GmbH & Co KG – formation, financing, liability & Co

The limited partnership – in short: Kommandite or KG – is one of the so-called complete companies and, as a partnership, is subject to the German Commercial Code (HGB). The formation process for this legal form of company is quite uncomplicated, as it can be formed informally and requires a minimum of only two founding members. It can be formed by both natural persons and legal entities. A maximum number of permissible shareholders is not specified by law.

If all general partners of a KG consist of limited liability companies (GmbH), they form a so-called Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft – called GmbH & Co KG for short. Such a GmbH is sometimes also referred to as a general partner GmbH, but beware: the general partner GmbH is a corporation and part of the GmbH & Co KG, while the GmbH & Co KG by virtue of its legal form is always a partnership!

Other typical partnerships:

• Limited partnership (KG)
• General partnership (OHG)
• Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)

Foundation & Company Name

Two persons are required for the formation of a GmbH & Co KG: The GmbH as full partner – i.e. general partner – and a natural person as partial partner – called limited partner. If you are starting from scratch, you must first establish a limited liability company in preparation. To do this, you need the following in a nutshell: a natural person or legal entity as the founder of the company; a tax identification number (tax ID); the confirmation of registration from the trade office; the shareholders’ agreement aka articles of association together with notarial certification; 25,000 euros in share capital; and finally the entry in the commercial register.

You can find out how the process of setting up a GmbH works in detail here:

• Establishment of a limited liability company (GmbH)

You have successfuly founded your GmbH? The limited partner is ready to go? Then the next step is to set up a limited liability company (Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft). Since the GmbH & Co KG is a separate company, you again need a tax ID and must register the company with the trade office. The establishment of articles of association is also mandatory and of course your company needs a suitable company name including the company suffix “GmbH & Co KG”.

Management & power of representation

As a general partner, the GmbH basically has power of representation in the external relationship. However, since a GmbH is a legal entity, the management authority is entrusted to a natural person. This may be a shareholder of the general partner GmbH or the position may be assigned externally to a so-called third-party managing director. In this case, there is often talk of a third party board of directors or external board of directors.

Alternatively, limited partners may also act as managing directors, provided they are expressly appointed to this body. Since limited partners are generally excluded from management, their management authority in this case is, however, limited to the right of objection in the case of extraordinary transactions.

Profit distribution & loss sharing

With regard to the distribution of profits and the sharing of losses, either the statutory principles come into play or corresponding specifications have been anchored in the articles of association. Profits are generally distributed at 4 percent of the capital share plus additional profit “in reasonable proportion”. Losses are also shared appropriately.

It is possible to completely exclude the general partner GmbH from the distribution of profits by means of a declaration in the shareholders’ agreement, whereby higher profits can be distributed to the investors. Insofar as the GmbH has inherent management authority, it can be paid an appropriate remuneration to compensate for its role as managing director, whereby a managing director’s remuneration cannot be deducted in total as a business expense for tax purposes. However, the remuneration is paid irrespective of the profits generated and thereby has the effect, if applicable, that the entire company can save taxes.

General partner, partial partner & tax liability

Usually, the general partners of a limited partnership are liable without limitation and jointly and severally – i.e. with their business assets plus private assets. If, on the other hand, the general partner of a KG appears in the form of a limited liability company (GmbH), he is liable as a legal entity only to the extent of the GmbH’s capital contribution. Limited partners are liable – as in the case of a conventional KG – only to the extent of the mandatory sum that they paid in as a limited partner’s contribution when the GmbH & Co KG was founded.

Like all other legal forms of companies, the Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft is generally liable to pay taxes. First and foremost, they are subject to trade tax and – in the case of taxable turnover – turnover tax. A GmbH & Co KG is generally exempt from income tax and corporation tax… However, profit income is still subject to taxation: corporation tax is applied to the profit share of the general partner GmbH, whereas limited partners must pay income tax on their profit.

• Trade tax (GewSt)
• Value added tax (VAT)
• Income tax (ESt)
• Corporate income tax (KSt)

Tip. All taxes for companies in one list:

• Taxes in Germany

GmbH & Co KG – For whom is it worthwhile?

A significant advantage of a GmbH & Co KG is undoubtedly the limitation of liability to the business assets of the general partner GmbH. This means that founders do not directly risk the existence of their company if an investment turns out to be disadvantageous, and they can quickly increase their equity capital through the flexible and simple admission of new limited partners. They can confidently outsource the organisational effort and the management to an outside body or make deviating succession arrangements in order to maintain the GmbH & Co KG.

So who is the GmbH & Co KG suitable for? This legal form is worthwhile for start-ups who would like to set up their business as a partnership without having to forego the special liability restrictions of a GmbH. A GmbH & Co KG is also conceivable as an asset-managing company and for family businesses.

Alternatives to the GmbH & Co KG: Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

How to Buy a House in USA – A Full Guide

Buying a house is often the first step to financial independence. Whether as a real estate investment for passive income, or as a primary residence. It’s vital to understand the ins and outs, and all the nitty gritty details of purchasing a home. Even if you’ve bought a house before, you should get informed. The more you are in the know about the process of buying a house, the less work your broker, attorney or agent will take, and the m ore you can contribute. Meaning a higher chance that you will find your perfect house, and pay as little as possible for it.

Not looking to buy a house? What about…

How to Buy an Apartment

Types of Real Estate Investment – What should I do with my House?

Of course, before you buy a house you have to know what to do with it. Or maybe you’re thinking about ways to invest saved money, and are considering buying a house. What could you do with it? Well generally, buying a house means you do one of three things with it. Either you use it as a primary-residence, meaning that you live in the house yourself. You may also rent out the property. Meaning that someone else lives in the property and pays you rent. This is more popular for buying apartments, but can also be done with houses. The last option is to flip it. That means buy it, renovate it at low cost, and sell it for profit.

