Buy Multi-Family Residential: Property Evaluation, Procedure, Costs, Taxes & Tenants

Buy an apartment building- Your idea has manifested itself and your dream of a house becomes reality. You have already looked at some properties, compared prices and set your budget for buying a house. Before you go into closer negotiations with sellers or reserve a property, you should plan the house financing and determine your conditions. The more professionally you proceed and the more concretely you plan, the more uncomplicated the house purchase becomes from the idea over the financing up to the notarial recording to the conclusion of a contract. Then everything is ready, for the renting of the apartment house. Learn everything here, from the valuation, to the renting of multi-family residentials.

Purchase a Multi-Family: Capital Investment & Yield

From the home of one’s own up to the multi-family house as investment, thinking about the purchase of a property, means providing for old age. No other investment has such a high stability in the long run as real estate. No matter whether 10 years in the past, 100 years or 1000 years!

Valuation of the Property

A valuation of real estate or land is necessary for various reasons.

In most cases a valuation is requested when the property is for sale. The necessity of a compulsory auction or the determination of the value of the property after a divorce are also very common. Sometimes owners simply want to know how much their assets are, or a property valuation is made because the house has to be demolished by order of the authorities. This is the case when roads have to be built or residential areas have to be redeveloped. In the mining regions, entire towns and villages are sometimes relocated. Here, a property valuation is indispensable, as the owner is entitled to a comprehensive value adjustment.

The valuation can be done in various ways. The most effective way is to have the value determined by an expert who inspects the property on site. Alternatively, there is the possibility of carrying out the value of the property on the Internet or determining an approximate value on the basis of comparative objects. If you decide to have the property value determined by an expert, choose the most expensive variant. At the same time, however, you will get a very objective valuation, which in many cases comes very close to the actual purchase price. All other valuations are based on estimates.

Criteria of real estate valuation

Many different factors flow into a realistic property valuation. Among these are essentially the equipment and the building fabric of the house and apartment, but also the location, size and equipment of the property. There are elements that increase and decrease in value. At the end of the subjective evaluation there is a monetary value which can form the basis for the purchase price.

Not only location and equipment of the house, but also the real estate market is important for the value of the house. A modern house in the countryside or in a structurally weak region with a energy-efficient heating system can have less value than a property in need of renovation in Frankfurt am Main. For this reason, not only the location but also the region in which the house is located is included in the evaluations. The sum of the individual criteria results in the value you can expect when selling your house. This is not the same as the price you actually receive. If there are many properties of equal value on offer at the time of sale, the price you receive may be lower. Sometimes it happens that a client is eager to buy a certain property and is willing to pay significantly more than the property is worth. This is especially true when there are many interested parties for the property. These are examples of the fact that not only the value but also the supply and demand are decisive for the purchase price

Valuation of a House

The valuation of a house is more complex than that of an apartment or land. The house and the land form a unit that is valued together. An exception are houses that are sold as demolition objects. Since demolition is an investment that must be borne by the buyer of the land, only the land is included in the valuation. However, the value is not reduced by the cost of demolishing the house. The buyer must include these costs in his own calculation if he decides to buy such a land plot.

Valuation of the Construction

All equipment features are taken into account when inspecting the house. This includes the windows and doors, the sanitary facilities, the kitchen and the floors. A cellar and a developed attic generally enhance a house. The same applies to renovation measures that have been carried out in the last five to ten years. The quality of the roof truss is taken into account, the insulation of the exterior walls and the heating system. Of course, the size of the living space, the cut of the house and the number of usable rooms also play a role. For many interested parties it is also important to know if the cut of the rooms can be changed. Older houses often have quite small rooms. If the rooms can be enlarged without much effort, this is positive for the value of the property.

Valuation of the Land

In a second step, the property will be inspected. The size and the cut are determined. The neighborhood and infrastructure are also included in the evaluation.

If the property has outbuildings, a carport or a garage, this is just as valuable as a beautiful planting, a high hedge or the creation of a terrace and garden paths. Every single element you have invested in is taken into account in the valuation.

