Service charges: definition & explanation

Whether yield real estate or investment real estate, during the purchase of a house or an apartment there are always ancillary purchase costs. What many underestimate: The ongoing ancillary costs of owning a property. If you buy a rented property or do the initial letting yourself, you can pass on some of these incidental costs to the tenant.

Non-apportionable incidental costs: repair, maintenance & co.

You cannot pass on costs for craftsmen, maintenance and management to the tenant. After all, it is your responsibility as a landlord to ensure that the property meets modern safety standards and is rentable.

As the landlord, you must bear these costs yourself:

• Repair costs
• Maintenance costs
• Administrative expenses
• Bank charges

Apportionable service charges: The tenant pays

The apportionable ancillary costs are those that can be apportioned to the meter by you as the landlord. To avoid misunderstandings here, these should be agreed in the rental contract. This type of incidental costs are also called operating costs. Let’s take a closer look at them.

List of operating costs: (BetrKV) § 2

Operating costs are therefore constant ongoing public charges on the property. These are defined and regulated by law. Thus, any costs for the care and maintenance of the common areas and facilities fall into the category of apportionable service charges. Any costs for street cleaning, garbage disposal and for the chimney sweep are also paid by the tenant.

Here is a brief overview:

1. Water supply
2. Drainage
3. Heating system and fuels
4. Hot water system, supply and equipment
5. Connected heating and hot water supply systems
6. Passenger or freight elevator
7. Street cleaning and garbage disposal
8. Building cleaning and vermin control
9. Garden maintenance
10. Lighting
11. Chimney cleaning
12. Property and liability insurance
13. Janitor
14. Community antenna system
15. Facilities for laundry care
16. Other operating expenses

More about buying real estate: Operating costs

Are you buying a property that is already rented out or are you planning to rent out your newly purchased property? If you’ve never rented out a property before, you should definitely take a closer look at the different ancillary costs. Read even more on the subject here, on my new site for buyers, Immobilien-Erfahrung.de:

• Apportioning operating costs to tenants (external)

Equity investment in the purchase of real estate

Whether for personal use or capital investment, equity capital is required for every real estate purchase. Especially when buying your first property, the amount of equity you need to contribute is important. If you are buying a property for your own use, you should contribute as much equity as possible. If you are investing in a property as a capital investment, less is more.

As a basic rule:

• Self-interest = As much equity as possible
• Capital investment = As little equity as possible

Why is that?

Equity as a safety mechanism

In order for the bank to give you a loan for your property, it needs a certain security to get this money back in full later. That is why your creditworthiness is checked in advance. The more liquid your finances are, the less equity is necessary. However, if your expenses outweigh your income, you will need more equity. Once you have received your loan, you pay it back monthly through repayments.

The better your credit rating, the less equity you have

Important: As an owner-occupant, you have to pay back the interest on your loan yourself. Investors, on the other hand, can deduct them from their taxes.

Self-interest: This is how much equity you need

So as an owner-occupier, you need to put in as much equity as possible. In addition, the higher the equity, the lower the interest burden. Because the more equity you bring in, the less risk there is for the financing bank and the lower the interest rates are calculated.

As a general rule: 20% equity for owner-occupiers

Monthly Costs & Income

So how much should you earn each month? Our tip: The monthly cost of your loan should not exceed 40% of your net income.

Here is a calculation example:

• Income (net): 3,000 euros
• 40% = 1.300 Euro

So the monthly repayment including interest should not exceed the 1,300 euros.

Capital investment: This is how little equity you need

While you need as much equity capital as possible for owner-occupation, as an investor you enjoy the advantage of having to contribute far less equity capital. In addition, you can deduct the interest from your taxes. Ideally, even the tenant indirectly pays your interest. As a buyer of a property as an investment, your equity covers only 10-15% of the costs.

These include:

• Incidental purchase costs
• Real estate transfer tax
• Notary fees
• Court costs
• Brokerage costs

Rolling equity: Fast investments

Our pro tip: Make use of your rolling equity. But how does it work? It’s simple: You buy a property and contribute equity. Now this is paid out again through redemption and you can use it directly for your next investment.

Conclusion: This is how much equity you need!