• Primary Residence
• Rental
• Flip

Decide on your Residence – Type of Home

Of course there are many different types of homes that you can buy. These include Single-Family Homes (i.e. a normal house as you know it), a duplex or triplex, a townhouse, a co-op, etc. These all have their unique advantages and disadvantages, and depending on your needs one will fit better than another.

A full rundown of all your options, from type of residence to what you want to do with your real estate, in our guide

Types of Real Estate

Checklist – 8 Steps to Buying a House

In short, the 5 steps in the process of buying a home are as follows. The first steps are all related to your mortgage, and planning your payments. The final is related to your closing, where many additional costs will come up which you should plan for.

1. Save up for the Downpayment
2. Find a Mortgage Broker
3. Get Mortgage Preapproval
4. Get your Team Together: Attorney, Real Estate Agent, etc.
5. Start looking at Listings
6. Go to Viewings
7. Submit an Offer
8. Close

When Should I buy a House? Preparation

How do you prepare for buying a house? The following are the steps you should take before even starting the process of buying a house. It is important that it is the right time. The following are timing issues you should take into consideration which may decide whether to wait or buy now.

Salary, Savings, and Career – Your Financial Status

Preparing for buying a house means considerable financial investment! It’s most important to know, before you buy a house, that you won’t be stuck with heavy loans, high interest rates, and drowning in additional payments. You should buy a home when you are financially secure. That means that you have large savings, which may be necessary for unexpected renovations or repairs. You may need to install new heating, or reinsulate your home. These savings will of course be mostly used for your downpayment, which will be a large sum. Additionally, it’s easier to get a better mortgage, and get mortgage pre-approval, when you have a constant salary. Job security is therefore key.

• Savings
• Job Security

Check Your Credit! How to Check your Credit Score

It’s not difficult to check your credit scores. These are important as they are decisive in how your mortgage will be, and the difficulty of taking out a loan. First you get a credit report. This is free and is done by Equifax, Experian, and TransUnion. Then check over this report. There are sometimes errors, or other ways to improave this report. Then you can check your credit score. Either pay a credit reporting agency (e.g. Equifax), or check for free on your credit card statement or in your online banking

1. Get credit report
2. Check for errors
3. Get credit score (either from bank for free or from a credit reporting agency)

The Housing Market

If you had bought a house in 2007, you’d have heavily regretted your decision. You want your house to gain value, not lose value. That means taking the general scope of the real estate economy into view, but also more local. If you’re buying New York real estate, right now is a good time. Other places may not be the same, so be sure to inform yourself online, as well as find informed experts in your area (who do not have an incentive to make you buy now, like a real estate agent).

• Local Market
• Broad Market

First-Time Homebuyers have Advantages

If you’re buying a house, it’s an advantage if it is the first time you are doing so. That’s because the department of Housing and Urban Development (HUD) wants to encourage first-time homebuyers. That means you get incentives. Think tax breaks and lower downpayments.

How to Know if you are a First-Time Homebuyer

If you meet the following criteria you are eligible for these discounts and advantages. You are eligible if…

• You have not bought and lived in a home for three years
• You bought your previous residence with your spouse
• You have only owned a residence not permanently affixed to a foundation
• You have only owned a residence not in compliance with building codes

How to Plan your Mortgage – First Step in Home-Buying

Having decided all these, things and with your credit report in order, you can start planning the first steps. What is decisive in buying a home is how much you can afford. Of course you won’t be paying the full price of the house up-front. Rather you pay a percentage of the main price in your downpayment, and the rest is loaned to you by a bank or mortgage broker. There’s a lot going into these calculations, so be sure to research yourself before taking any further steps. This is all related to mortgages, a massive topic. If you want to learn more, read our guide

Mortgage – How to, Easily Explained

Plan your Downpayment

Whatever you buy, you want as much savings as possible. Buying a home is obviously a large purchase. Up front you will pay a downpayment as well as a number of additional costs. What’s important here is that the amount you pay on your downpayment (as well as on potential discount points) decides how much you will pay later on. Your downpayment should be at least 20%. If you’ve saved a large sum, you will be able to pay more, and therefore reduce the amount you will need to spend later on regularly.

• More Savings = Better Downpayment

Finance Details: The Decisive Factor for a Mortgage

Before doing anything else, you should look through all your finances. Credit cards, missed bills, loans you’ve taken out, etc. are all deciding factors in how good your mortgage will be. Therefore, before even approaching a mortgage broker who can give you preapproval, you will want to check your credit report yourself, and pay off as many loans as possible.

Even if your home purchase is a while in the future, you should always make sure to pay your bills as soon as possible and avoid loans when available. Lenders will also take into account your debt-to-income ratio, so make sure to reduce debts as much as possible before deciding to buy a house

• Reduce Debts
• Credit Report!

What to look for in a Mortgage – Avoid Paying too Much

In your mortgage plan, you will want to plan beforehand to make sure you avoid paying more than you have to. A bad mortgage can mean you are stuck with high interest rates and potentially even mortgage insurance as extra monthly costs. To get a good mortgage, you want to pay as much as possible at the point of purchase. That means a large downpayment of at least 20%, and as much as possible on top of that as discount points for your mortgage.

• Large Downpayment
• Discount Points
• No Mortgage Insurance

Get Pre-Approval

Next, you want to get official proof that you can pay your mortgage. That shows sellers and mortgage lenders that you are a serious buyer, and that you are good for the money you owe. Not only that, but it makes the search much easier because you have, on paper, exactly how much you can spend. It also ensures that you do not become victim to a predatory lender who may charge more than others would. You get mortgage preapproval from a mortgage broker. A mortgage broker is the first person you want to have in your team for buying a house. When finding a mortgage broker, shop around and see what brokers are best suited for your case.