Evaluation of the Surrounding Infrastructure

The infrastructure is also taken into account in the evaluation. This includes shopping facilities, doctors, schools and kindergartens that are located in the immediate vicinity. But also freeways, a large train station or an airport can enhance the location of the house. It is nevertheless important that the house itself is located in a quiet street. A location directly next to the airport or next to a freeway will have a value-reducing effect.

Determine the Value of an Apartment

The valuation of an apartment is very similar to that of a house. However, the focus is on the interior. In addition, the basement rooms and the condition of the staircase are included in the valuation. The building fabric of the house is also an important criterion. This includes the windows and doors as well as the location of the apartment in connection with the infrastructure.

The floor also plays a role in the evaluation of the apartment. If an elevator is available, apartments on the upper floors are more desirable. If there is no elevator, apartments on the middle floors are more likely to be sought after. First floor apartments have a slightly lower value. The sounds from the street are more likely to be heard, and the noise level from the staircase is also higher. A balcony, terrace or garden plot for sole use is also very popular for apartments.

The value of the land is determined by its size and location. The infrastructure is also an important aspect. The development of a house is only possible if the land is designated as building land by the city or municipality. Alternatively, there are plots of land that are tendered with the predicate of building land. This means that you may not build on this land immediately. However, the plots will be advertised as building land in the near future. The land can be purchased and the construction of the house can be planned.
Garden plots and agricultural land may not be built on.

The value of a plot of land is highest if it is building land or land for building maintenance. Garden plots and farmland, but also forest land can be sold. The valuation of these plots of land is based on their size and possible uses.
In the case of building plots, already installed connections for water, electricity or natural gas prove to be value increasing.

More recently, the expansion of the mobile internet and the DSL network has also played a role in the valuation of houses, apartments and plots of land. Since the network expansion in Germany is not yet complete, there are still many regions where there is no fast Internet. Since access to the network is very important for more and more areas of private and professional life, a property that is located in a dead zone can have a lower value than a house or property that is located in a very well supplied area.

Alternative Valuation Possibilities for Real Estate

Apart from real estate valuation, which is carried out by experts on site, there are other possibilities that are less expensive, but do not form such a differentiated valuation picture. You can carry out a real estate valuation on the Internet. With this method, you provide information on the individual valuation criteria yourself. It is important that you provide an honest assessment of all areas of the house and land. Only then will you get a valuation that is realistic.

Important: Rental Yield

If you are looking for rented properties, is the rental yield the decisive argument for buying or renouncing? The rental yield is annual yield by purchase price x 100. There are different calculation methods, first of all this simple method is sufficient for buyers:
annual rent divided by purchase price x 100
The result is a percentage. For condominiums it should be a percentage from 4 to 6. Otherwise you buy too expensive!

In more expensive locations, the yields decrease a little, in worse locations they increase a little

This is the range in which you will recognize cheap real estate!

When buying apartment buildings, the rental yield should be 6 to 9 percent. Here too, of course, it depends on the property: In expensive cities like Munich, for example, the rental yields are 2 to 3 percent for apartment buildings.

Here in Düsseldorf they are somehow between 4 and 6 percent. In cities like Munich and Düsseldorf, the square meter for apartment buildings is sometimes even more expensive than for single apartments. So there is no mass discount, but rather a mass surcharge.

In bad areas, you can get between 8 and 12 percent rental income, but nobody will buy this property later on.

So the following rule applies:

The worse and more unsolicited the area, the lower the rental yield.

Notary Appointment: Protection and advice

A notary appointment is indispensable for the house sale. Without the notarization of the purchase contract it is not legally binding. If you choose Lukinski, you do not have to worry about this. We will not only organize the sale of the house for you, but also take care of all legally necessary steps. That means we draw up the purchase contract for you, get all the papers or tell you which papers you need and make an appointment with the notary.