So here is the rule of thumb once again:

• Self-interest = As much equity as possible
• Capital investment = As little equity as possible

In the case of personal use, your equity serves as security for the bank that it will definitely get your money back sooner or later. In principle, the equity you put in should not exceed 40% of your net salary. As an investor, on the other hand, you only need to contribute 10 to 15 percent as equity. The interest is to be borne by the tenant and with the help of rolling equity, you can invest directly in the next property.

You can find more about equity and real estate financing on my new project for real estate buyers (Immobilien-Erfahrung.de):

• Equity (external)

Buy existing property: From old building to hardly used

An existing property is a project that has already been built – be it a house, an apartment or a multi-family house. Here, the year of construction of the property can vary immensely. Compared to new construction, the main characteristic here is that the property is occupied or has been occupied in the past. Here are the advantages and disadvantages compared.

Advantages: Low purchase price, high rental yield

Compared to new construction, the purchase price of existing properties is much lower. The low purchase price is also accompanied by lower ancillary purchase costs. This has a particularly positive effect on the financing of the property. This means that far less equity is required than for the purchase of a new building.

All advantages at a glance:

• Low purchase price
• Fewer ancillary purchase costs
• Little equity required
• High rental yield
• Ready to move in

Disadvantages: High costs for maintenance & repairs

Many existing properties are old buildings – that is, properties built up to 1953. The great age of these houses and apartments often leads to high maintenance costs. Repairs are also frequent and regular after purchase. Some real estate investors take advantage of this. They buy an existing property, renovate and refurbish it, and then rent it out at a high rental yield.

Here are the disadvantages:

• High maintenance and repair costs
• Technical inspection before purchase

Buy new construction property: Freshly built & unoccupied

Of course, you also have the option to invest in new construction. These are buildings that are either completely new and not yet occupied, or properties that are still under construction.

Advantages of new real estate: modern technology, no repair costs

Since the new-build properties are completely new, there are hardly any repair costs after the purchase. The technology is up to date and there are no signs of use. Depending on the construction phase, you can also have a say in the design of the interior.

You can enjoy the following advantages when buying a new and still unoccupied property:

• High technology standard
• Low risk for repairs
• Low maintenance costs
• Co-determination in the construction phase

Disadvantages of new real estate: high purchase price with high loss of value

At the same time, the investment costs for new construction are significantly higher. The purchase price is far higher than that of existing properties. This also leads to higher ancillary purchase costs and an increased equity investment. At the same time, the rental yield is very low and the value of the property drops rapidly after the initial move-in.

So here are the disadvantages:

• High purchase price and high incidental purchase costs
• High loss of value after initial collection
• Low rental yield
• Not directly habitable if still in construction phase

Conclusion: Buy existing or new building?

The answer to this question depends on your personal goals. If you want to buy an income property, then you should look at existing properties in B and C locations. Especially if it is your first real estate investment, it is recommended to invest in existing properties. If a high technical standard and a say in the interior design are important to you, then new buildings are the right choice for you.

You can now find even more facts about new construction and existing real estate on my new project for real estate buyers (Immobilien-Erfahrung.de):

• Existing or new construction property? Advantages, disadvantages and recommendation (external)

If you want to learn even more on the subject of buying a property, whether owner-occupied or capital investment, numerous articles, guides on the subject of rented vs unrented, as well as checklists, all free and 24 hours online available, with us!

Apartment, house, apartment building, everything for real estate beginners!

Now new on Immobilien-Erfahrung.de:

• Buy property: learn – external

Inventory at a glance: Important information regarding a property

• The data concerning a land plot are prescribed by the cadastral office
• Information regarding easements associated with the property
• Contains information on the inventory, write-up and depreciation of a property.

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Land registry office – The land registry office is a state authority where the inventory of land in Germany is kept. More on home page. In this inventory, the land is listed according to parcel, parcel number, and land registry. Each federal state maintains its own inventory for the properties located on its territory.

Land registry at a glance: Display of property size and its properties

• State authority with which the inventory of real estate in Germany is maintained
• Properties are listed according to parcel, parcel number and district
• Each state maintains its own inventory

Back to the wiki: Real Estate