• Get a mortgage broker!
• Shop around

Ready to Buy a Home – Next Steps

So you have everything in order, now you want to get to the point: Finding your house. That would be quite nice, and it’s coming up, but before that make sure to take all precautionary measures, and prepare enough.

How to find your Real Estate Agent

The right real estate agent can change your whole experience. Therefore, make sure that you look around, and find the best agent for your needs. The job of a real estate agent is more than just sending you links to online listings. Real estate agents will often show off with their amount of experience. That’s of course important, but a young agent can be much more knowledgeable, and a person who has worked in the field can also be incompetent. Next, also make sure that you personally get along well with your agent. That means meet yor agent, and see what you think and what kind of an impression they make.

Tips for finding the Perfect Real Estate Agent

These are our top tips for finding the best real estate agent for your needs. The 3 p’s are

1. Personal attributes of the agent – Trustworthy, passionate, friendly, hardworking, etc.
2. Payment structure – Are they out to make you happy or to sell as many homes as possible?
3. Past track record – Have they sold homes in the past, do other people recommend them?

Before you Buy – What type of House Ownership?

This may seem a surprise, but there are different ways to own a home. The type that you probably know, is what is called sole ownership. Legally though, you can hold the title to a property by three other methods as well. These are Joint Tenancy with Right of Survivorship (2+ people own a home equally), Tenancy by the Entirety (same as joint tenancy but with married couples), and Tenancy in Common (2+ people own a certain poportion of a home).

• Joint Tenancy with Right of Survivorship
• Tenancy by the Entirety
• Tenancy in Common
• Sole Ownership

The Perfect House – Find the Best Real Estate

So, you’ve found the right real estate agent, have all your finances in order. What now? Well now is the exciting part, the search for your dream home. Some people even peruse real estate listings in their free time, and you will have to as well. The important part here is perseverance.

Beginning the Search – First Steps

Of course your real estate agent will be looking at listings constantly for you. They often send weekly reports of possible properties, of which you can then decide which you like. Additionally though, it’s also good if you take a look yourself at listings on different websites. Some real estate listings are also not online. That means it can be a good idea to drive around neighborhoods which you’d like and look for open houses or for sale signs. Your real estate agent can then get in touch with these homeowners and pave the way for the process. Another good option: Ask around with family and friends. It’s much better to deal with people you are friendly with than strangers.

• Look at Listings Yourself
• Drive through the Neighbourhood
• Ask Friends and Family

What to Look for in a House – Tips!

The main things you have to look out for in your house are likely first and foremost financial in nature. Is it in your price range? Does it need many repairs? Etc. There’s other things you may personally find important like, proximity to city, public transportation access, a swimming pool, and more. Your realtor can tailor your needs and desires so that you receive listings which align with your wishes. Another important thing, if your financial situation is not as liquid, you can look out for homes which are in need of renovation. These are often sold undervalue, meaning that you can buy and renovate them for a lower price than a similar house in perfect condition.

Things you may need to look for are the following:

• Price
• Size
• State of House (e.g. possible renovations)
• Schools and Leisure Opportunities in the area
• Number of baths and Befrooms
• Local market (rising or decreasing value)
• Access to Public Transportation
• Distance to Shopping and Supermarkets
• Amenities like Swimming Pool or Balconies

Open Houses – How to Visit an Open House

You may think this is easy enough, you’re just walking around and taking a look after all… right? Well of course you can go look at open houses, but it’s much better to take your real estate agent with you. Sellers’ agents can be predatory, and you don’t want to be taken advantage of.

• No open houses without your agent!

How to Make an Offer for a Home – Negotiation

Making an offer on a home can be a complicated process. It’s certainly more complicated than just telling the seller a number. Once again, if you have a good real estate agent, they will guide you through this step of the process.

Take the First Step of your Home Purchase

Your agent will let you know how high the first offer you make should be. Your agent will also be the one presenting the offer to the seller, taking over from you. Remember that you may not be the only one trying to buy a certain house. That means that you may end up in a bidding war with other buyers, especially for desirable, and affordable homes. Things that make you a stronger candidate are better finances, mortgage pre-approval, as well as being lenient in the closing date.

• Agent makes the First Step

How to Prepare a Purchase Agreement – Important!

What’s a purchase agreement? It’s basically you saying what you imagine under your purchase. the seller will then agree to these (hopefully), and the rest of the deal will depend on this. For this reason there are many details in this agreement. This includes personal information of you, the buyer, as well as the owner, i.e. the seller. The location of the home, the price which you want to purchase it for, who is lending the mortgage, and the amount of the downpayment. Decorations, or other features which will be left in the house, and the circumstances on which your purchase decides. This is very important. A purchase agreement must ensure that your purchase depends on the home inspection, the mortgage approval, and the appraisal. Lastly, it will also include the closing date

• Price of House
• Mortgage Lender
• Personal Infos
• Anything Left in House
• Contingencies of Purchase
• Official Closing Date

Before you Pay your House! Remember the Inspection

Before you pay anything, as stated in your purchase agreement, you will get a home inspection. That means that you have an expert (or multiple experts) walk through the house and look at everything from plumbing, state of appliances, insulation, heating, etc. It is important that this is an independent inspector, and that they are experts. You want to avoid that there are any unseen issues in the house that you will end up paying for in the long run in the form of repairs and renovations. Important here as well, this can reduce the amount you end up paying. Large issues mean that you can renegotiate, and again lower the price which you must pay.

• Finds issues, like potential repairs

Your Offer is Rejected, now What?