Certification: Approval of the notary

In order to draw up a purchase contract for a property, it must be notarized. The purpose of notarization is to protect the buyer and seller from rash decisions and to ensure that the interests of both parties are properly recorded. The recording of interests is carried out by a notary, who is not a representative of the interests of one party, but acts impartially.

Protection for buyer and seller

The obligatory notary date was not prescribed by the legislator in order to harass home sellers. Instead, both buyer and seller are to be protected. Because in the context of the date the notary examines all present papers and the personal data. Thus it can be prevented that for example a house or a free-hold apartment is sold, which is not at all in the possession of the alleged salesman. Only with the conclusion of the notary contract the house sale becomes legally binding. Approximately two weeks before the agreed date, the draft contract is sent by the notary for inspection. Together with you, we will take a look at it and thoroughly check all points once again.

In Germany it is generally usual that the buyer chooses the notary. This is an advantage for you as the seller in so far as the buyer has to pay the notary if he backs out for any reason. Sometimes the seller or his broker also chooses the notary. In this case you should be very sure that the prospective buyer really buys the house. If he decides otherwise, you will have to pay the notary’s fees. However, we are also at your side to advise you on this issue. We have a lot of experience in dealing with potential buyers and notaries and always find a suitable solution for all parties.

Before the notary appointment: contents of contract

Before it comes to the notary appointment, seller and buyer must agree on important contract contents. This includes the purchase price, for example. We conduct the negotiations for you. We are very familiar with the market and also have years of experience in negotiating. Previous liabilities, such as current mortgages, must also be clarified. In addition, the contract will contain collateral agreements.

In addition, there is further information that the draft contract should definitely contain. This includes a detailed description of the house or condominium, the amount of the purchase price and the due date, the handover date and an agreement on liability for material defects.

Taxes and Costs

The actual purchase price of your property is not the only cost you have to consider when buying a house. In addition to the purchase price of the house, there are ancillary purchase costs to be paid. These vary depending on the offer price and usually amount to between 13 and 15 percent of the purchase price. The additional purchase costs include the land transfer tax, the brokerage fee, the notary fees and the fee for the land register entry. Please note that the land transfer tax is not an identical item to the property tax, because the property tax for your property is paid retroactively and as a recurring liability to the municipality. In order to plan your financing and the house purchase itself in a solid and cost-covering manner, you should inform yourself in advance about all ancillary purchase costs and their payment terms in the purchase phase.

The ancillary purchase costs are to be paid by yourself, so that they are not financed by the house loan. In order to precisely calculate your equity investment, you must therefore deduct the ancillary costs from your existing budget and still have at least 20 percent equity capital available afterwards for solid financing.

The land transfer tax – a large item in the incidental purchase costs

A not to be underestimated amount in the additional purchase costs is created by the land transfer tax. This varies by region and can amount to up to 6.5 percent. The percentage share is based on the house price, so that you automatically pay more land transfer tax for a more expensive property. Since the federal states have a say in the collection of the land transfer tax, the amount of formerly 3.5 percent has risen by up to 3 percent in many regions, making the total costs of buying a house more expensive. In the course of the purchase procedure, you pay the land transfer tax as soon as the purchase contract has been notarially concluded and has thus become legally binding. In order to take the next step, the registration in the land register, you need proof of the land transfer tax paid to the tax office. The certificate issued for this is generally known as proof of harmlessness.

Save on land transfer tax: How you can reduce additional costs

The payment of the land transfer tax is necessary and cannot be avoided completely. Nevertheless, there are various options to reduce the tax burden and thus the overall costs of real estate acquisition. It is interesting to note that the amount to be paid varies by a few percent within a square kilometer. If, for example, you favor a property in federal state A and make a land transfer tax comparison with the directly neighboring federal state B, savings of up to three percent can be achieved. As a future landlord or as a real estate buyer with independent or freelance activity, you can assert the land transfer tax in the annual financial statement and thus ensure a reduction of your tax burden. If you do not buy an existing property, but opt for an undeveloped plot of land, you will generally pay a lower land transfer tax than when buying a plot of land with buildings.

