahresabrechnung)
5. purachse contract draft (Kaufvertragsentwurf)
6. financial plan for the upcoming year (Wirtschaftsplan)
7. co-op agreement with the property manager (WEG Verwaltervertrag / Verwaltervertrag fuer das Gemeinschaftseigentum)
8. property management contract for the unit to be purchased (not the one in place but the one the property manager offers you) (Hausverwaltervertrag fuer das Sondereigentum)
9. copy of the land register (Grundbuchauszug)
if the property is rented:
10. rental contract with all amendments

Due Diligence – German version – for your disposal

You can copy this German version to send it by email:
1. Expose
2. die 5 letzten WEG Protokolle, zumindest die letzten drei
3. WEG-Satzung bzw. Gemeinschaftsordnung
4. letzte Jahresabrechnung
5. Kaufvertragsentwurf
6. Wirtschaftsplan für das kommende Jahr
7. WEG Verwaltervertrag / Verwaltervertrag fuer das Gemeinschaftseigentum
8. Hausverwaltervertrag fuer das Sondereigentum
9. aktueller Grundbuchauszug
10. Mietvertrag mit allen Nachträgen (wenn vermietet)

My recommendation for a lawyer/law firm

If you need a German speaking Lawyer to check all this for you , here are my recommendations.

1.) WMRC Rechtsanwälte

Chaussestr. 5
10119 Berlin
Tel.: +49-30-2888483-0
Fax: +49-30-2888483-10
E-Mail: info@wmrc.de

2.) Ludwig Braun Domrich Rechtsanwälte

Poststr. 12 D-10178 Berlin
Tel +49-30-2021 555-0
Fax +49-30-2021 555-11
E-Mail: info@lblex.de
The companies are not to big so you talk directly to the right person.

For condo sales / purchases there is an important change.

The notary has to ensure that the buyer (consumer) had access to the contractual text 14 days before the signature.
Therefore most notaries and not the seller/broker will (read: has to) send out the contracts them self.
Text of the law in German: Änderung des Beurkundungsgesetzes § 17 Absatz 2a Satz 2 Nummer 2 des Beurkundungsgesetzes vom 28. August 1969 (BGBl. I S. 1513)

Here you can find back round information and argumentation of the politics (Bundestag).

Berlin will increase the land transfer tax from 5,00 to 6,00 % of the purchase price starting 01. Jan. 2014.

All notary contracts signed after 31.12.2013, 12:00 p.m. will be charged the higher tax.
Link to the announcement on the official Berlin site in German.

See the list of costs to acquire property in Berlin, Germany.

In the current issue of German entrepreneurs magazin impulse
constructor and hotel operator Ekkehard Streletzki gives very good insights into his business principles:

“Others say, that the most important thing is location, location, location.
I say, the most important thing is repay, repay, repay !”

And he is right, he decided to open The Estrel Berlin Europe’s largest convention-, entertainment- & hotel-complex, with 1,125 rooms in the Berlin, in the middle of nowhere. Neukoelln was until lately a no-go area for most Berliners.

But because there are just a few hotels in Berlin to host literally thousands of guest,
The Estrel Berlin beats the competition with pure size.

And like other well known investors and business men Ekkhard Streletzki knows that only a few things bring freedom to entrepreneurs and investors:
Real cash flow and the biggest possible equity in the deal.

Location, location, location works for investors that want to secure their wealth,
but if you want to build wealth location, location, location is the wrong strategy.

Location reduces risk but reduced risk always comes along with reduced income (or yield).

To close a deal with minimum equity and to hope for a big capital appreciation is a misleading get-rich-quick-scheme in a new package.

If you think a deal is worth to be sealed, always put as much equity as possible.
If you need a loan, try to minimize the loan from the very beginning.
If you have a loan repay as much as possible.

Hotel Website

We added new locations to our hunting list, and we would like to tell you about it.

Weitlinger Kiez in Lichtenberg, the area around Weitlinger Strasse, named Weitlinger Kiez (link in German)

Kaskelkiez in Lichtenberg, the area around Kaskel Strasse, named Victoriakiez or better know as Kaskelkiez (link in German)

Karlshorst in Lichtenberg, 

Oberschoeneweide in Berlin-Treptow 

Karl-Kunger-Kiez in Alt-Treptow,

on top check our location map link above.