If your offer is rejected, you have two options. Of course it hopefully won’t come to this, if the seller accepts your first offer. If your offer is rejected, remember that this isn’t necessarily a bad thing. If your offer is accepted at first try, that means you may be overpaying. If you can pay more, you can prepare a counter-offer. If not, move on to the next house. The worst thing you can do is get stuck mounring over a possible house, or worst of all, pay more than you can. In the best case, you will have made an offer which is slightly lower than what the seller had hoped for, and they will prepare a counter-offer. When you receive this you can usually go up a bit still, send that counter-offer and you will have completed your home purchase.

• Don’t mourn after the House
• Don’t take up unnecessary costs!

What to do After your Offer is Accepted – Inspection, Appraisal + Co

After your offer is accepted, you may think that your purchase is in the bag, but there’s still a lot to do from here. Don’t get tired, these last yards are just as important as the first! After your offer is accepted, you will need to take the next, very important, steps. There are three important things you now need to due:

1. Home Inspection
2. Home Appraisal
3. Mortgage Approval

These steps are vital, it may feel as if you’re finally finished and just want to get it behind you, but not doing your due dilligenceon these parts can mean lots of pain in the long run. Any issues you have after you have closed on the house means costs are coming out of your pocket.

Home Inspection – How to Avoid Unseen Issues in your House

Not only should you do this, but it is also your legal right to get a home inspection. It is more of a precaution than a convenience. This can prevent you from unseen future payments that can haunt you for years. A professional home inspector will go through the house, taking a look at everything from electrical systems to heating. This professional inspector gives you a summary of the house. It includes all possible issues. There are always some issues, and the may not be very significant, but can be, and even if they are not, can be used as leverage in your negotiations.

• Not necessary, but good

Home Appraisal – Know the Value of Your House

Appraisal may at first look sound like the same thing as an inspection. It’s not. Whereas a home inspector looks at possible issues such as issues with plumbing, the appraiser is an expert in estimating the price of a house. You, the seller, and your agent may have estimated a house at $1 mil., but an appraiser, who takes into account a variety of factors which you cannot even think of, will find a different price.

• Contest the appraisal if necessary!

Why is a Home Appraisal Important?

An appraisal is important first and foremost because it is often a mandatory part of your mortgage. That means your lender requires the official appraisal of an expert in order to lend you money. These lenders want to avoid giving you a loan for a house that is worth less than you buy it for, because it is less likely that you will be able to pay back the loan. Therefore you likely want your appraisal to be the same as your purchase price. If the appraisal is lower than the price, you may not get approval, if it is higher, count yourself lucky, but this may become a factor in renegotiations.

• Avoid a lower Appraisal Price

Final Mortgage Approval

With these things sorted you can get your mortgage approval. This is just the lending organisation telling you that they are willing to loan you the money required to buy the house. This is dependent on the appraisal. They can also take into account the inspection, but generally, the appraisal is enough. Remember, that there is no way around the fact that buying real estate up front is always better than with a mortgage. At this point it’s important that nothing has changed in your finances between the point of pre-approval and the final approval, as an extra loan or any debt that you have built up may discourage the lenders.

• Avoid Extra Debts between pre-approval and final approval

Almost There – Preparing to Close on a Home

Now that you have all this sorted, you can go about closing. This is the part that you’ve looked forward to for ages. It’s not necessarily the most fun, but you will be happy once it’s over becasue this is the last step in your voyage to buying a house.

Renegotiation: Pay even Less on your House!

This is an important step. An appraisal or home inspection can often uncover issues or question marks which you had previously missed. You can either ask to pay less on the purchase price or ask the seller to take over some of the closing costs. Otherwise you can also ask the seller to give you extra credit to cover these costs, or ask them to repair the issues before you move in. The seller may reject this renegotiation and you can then decide whether you neglect these issues or continue renegotiating and risk losing the house.

• Based on inspection and appraisal

Title-Search, Homeowners Insurance, etc.

Next you will have to find a title company which does title search. A company which insures your home, etc. Many of these things will be taken over by your real estate agent, or their company. Remember that these all incur costs. There are many additional costs, as well as, depending on your state there are 3 taxes when buying a house, including pro-rata property taxes. These costs can add up to 5% of the total purchase price. To learn more, look at our guide

Real Estate Purchase – Additional Costs

Don’t Forget the Walk-Through

Just like when you buy an apartment, you should never neglect the final walk-through. There are many issues which can come up with your home before you move in. Whether it’s issues that you weren’t aware of when you visited the home, or problems that occured when the previous owner moved out. Also, the seller may have left unwanted belongings, which you may then have to deal with, either by paying to have it thrown out or similar things. Many people who don’t do the walk-through end up regretting it.

• Do not neglect!

Closing – Singing a New House

You are now ready to sign. Closing will be a certain day on which you sign all paperwork, and money is transferred to the seller.

Closing Disclosure – Paperwork of your Closure

Three days before closing, you will receive a closing disclosure from the seller. This disclosure includes everything that you will need to pay at closing, as well as detailing the loan which you will take up. You will want to take a close look at this, and make sure that it does not deviate from you loan estimate.

Closing Meeting – Signing the Paperwork

This is where the magic happens. At the closing meeting you will sign all the paperwork. Make sure to bring your ID to this meeting, as well as a proof of your assets which shows that you have enough funds to buy the property, and lastly, a copy of your closing disclosure.

Settlement Statement – Proof of Purchase

The settlement statement is a little bit like the receipt of a grocery shopping trip. It includes all the costs of the purchase, including the downpayment, and closing costs. Lastly, you will also signa mortgage note, which insures that you will pay back the amount which you are loaned.

Special – Buy House New York

New York is the biggest economic powerhouse in the country, and buying real estate here is an art unto itself. If you want to buy a house in New York, there’s a few things you’ll want to take a closer look at. From the infamous mansion tax, to the people you need to hire, and the costs which you can expect.