The brokerage fee, the land register entry and the notary fees

In total, the incidental purchase costs are made up of four areas. In addition to the land transfer tax, the buyer of a property pays the fee for the real estate agent, the costs for the notary and the land register entry. The fees for the service of the real estate agent also depend on the purchase price of the property and are calculated in percent. Here, margins of between just under 3 and 7 percent are possible. In the stated additional expenses only the net amounts for these fees are calculated, so that you generally have to reckon with a further cost increase of 19 percent, i.e. by the valid VAT rate. Even if the seller does not use a real estate agent as an intermediary and sells his property privately, the fees for the notary, the entry in the land register and the land transfer tax are still due. Only the brokerage fees are then not to be found in the additional purchase costs, whereby your additional expenses are reduced by this percentage. Purchases without an estate agent, however, mean that you have to make all appointments and organizational details yourself and in agreement with the seller. Without the appropriate experience and know-how, the purchase procedure for a property can be difficult and can have some pitfalls.

Value added tax for estate agent and notary fees

The sales tax is due in addition to the actual notary and real estate agent fees. According to current VAT legislation, this is a surcharge of 19 percent, which can be claimed as a capital investment in the year-end invoice in case of a later letting or when buying real estate. Here again, self-employed and freelancers have an advantage, as they can claim this amount proportionately and offset it against any agreed turnover tax. A complete tax deduction is not generally possible, so that a discussion with your tax consultant is worthwhile and can help you to save on VAT.

Additional taxes after the house purchase: Important information for new owners

The contract of sale is signed, the additional purchase costs are paid and you are registered as the owner in the land register. Immediately after the purchase of the property, further taxes are due. This is where the property tax comes on your agenda, which you should not confuse with the land transfer tax. If you let the property and do not use it yourself, additional taxes are payable from profits and rental income. As the new owner, you pay regular amounts for your property in addition to the cost of living. In order to keep an eye on your expenses and to protect yourself from surprises, it is worth taking a look at the individual factors of the house you want to buy before you buy. A property that is not energy efficient or a house in need of renovation causes a high effort for maintenance and possible conversion to energy efficient operation. The running costs are in addition to your repayment of the loan installment and should therefore be taken into account at the time of purchase and included in your monthly possibilities. Never set your loan installment so high that it can lead to financial restrictions in the end when paying the running costs and other liabilities. Even if you have already paid off a large part of the additional costs in the purchase procedure, as a new owner you will still face monthly and annual expenses for your house.

Calculation of total expenditure when buying a house is advisable

If you want to realize your dream of your own four walls and be financially on the safe side, you should not only consider the purchase price. Since you generally pay ancillary purchase costs, these must already be included in your financial planning. In the case of classic financing, you pay off the ancillary purchase costs from your own funds and then contribute between 20 and 30 percent of your own capital to the financing. If you have planned early on and concluded a building society contract, you can trigger this after the savings phase and the 40 percent achieved and you will have the amount of equity capital and ancillary purchase costs available. It is advisable to calculate the running costs for your property before you buy and to find out, for example, how much the annual property tax for your house will be. In addition, you should know that the property tax is not only levied on the house, but on the total area of the property. You pay less property tax for a smaller plot of land than for an area that offers you plenty of room to develop freely. If you buy the house for partial commercial use, you can also partially offset the actual costs incurred in the annual accounts. The same applies if you rent out your house or decide to rent it out partially. In this case, there are profits from rental income, which you must declare as income. As soon as you make a profit from your property, you can claim certain costs and taxes and thus ensure a tax refund or a reduction in tax expenses.

Any planned financing when buying a house should be calculated so that you do not lose sight of the additional costs. If, for example, you can buy a property for 200,000 Euros, the actual purchase price will be less than this amount, as the incidental costs of purchase must be deducted from the total amount. Good estate agents will help you find the right property based on your budget and calculate the purchase price correctly from the beginning.

