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Real estate is often considered one of the safest long-term investments, and since the population of Düsseldorf is expected to grow in the coming years, demand for rental properties will remain strong.
This means that investment properties can generate additional income for investors in the long run – it’s also quite easy to get started and when you’re looking for tenants, you can save a ton of money by avoiding a real estate agent fees and using an online program to do the promotion for you. There are many tips you can check out that will help you make a better investment.
Most banks in Germany are willing to provide financing for these objects as they generate more income through lease installments. To make a property a successful investment, one should follow certain strategies and guidelines in selecting property and financing options before you make your decision using a reputable online real estate portal such as neubau kompass.
Whether you are a first-time buyer or experienced investor, the tips below are worth considering before making any serious investment decisions.
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1 – Decide on the scale of the property
Before venturing into real estate, it is essential to make sure you have a good financial footing since this would help decide whether you can rent out an apartment or a multi-dwelling unit. The property you choose will mainly depend on the amount of money you can afford and are willing to spend.
Depending on your residency status, you can cover up to 100% of the purchase price with a buy-to-let mortgage, so you would need to cover the purchase fees which can add up to 12.07% in Düsseldorf. Of course, a single apartment would require less capital, however, purchasing a single apartment would offer less of an economic return compared to investing in a multi-dwelling building.
To help you get a clear understanding of your affordability and cash flow, you can use LoanLink’s mortgage calculator, it takes your German residency status into account when it evaluates your affordability.
2 – Get the right financing plan
It’s not always easy to invest in a multiple dwelling unit if you don’t have enough equity to purchase it without a mortgage. For those planning to buy a multifamily complex or other costly properties, this requires a thorough financial plan. For instance, an increase in inflation results in reduced loan value, or an increase in mortgage interest rate would result in higher borrowing costs.
In Germany, most people tend to fix the interest rate on their mortgage for 10-20 years, so be sure to compare your options ahead of time. Generally, having a fixed interest rate on the home loan can be beneficial, as this offers stability in case of rising interest rates. Even though we currently benefit from a low-interest rate, which is about 1.7%, it is likely that interest rates could rise again in the future. Therefore, when making your financing plans, you should not only run the numbers based on today’s interest rate but also account for future upward adjustments of at least 2%.
3 – Find the right location
When choosing the location of the property, you should look for one that is close to adequate infrastructure, various modes of transportation, universities and schools, and an alluring downtown area. This implies numerous individuals would want to live in that area, meaning you’re likely to receive a secure rental income. An ideal location would be one with high rental value and good returns, but at the same time, this can also decrease the renting probability. The rental cost of a property additionally impacts how the area expands monetarily and socially.
4 – Inspect the property for any defects
It is crucial to check the property thoroughly for any defects before the purchase to avoid any expensive repairs down the road, particularly the living space of the property. In certain cases, the architectural plan of the property could be very different from the actual site. Buyers should also take maintenance costs into account, as it may add up to the overall expenses. The table below describes the frequent defects that occur depending upon the age of the building.
|Age of the building (years)||Defect type|
|Up to 10 years||
|Up to 20 years||
|Up to 30 years||
|Up to 40 years||
The age of the property does not always reflect the actual appearance and structure of the building. Taking a tour of the entire building with a real estate expert will help calculate the modernization and refurbishment costs.
5 – Understand the local rental conditions
Property owners are always looking to make a reasonable profit from rental income. This means your property should always be occupied. To make sure you would receive a stable rental income, property owners should gather information on local rental conditions. You should check out the rental trends of properties similar to the one you’re considering renting out, including average rent, income, interest rates. If many owners in the same area are offering benefits like free months, then you know you should look for another neighborhood.
Additionally, you should beware that rental price break (Mietpreisbremse) has been in force in Düsseldorf since 2015, this means that, as a landlord, maximum rent is capped and you cannot increase the rent as you please.
6 – Evaluate the true costs of the property
Buying property is costly, not simply because of the cost of the house but it also involves additional costs, such as real estate agent fees, notary fees, and property tax. To get a quick answer on the total costs of purchasing a property, you can use a closing costs calculator to help you figure out the true costs of buying an investment property in Düsseldorf and allow you to plan your budget ahead.
And to decide whether a property is worth investing in, you can use the rental value multiplier. It equals the purchase price divided by annual rental income. For instance, if the total property purchase price is €250,000 and your rental income is €10,500, then the rental value multiplier is 24. This implies your income will enable you to recover the property purchase price in 24 years.
7 – Know the German tax laws
It’s crucial to be aware of the German tax laws for property investment before, as they could be significantly different compared to other countries. For instance, the sale of real estate property is subject to German individual or corporate income tax. If you make a gain when selling your German property, even if you’re not a German tax resident, you are liable to pay German Capital Gains Tax if you own the property for less than 10 years.
The capital gains tax rate is the same as the German personal income rate. Acquisition costs and improvement costs are deductible from the selling price when computing taxable capital gains.
There are many strategies and guidelines that you should follow when trying to invest in the real estate rental market. The above tips cover the most crucial points you should consider before deciding to put your money into property investment. If you have more questions regarding getting a mortgage or calculating the total cost of owning an investment property, discussing with a mortgage expert can help ensure that you are financially capable to invest in a property.
For example, LoanLink, a German mortgage broker, can provide a free tailor-made mortgage solution that suits your personal situation. Being well informed about the estimated total cost, funding opportunities and financing options can surely save you time and money!
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