We take care of all questions you could have in our full guide on buying a house in New York

Buy House New York

Special – Buy House Los Angeles

Los Angeles, the place with seemingly endless beaches, celebrities, trendy cafes, and rockstars. But Los Angeles is also famous for a massive housing market, for houses, as well as for apartments. In general, home prices are increasing throughout the city. That means buying a house will translate to a higher selling price, and therefore profit. You’re going to want to get in on the many real estate opportunities presenting themselves in the city.

We take care of all questions you could have in our full guide on buying a house in Los Angeles

Buy House Los Angeles

Buying a House – Checklist

When you’re buying a house, there’s a few things you’re going to want to avoid forgetting, and a few things which you need to know when buying a house. These are our steps to buying a house:

1. Save up for the Downpayment
2. Find a Mortgage Broker
3. Get Mortgage Preapproval
4. Get your Team Together: Attorney, Real Estate Agent, etc.
5. Start looking at Listings
6. Go to Viewings
7. Submit an Offer
8. Close

Most Expensive in the Country?

If you want to buy an apartment in New York, or buy a house in New York, you should be certain of your neighborhoods property taxes. New York’s property taxes are some of the highest in the country. With the top 5 highest property tax rates in the USA, finding home in New York State. This, despite New York City’s five boroughs having an average property tax rate 0,86%. New York’s investment possibilities are endless, and can be found in its boroughs, but outside as well with the shores of Lake Ontario, or the capital of Albany. New York is also one of the few states in the country where you are required to pay Mortgage Tax.

• New York Property Tax: 0,86%
• California Property Tax: 0,77%
• Florida Property Tax: 0,94%

What are Property Taxes?

Property Taxes are ad-valorem taxes which you pay for owning property, meaning that it is based on the monetary value which is estimated to be attached to an item, piece of land, property, etc. A property appraiser provides the basis for calculation. If you’re planning to buy real estate in New York, you’re going to have to get acquainted.

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. When buying a house, these must be paid in advance, and then received back from the seller.

• Property Taxes are taxes on: Real Estate, Airplanes, Boats, etc.

How are Property Taxes Calculated?

Property taxes are ad-valorem taxes, meaning the amount you have to pay on these taxes is determined by the value of the property. This value is estimated by an appraiser, and takes into account location, age, etc. Property taxes are typically a rate which is multiplied by the estimated value of the property. E.g. a property in California will be subject to a property tax of about 0.77%. A property valued at a total of $3 mio. will require the owner to pay property tax to the sum of $23.100.

Tax Bill = Property Tax Rate x Value of Property

Property taxes are a complicated concept. To learn more about U.S. property taxes, when you have to pay them, and how much each state pays in property taxes,

• Property Tax in the U.S. – Guide

New York Property Tax Explained

In New York, property tax is quite high compared to other states. In New York State, property taxes change from year to year, depending on the needs of the state. Additionally, it is also complicated by the fact that tax rates are constructed in millage rates as opposed to tax rates. Buying an apartment in New York is therefore more complicated than you’d like, but let us try to explain.

Mill Rates are Tax Rates

Millage rates serve the same purpose and work quite similarly to conventional property tax rates. A millage rate, is first and foremost a number. This number indicates the amount of property tax a property owner is required to pay for their property. A mill rate of 1 indicates 1$ of tax for $1.000 worth of property, a mill rate of 24 indicates $24 of tax per $1.000 worth of property.

• Mill Rate of 1 indicates 1$ of tax for $1.000 worth of property

Residential Assessment Ratios – Determine your Home’s Worth

Sounds complicated, but if you’re looking into buying real estate in New York, you have to know what RAR’s are. RAR’s are a method by which the state accounts for fluctuations in the real estate market. You can challenge the assessment given to you via the RAR when you believe you property is worth 10% less than the assessment. By law, the equalization rates are used to divide taxes in tax zones that cross municipal boundaries. These tax jurisdictions can be school districts or the county.

• RAR is a ratio determining the assessment of your home

Too Much Property Taxes on your Home?

As always, there is an assessment on the value of your home. To calculate the property taxes you have to pay, you would usually calculate your property tax by multiplying this by the tax rate of your county. In New York state, you receive an approximate value which you multiply by the Residential Assessment Ratio. This gives you a value on your property, based on which you will pay your property tax.

Estimated Value = Assessment Value x RAR

Property Tax Exemptions In New York

In New York, a wide variety of tax exemptions exist. They exist with the intention of supporting those disadvantaged. Note, that these exemptions are tax breaks, meaning that they reduce the value of the property which you are paying taxes on.

STAR (School Tax Relief) is for owners of residential properties with an income <$250.000. This can save about $300/year. For owners of residentials older than 65, and with an income lower than $90.550 this can be improved to enhanced STAR, with approximate savings of $650/year. All need to be appliedd for before the deadline of March 15.

If you want to learn more about lowering your property taxes, we have a guide on the subject

• Tax Deductions for Real Estate

New York City Property Tax

Many people looking to buy a home in New York State are mostly interested in the massive metropolis making up much of its fame. The big apple is made up of 5 counties, although these counties are here counted as boroughs, and therefore do not have their own governmental agencies. New York City has an average property tax rate of 0.86% across the five counties which make up the city.

Property Tax Rate in NYC: 0.86%

Buying Property: Mansion Tax

When buying a property in New York city, you may be subject to the “mansion tax”, beginning with an extra rate of 1% when buying properties worth more than $1.000.000. This tax is intended to provide the state more funding from high earners or those with more capital. This tax, unlike property transfer tax, is paid by the buyer. For this reason it is also a staggered tax, with higher property prices incurring higher rates. These rates are from 1% up to 3.9% depending on the value of the property. Below the mansion tax rates, depending on the amount the property is bought for.

• 1.00% – $1.000.00 < $1.999.999
• 1.25% – $2,000,000 < $2,999,999
• 1.50% – $3,000,000 < $4,999,999
• 2.25% – $5,000,000 < $9,999,999
• 3.25% – $10,000,000 < $14,999,999
• 3.50% – $15,000,000 < $19,999,999
• 3.75% – $20,000,000 < $24,999,999
• 3.90% – $25,000,000 or more

Mansion tax is just one of the taxes you have to pay when buying real estate. Learn more in our article on Taxes You Pay when Buying a Property.

Building Classes – What Tax Class is your Building in?

In New York City there are different tax classes for different buildings. These set the assessment ratios, mentioned in the RAR’s above. That means that depending on which building class your property falls under, you pay a different tax rate. You are most likely to be owner of a class 1 property, as these are residential properties. Class 2 includes all properties not included in class 1, but still fall into the category of residentials. Class 3, is what is known as utility property, and class 4 commerical and industrial properties. This final class is where you would be taxed as the owner of an office space or factory. The tax rates for these classes are:

• Class 1 – 21.05%
• Class 2 – 12.27%
• Class 3 – 12.83%
• Class 4 – 10.69%

New York City Counties Property Tax Rates

The individual counties in New York city have varying property tax rates, but also make up the 5 lowest property tax rates in the whole state. This makes them an attractive place for investment, with low capital losses each year.

• Kings (Manhattan) – 0.65%
• Queens – 0.87%
• New York – 0.90%
• Richmond (Staten Island) – 0.91%
• Bronx – 0.97%

Ranked – Property Tax Rates by County

There are 62 counties in New York State. All have their own tax rates. These are also quite high, Californian property tax rates are minimal compared to these. Although, the popular counties around New York city are among the lowest, and lower than most in California. You will find the highest tax rates in Orleans (3.28%), Allegany (3.30%), and Montgomery (3.46%), with the lowest property tax rates in New York being in Kings (0.65%), Queens (0.87%), and New York (0.90%). Below is the list of New York state property tax rates, ranked from lowest to highest.

• Kings – 0.65%
• Queens – 0.87%
• New York – 0.90%
• Richmond – 0.91%
• Bronx – 0.97%
• Hamilton – 1.11%
• Saratoga – 1.62%
• Warren – 1.63%
• Jefferson – 1.64%
• Greene – 1.70%
• Essex – 1.76%
• Lewis – 1.83%
• Otsego – 1.83%
• Columbia – 1.93%
• Westchester – 1.95%
• Delaware – 1.99%
• Clinton – 2.06%
• Albany – 2.08%
• Franklin – 2.09%
• Nassau – 2.17%
• Yates – 2.17%
• Dutchess – 2.20%
• Washington – 2.25%
• Schoharie – 2.28%
• Schuyler – 2.31%
• Rockland – 2.35%
• Suffolk – 2.35%
• Ulster – 2.39%
• Ontario – 2.41%
• Tompkins – 2.45%
• Rensselaer – 2.47%
• Madison – 2.49%
• Cayuga – 2.50%
• St. Lawrence – 2.51%
• Fulton – 2.53%
• Herkimer – 2.55%
• Orange – 2.55%
• Chenango – 2.56%
• Oneida – 2.56%
• Putnam – 2.57%
• Chemung – 2.59%
• Sullivan – 2.59%
• Erie – 2.63%
• Tioga – 2.64%
• Broome – 2.77%
• Steuben – 2.78%
• Seneca – 2.80%
• Wyoming – 2.80%
• Livingston – 2.81%
• Onondaga – 2.81%
• Schenectady – 2.84%
• Genesee – 2.86%
• Chautauqua – 2.87%
• Oswego – 2.88%
• Wayne – 2.94%
• Niagara – 2.98%
• Cattaraugus – 3.11%
• Cortland – 3.17%
• Monroe – 3.19%
• Montgomery – 3.28%
• Allegany – 3.30%
• Orleans – 3.46%

Paying a House in California

California is a dream destination. For people from all over the world it represents the American dream, beach lifestyle, bathing in the sun with a cocktail in hand. Property taxes can differ massively, different neighborhoods in L.A. will have different tax structures. Considering California is home to Hollywood, but also Silicon Valley, this is a state where things are happening. For this reason it is also a much beloved destination for buying real estate. Whether you want to buy an apartment in L.A., buy a house in L.A., or to invest your capital completely differently, California is a fairly safe bet. It also has a fairly low property tax rate of 0,77% But where to start? It’s important to get a lay of the land about where who pays how much in property taxes. If you’re looking to invest in real estate, don’t forget about additional taxes when buying a house.

• California Property Tax: 0,77%
• Florida Property Tax: 0,94%
• New York Property Tax: 0,86%

What are Property Taxes?

Property Taxes are ad-valorem taxes which you pay for owning property, meaning that it is based on the monetary value which is estimated to be attached to an item, piece of land, property, etc. A property appraiser provides the basis for calculation.

Property tax is often confused as being a tax on real estate property. Yet this is a misconception. The largest proportion of property taxes come from real estate, because this is the most expensive property most people own. Yet property taxes can also be levied on airplanes, computers, furniture, etc. When buying a house, these must be paid in advance, and then received back from the seller. Property taxes are typically a rate which is multiplied by the estimated value of the property. This value is estimated by an appraiser, and takes into account location, age, etc.

Property taxes are a complicated concept. To learn more about U.S. property taxes, when you have to pay them, and how much each state pays in property taxes,

• Property Tax in the U.S. – Guide

What is Taxed under California Property Tax?

In different states and counties, different items count as ‘property’. In California, it is important to distinguish real property and personal property. Personal property is taxed differently than real property, and can be exempt from taxation, or have a different type of taxation.

Real Property – Everything Taxed as Property Tax

What is taxed in California is of course very different from things taxed in New York or Miami. Real property is what is often the first thought when thinking about property tax. Houses, land, or any improvements made on property of which one is an owner. The following things count as real property

• Land
• Mines or quarries, as well as all timber
• Improvements, including buildings, fences, ornamental trees, etc.

Personal Property – What Counts as Property?

Personal property is other large property. By definition, personal property is all tangible or intangible property which is not real property (see above). Some examples are tractors, boats, or even tools. Yet, not everything is taxed, for example personal effects, household goods, etc. are exempt. In California there are property taxes on bonds, mortgages, capital stock shares, etc.

How do Property Taxes Work?

In the U.S., because there are state as well as county and city property taxes, it is a complicated system. If you live in New York, you may even have to account for additional taxes such as a mansion tax. New York property taxes are of course unique in this. In general, for any given piece of land you have state property taxes as well as county property taxes. In addition to this, some cities levy additional taxes for property. Therefore, when owning property, it is important to be informed about property taxes at all government levels. In California, since 1933, the state no longer levies property taxes on any items except privately owned railroad cars. Nowadays, the ≈ $65 worth of property tax collected are mostly from schools and school districts (54%).

All across California though, you are privy to a tax exemption on your primary residence. This means that the assessed value of the property is reduced by $7.000. If you want to learn more about tax exemptions for real estate in the U.S., take a look at our article

• How to Save Money with Real Estate Tax Deductions

Average in the U.S. – Am I Paying High Property Taxes?

In general, the U.S. has fairly low property taxes. Although, it is difficult to compare to other countries as all have their own systems. Still, investing in real estate in the U.S. is all the more attractive for the low costs which are attached to owning property and buildings. Across states, tax rates for owning property are change strongly. The average tax rate in other mega cities is comparable, Miami property tax is at 0,94%.

• Average property tax rate – 1.1%

Property Tax Special! How to Write off Property Tax!

It’s possible to pay up to $10.000 less property tax if you do it right! You just need to follow the steps and deduct the right things from your bill. You can deduct the property taxes from everythign from land to boats and more! Just read our quick article on the topic!

Write off Property Tax

Property Taxes in California Counties

California, along with New York, has fairly high property taxes. Although there are no counties with excessively high taxes (the highest property tax in the U.S. is found in five counties near New York City). The highest property Tax in California is found in Marin County, Santa Clara County and San Mateo County. In Los Angeles County, the median property tax is comparatively low, slightly higher in Orange County, with San Diego County the lowest tax rate of the large counties

Property Tax Rates in Los Angeles

Los Angeles County is most famous for its metropolis of course. Home to Hollywood, Venice Beach, and quintessential to everything known worldwide about California, investing in property in L.A. county means a strong real estate market unlikely to crash any time soon.

• Median House Price – $495.800
• Avg. Property Tax Rate – 0.75%

Property Tax Rates in Santa Clara County

Santa Clara county has a significant property tax bill, with the median property tax being paid amounting to $6.183. Santa Clara is home to San Jose, and includes the famous Palo Alto. It is among the four counties in the San Francisco Bay Area which have disproportionately high property tax rates (the others being Marin, Alameda, and San Mateo County)

• Median House Price – $829.600
• Avg. Property Tax Rate – 0.75%

Property Tax Rates in San Diego County

San Diego County is home to San Diego, a city known worldwide. With a population of 3.34 mio., it is the second biggest county in California. In the city of San Diego, some 53% of the population lives in rental properties, making these a strong investment. The median property tax here is $3.672.

• Median House Price – $484.900
• Avg. Property Tax Rate – 0.76%

Property Tax Rates in Marin County

The highest property tax bill can be found in Marin county. With a median property tax of $7.063 being paid by each property owner in the county. This may be down to its close proximity to San Francisco in the Bay Area. Marin County is also among the most expensive counties in all of the U.S., reflected in its median house price of $908.000.

• Median House Price – $908.800
• Avg. Property Tax Rate – 0.78%

Property Tax Rates in Modoc County

Modoc County has the lowest median property tax paid for California counties. This is down to the low value of most properties owned here. With few attractions and the only city being Alturas, the population of 8.777 people makes this county less attractive for real estate investments.

• Median House Price – $143.100
• Avg. Property Tax Rate – 0.71%

Property Tax Rates in Orange County

Orange County, known from series such as OC California, or from the fact that it is one of the counties which make up Los Angeles. Orange County is considered an attractive real estate market. Mostly suited to buying intentions, many investors have found success in this oceanside paradise. The median property tax paid here is slightly higher than elsewhere at $4.247.

• Median House Price – $620.500
• Avg. Property Tax Rate – 0.68%

All Property Tax Rates – California Counties

These are the rankings for the lowest and highest property tax rates in Californian Counties. Above are some of the most important property tax rates to know for California. Below a comprehensive list of all counties, and the average effective property tax rate, ranked from lowest average effective property tax rate to highest. Note, effective tax rate takes into account additional exemptions or additions which come about as a result of district or municipal property taxes.

• Trinity County – 0.51%
• San Francisco County – 0.65%
• San Mateo County – 0.66%
• Santa Cruz County – 0.66%
• Humboldt County – 0.67%
• Mendocino County – 0.68%
• Orange County – 0.68%
• Santa Barbara County – 0.68%
• Colusa County – 0.69%
• Mariposa County – 0.70%
• Napa County – 0.70%
• Tehama County – 0.70%
• Modoc County – 0.71%
• Monterey County – 0.72%
• Plumas County – 0.72%
• Sonoma County – 0.72%
• Butte County – 0.73%
• Inyo County – 0.73%
• San Luis Obispo County – 0.73%
• Tuolumne County – 0.73%
• Amador County – 0.74%
• Ventura County – 0.74%
• Glenn County – 0.75%
• Los Angeles County – 0.75%
• Mono County – 0.75%
• Santa Clara County – 0.75%
• Madera County – 0.76%
• San Diego County – 0.76%
• Shasta County – 0.76%
• El Dorado County – 0.77%
• Kings County – 0.78%
• Lassen County – 0.78%
• Marin County – 0.78%
• Alameda County – 0.79%
• Siskiyou County – 0.79%
• Stanislaus County – 0.79%
• Tulare County – 0.79%
• Del Norte County – 0.80%
• Nevada County – 0.80%
• Merced County – 0.81%
• San Benito County – 0.82%
• Solano County – 0.82%
• San Bernardino County – 0.83%
• Alpine County – 0.84%
• Calaveras County – 0.84%
• Fresno County – 0.84%
• Sacramento County – 0.84%
• Contra Costa County – 0.87%
• Sutter County – 0.88%
• Yolo County – 0.88%
• Yuba County – 0.88%
• Lake County – 0.89%
• San Joaquin County – 0.89%
• Imperial County – 0.91%
• Placer County – 0.93%
• Sierra County – 0.95%
• Riverside County – 0.97%
• Kern County – 1.01%

Property Tax in California

No matter what your intentions are with real estate property in California, the counties and their tax regulations make up an important part of the knowledge bank which you need to build up before deciding how, when, and where to invest. California is an attractive real estate investment market for many reasons. Its kilometers of beaches, variety in nature, mix of hip and luxury, and hundreds of other reasons make it a numebr one destination for those looking to put their money to good use.

Investing in real estate is difficult and complicated, with taxes being a significant part of this. Our guide is sure to be of help to you,

• Buying Real Estate – All Taxes you have to Know

Selling Property in New Development Areas

Extremely relevant factors for the sale of apartments in new construction are the equipment of the apartment itself, but also the equipment and technology in the communal areas and in the house itself. The market value assessment of apartments is generally more complex than for owner-occupied homes, which is why you should definitely aim for a professional value assessment for planned sales in new construction.

Influence of Location and Structure

In many cities, new development areas are emerging in the form of fully developed neighborhoods on the outskirts and in up-and-coming neighborhoods. For potential buyers, the location is as relevant as the structure of the area in which the apartment is offered. You have just planned a new development area and are looking for owners who are interested in your project as investors or want to buy the newly built apartment for their own use? It is common practice for developers to offer apartments in new development areas not only after completion. Since the equipment and all environmental factors of the new development areas are already determined in the planning phase, you can already at this point in time hire an experienced real estate agent who is familiar with new development areas and have the offer presented.

Real Estate as Capital Investment: Special

• Part 1: Classical or exotic investment – Which real estate is suitable as capital investment?
• Part 2: Real estate as capital investment – What do I have to pay attention to?

In practice, it has been shown that new development areas designed with green spaces and a good infrastructure are highly attractive and ensure that all apartments are sold quickly. The offer price is determined on the basis of your construction and planning costs, the data relevant to the property and the comparison prices of similarly located and designed new development areas. Would you like to sell your apartment in a new development area and avoid losses when selling it? If so, you should opt for a professional sale and hire real estate agents who are well versed in new construction and who offer you comprehensive service in all phases of the sale.

Apartments or Houses for Capital Investors

With apartments in new buildings you address two different target groups. On the one hand, a newly built apartment is a good and high-yield capital investment and on the other hand, more and more families are looking for an apartment for sale in a newly developed residential area. In addition to condominiums, new construction areas with owner-occupied homes or terraced and semi-detached houses are also interesting and popular. If you would like to offer a property or an apartment in a newly developed area, you should definitely hire an estate agent and in this way ensure the greatest interest in your offer. The exposé for investors requires a different structure and density of information than the presentation of the apartment to be sold to owner-occupiers. You want to achieve the best price and gain the certainty that your offer will sell immediately in the new development area.

With Lukinski, you decide, in addition to professional brokerage, for a full service support, which includes the examination of the solvency of buyers and prevents unrealizable sales contracts. The completeness of all documents and an exposé geared to the target group are sales-promoting. Especially if you want to address professional buyers in the form of capital investors, your sales appearance should be characterized by professionalism and expertise.

New not More Expensive than Old: The Facts

Many prospective buyers assume that the costs of apartments and houses in new construction areas are much higher than in old buildings. Certainly, the asking price is usually higher than the amount you have to pay for an existing property or a condominium in a second occupation. But the purchase price is only one cost factor and therefore not the only factor when it comes to deciding between an old building and a new building.

In the new building area you acquire a modern apartment in which no costs are incurred for renovation. Newly built areas are state-of-the-art and offer a high quality of living. For you as a potential owner, this means that with the purchase you acquire an apartment ready for occupancy and therefore only invest the purchase price and the costs for interior design work. For existing properties and apartments in old buildings, extensive modernization measures may be necessary and increase your costs to the actual purchase price. It is therefore always worthwhile to weigh up concretely and calculate the purchase on the basis of the market value assessment and the necessary renovation measures. In the end, your decision to move to a new development area or an older property will of course also be based on your own preferences and the idea of your new home or a profitable capital investment.

Move to a New Development?

Tips for potential condominium buyers – Anyone who wants to buy an apartment or house and move in immediately, without renovation and modernization, will generally focus on a new development area. Are you looking for a new building and want to save yourself a lot of time with your own research? At Lukinski, we not only look after owners, but are also happy to support you in your search for a new apartment or house. Tell us your explicit wishes and have a look around our portfolio where we might already have an offer for you. If you decide to buy an apartment in a new development area that is only just being planned, you have a lot of leeway for organizing the financing.

We will be happy to advise you and help you find a favorable real estate loan for your apartment and complete the purchase without complications. Since we at Lukinski work for various owners and developers, we have some attractive new development areas in our portfolio. Furthermore, we already know before construction where new development areas will be built and which target group the apartments should reach.