Purchase land: The procedure and the costs

You would like to build your own home and are looking for the dream property on which you can realize your idea of your own home? Buying a plot of land is a complex project, in which you should avoid some pitfalls and avoid mistakes at all costs. The building boom alone makes it difficult to find land in popular regions and often at inflated prices. If you are looking for an undeveloped plot of land, plan your total budget and include in the purchase price whether it is a developed or undeveloped plot.

Excursion – Developed or undeveloped: difference ?

For a developed building plot you pay a higher price per square meter than for a plot that is not yet developed. However, we can still recommend the purchase of a developed plot of land, as in this case you can start the construction project faster and obtain the necessary permits. In the case of undeveloped land, you should obtain detailed information in advance to determine whether it is suitable for your development plan. For example, if a property is located in a residential area and you want to build for your business, difficulties are inevitable.

Service charges and total costs

Ancillary purchase costs are added to the land price. You know the standard land value, have researched the costs for the development and calculated which additional costs you will have to pay for the purchase. If you wish to finance your property, the land value should be based on the local prices. However, it is a fact that the building boom has generated an immense increase in costs and that in some regions it is hardly possible to realize the purchase of land at a price based on the land value.

As with real estate financing, you should also ensure low interest rates when buying land by bringing in between 20 and 30 percent equity capital and not including the ancillary purchase costs in the financing. Look around with us for a suitable property and find the place where you can fulfill your dream of a house on your own property.

The currently very low interest rates give you the opportunity to finance at a reasonable price despite increased land prices. Based on the criteria relevant to you and your personal factors, we will find the optimal financing for the purchase of the land.  A good financing for the purchase of land fits perfectly to your requirements and is based on the demands you make on the contract and its general conditions. Favourable interest rates are decisive when buying land, but they are not the only criterion for a good decision.

Real estate financing: buyer and credit

The purchase of residential property is usually always associated with construction or real estate financing. Due to the numerous offers on the financial market, it is difficult to find suitable financing for your property without core competent support.

How do you finance best? Especially when it comes to initial financing, real estate buyers are faced with this all-important question. The desire for optimal real estate financing offers far more possibilities than the classic construction financing, which is the first thing that comes to mind for most prospective buyers.

There are different forms of building loans. Which type of real estate financing suits you best ultimately depends on various factors and your personal criteria.

The possible financing amount is best based on your equity capital. It is recommended that you bring between 20 and 30 percent of your own capital to ensure solid financing when buying a house. Alternatively, you can apply for a full repayment loan and purchase the house even if you do not have any equity. In this case, the interest rates are higher because a larger sum has to be financed and a longer term has to be scheduled.

Buy or… build? Construction costs, interest & financing

Construction interest rates have been at rock bottom for several years. A building interest comparison is worthwhile, because: How long will it remain like this? Many of our customers approach us with the question whether it is worth waiting or whether the interest rates will rise again in the future. Building interest rates do not just stand on their own, but also have a significant influence on mortgage interest rates. In our consultation you will find out quickly and reliably when and how you can best finance and secure the favourable building interest rates.

Rental: Laws, taxes & tenants

Renting a property can be a great extra income, but it can also become your main job. Landlords have many duties towards the tenant and have to take care of the property. However, if this is successful, a lot of profit can result. We will explain how you can best let your property and how to find the right tenant for you.

There is much to learn!

The right tenants, suitable lease & Co.

How do I set the rental price correctly? How does my advertisement appear attractive? And how do I draw up a suitable and fair rental contract? A future landlord asks himself all these questions, because in order to successfully rent out a property, a lot of knowledge and experience is required. But if you follow a few simple steps, you will make the leap to a successful landlord and profit from the earnings.

In addition come: Landlords have many duties and tasks, among these are for example the organization when changing tenants or the annual preparation of a service charge statement for the tenant. The rent can be set with the help of the local rent index, but it must always be considered whether the region concerned has a rent brake or not. The rental agreement should be fair for both tenant and landlord and should regulate all important points. When choosing the right tenant, it is not only the sympathy effect that counts, but also other important factors, such as creditworthiness – learn everything you need to know about renting your property in our article.

The correct tenants, suitable lease & Co. read on here: