Investing money in care properties, but how?

What does nursing home property mean? How much does a care property cost? Can you buy into a retirement home? Honest questions, honest answers.

A look at Germany as an investment market.

There are currently 4.1 million people in need of nursing care in Germany. 731,000 people are cared for in full inpatient nursing facilities. Germany has the most expensive healthcare system in the world. The biggest return factor when investing in nursing care real estate is, of course, the development of demographics but also the economic capacity of a country, which ultimately supports the nursing care system and its financing. Like many rich or wealthy countries, Germany’s population is getting older and older.

Soon half of the population will be over 50 years old, accordingly the demand for care properties, nursing homes and retirement homes will increase. Demand for simple homes that serve the standard and of course also properties in the care sector that meet higher standards. Later tenants pay here, depending on the care level 2,000 euros and more per month. On average 2,600 euros / month, with 731,000 inpatients in need of care, that’s 1.9 billion euros a month or 22.8 billion a year.

Without detour, first a look at the advantages and disadvantages of this plant:

Advantages of a nursing home property as a financial investment

Nursing homes are popular with experienced investors. They offer some advantages that the “classic” property does not offer as an investment. The biggest advantage is certainly that you as an investor can invest relatively worry-free.

The long-term lease of a care property with the operator, ensures minimal effort. You as the landlord or owner have very little work. The commissioned property management regulate almost everything directly with the operator of the property.

Pros:

• High development potential, 4.1 million (increasing) are in need of care
• 731,000 people are cared for in full inpatient nursing facilities
• On-site investment, 100 units in cities with 10,000 inhabitants
• Long-term lease agreement with the operator
• Little effort, property management regulates almost everything with the operator
• Property developers seek investors for new buildings

Disadvantages: Risks of the investment form nursing home

Of course, no self-interest can take place. Likewise, there are special building regulations, which, however, as a “pure” buyer, do not really play a role, since the requirements are already fulfilled by the construction company or developer.

Disadvantages:

• No option for own use (ETW is leased to operator)
• Special building regulations (fulfilled by the developer)
• And…

There is also criticism of the model, as here in the real estate magazine FIV (interview). The question to our expert: “What do you think about investments in retirement or nursing homes?” His answer: “Very little! – is my terse answer. This is due to the very high risk that this form of housing has as a capital investment. We are talking here about so-called social real estate. In view of the ever aging population and the thus certainly increasing demand for senior and nursing home places, it is suggested that it is a safe investment. But as management properties – like hotels, for example – these properties have a serious disadvantage: if the operating company performs poorly, then such a property quickly becomes a bottomless pit.”

Read more in the magazine (external):

• Real estate investment: Tax advantages? Nursing home?

Yield & costs (purchase price, ancillary acquisition costs)

There are retirement homes, senior citizens’ homes and other variations in every part of town. One thing investors have in common is that the leases are long-term. Operators sign contracts of 20, 25 years, with renewal options of 3 years, sometimes 5 years. So the “business is secured for the long term.” If you want to get in, you can expect the typical yields on the properties to be between 3.2% – 5.0%.

Yield:

Yield mostly between 3.2 – 5.0 %

To achieve the return, of course, must first be invested. These ancillary acquisition costs are added to the purchase price:

Real estate transfer tax (3.0 – 6.5 %)

and to that:

Notary, court (2.5 %)

Two factors stand out, firstly the land transfer tax, and secondly the notary and court costs. Depending on the federal state, the land transfer tax varies from 3.0 – 6.5 %. The costs for notary and court are about 2.5 % of the purchase price.

Now to the “demand side”. How is the market for care properties developing in Germany?

Ageing society: Growing demand for age-appropriate housing

Factor 1: Ageing society. Let me give you an example – a place in a nursing home costs an average of 2,600 euros at Caritas Altenhilfe. That is 31,200 euros a year. Depending on care level, federal state and facility, the costs vary between 1,800 euros and 3,990 euros per month, according to Caritas.

There are around 4.1 million people in need of care in Germany (according to the Federal Statistical Office). The majority of those in need of care in this country are older than 60. Finally, the monthly expenditure, for the private persons behind the caring person, is very large. In care level 2, the costs are already ~ €2,800 a month, for a single care apartment. Here we are talking about the absolute basic equipment. Depending on the nursing home, size and equipment of the individual apartments, there are, as always, no limits.

• 731,000 persons in residential care
• 2,600 Euro / month; or 31,200 Euro / year
• Revenue / month: 1.9 billion
• Income / year: 22.8 billion

Accordingly, nursing homes are so interesting for real estate investors as a capital investment. Especially in Germany.

The calculation example shows the advantages of this development of the age structure in Germany for investors from Germany and abroad.

Inhabitants Age in Germany

As already reported in the real estate statistics, Germany is in the top 20 countries with the oldest population. Currently, Germany is even in 5th place, as will be seen in a moment. Here in advance, the current distribution by age groups in Germany. Clearly to see, the large group from 40/50 years, which is increasingly older and for increasingly housing needs in nursing and retirement homes provides.

You can find more statistics at Statista

Inhabitants Age in comparison: Worldwide

Germany ranks 5th among the countries with the oldest average population. Only Portugal, Martinique, Italy and Japan are ahead of the Federal Republic.

1. Japan
2. Italy
3. Martinique
4. Portugal
5. Germany

PS: In case you are wondering, what is Martinique? Martinique is an island in the Caribbean Sea that is part of the French territory.

Strong economy and forecast

Factor 2: Strong economy and forecast – Germany itself is the fourth largest economic power in the world, the largest economic area in Europe. Hardly any other country is as interesting when it comes to capital investment. The fewest have thereby however care real estates on the screen, but invest rather into the classical free-hold flat as capital investment or into a house. The returns that are generated here are very considerable, especially compared to other real estate as an investment in Germany.

Apart from global phenomena (2009 financial crisis, 2020 Corona), the German economy is very robust and stable in the heart of Europe. As seen here, in the evolution of real GDP (year-on-year change) in Germany, from 2008 to 2019 and forecast to 2022.

Increasing degree of care in old age, higher costs

Factor 3: Increasing degree of care in old age, higher costs – The German healthcare system is one of the most expensive in the world. Not only the state, but also the relatives of the future residents invest in care properties, or rather the monthly expenditure for their residents.

Everyone who has a relative in a nursing home in Germany pays a certain amount each month. This depends on the respective care level that the person being cared for has. Care level 1 is the one that receives the lowest subsidy. The higher the care level, the more subsidies there are from the state, so the higher the costs.

No one wants to sacrifice comfort for their loved ones in the process!

Despite rising costs, attention is being paid to quality amenities. This means that condominiums do not have to be built and traded in the “low price” segment. In the area of nursing care real estate, it’s all about quality.

Metropolitan area or country – real estate yield

Factor 4: Metropolitan area or countryside – real estate returns – Nursing homes are not always only built in metropolitan areas such as Berlin, Hamburg, Munich or Cologne and Düsseldorf. Care real estates develop in each German small town, even in really small cities, with 5,000 to 10,000 inhabitants. Each nursing care property usually has at least 100 residential units.

In the major metropolitan areas, there is a lot of competition for the individual condos, within the nursing homes real estate. In the countryside, you can partly get hold of good bargains. The return on the property is accordingly much higher. The competition is smaller and usually the equity of local buyers is also lower than that of national real estate investors.

Investing “in the countryside”: Away from the big cities

As an investor, you should therefore not only focus on the big cities, but also keep an eye on smaller towns. Especially when it comes to investing in 5, 10 or 20 condominiums.

The procedure in the entire purchase process of the property does not differ from that of a typical condominium. Only a few parameters are different, but for you as a real estate investor, these are not of great importance. Also all legal and statutory conditions are already fulfilled by the developer or the construction company.

Real Estate Acquisition

Factor 5: Real estate acquisition – A decisive factor in the profitability (real estate yield) is therefore the real estate research (real estate acquisition).

Where can attractive new buildings be found? The fewest high-yield properties appear in the typical real estate portals, they are bought “under the hand”(off market), directly from the real estate agent or developer. If you are looking for high-yield properties, you should not only rely on real estate advertisements, but also build up your network in advance in order to get to the really interesting properties.

Especially for beginners this tip:

Tip: Contact agents at an early stage; the property is sold before completion.

In order to have as few disadvantages or risks as possible, it is worthwhile to contact brokers in advance. Because, as described, properties are not only sold at the end of construction, but long before. Accordingly, usually 6 months before completion of construction all individual units are sold.

Let’s summarize the benefits of care apartments once again:

1. High development potential, 4.1 million (increasing) are in need of care
2. 731,000 people are cared for in full inpatient nursing facilities
3. On-site investment, 100 units in cities with 10,000 inhabitants
4. Long-term lease agreement with the operator
5. Little effort, property management regulates almost everything with the operator
6. Property developers seek investors for new buildings

Investment Germany: Berlin, Hamburg, Cologne & Co.

Capital investment Germany you are looking for a profitable capital investment in Germany? In the largest real estate market in Europe, there are many options available to you, from small condominiums in international metropolitan areas such as Berlin, to the above-described nursing homes, which are becoming increasingly attractive in an aging society such as Germany. Ultimately, the return on the property plays the biggest role in the choice and selection of the property.

Condominium, commercial, care property & Co.

If you want to get a more comprehensive overview of the subject of real estate investment in Germany, then we have here for you a more detailed guide to the matter.

• Investment Germany

Exotic capital investment: apartment or… ?!

Read here also a very interesting interview on the subject of exotic investment property. It does not always have to be the typical detached house, terraced house or semi-detached house in which you invest. There are definitely other properties where it is worth thinking about an investment.

Classic or exotic investment: Which property is suitable as an investment?

• Which property to invest in? – Investment interview

Financing: real estate and care apartments

Financing of care apartments, building plots or a commercial property – the right choice of real estate loan decides how high the interest burden and thus the total costs for your real estate loan are. Even when choosing a real estate loan, you as a potential buyer are faced with many questions and considerations, such as whether you should choose a classic annuity financing or opt for another form of financing. Follow-up financing is also possible in various ways. Ultimately, you are faced with the question of whether you are better off with a long and fixed debit interest rate or with a flexible real estate loan.

• Real estate financing

Der Beitrag Investment nursing real estate: Buying nursing apartments as an investment – costs, returns & 5 value factors erschien zuerst auf ℄ Real Estates.

Trade tax (GewSt) – tax for commercial enterprises

As a rule, trade tax – GewSt for short – is levied on the income of every German commercial enterprise and is therefore based on the objective earning power of the respective company. Since limited liability companies, stock corporations and the like are always regarded as commercial enterprises by virtue of their legal form, trade tax is mandatory for corporations – regardless of the composition of the founding team.

Other taxes for businesses:

• Corporate income tax (KSt)
• Income tax (ESt)
• Capital gains tax (KapESt)
• Value added tax (VAT)

If you want to learn more specifically about taxes for real estate companies, you can learn more here:

• Save taxes on real estate

Trade tax in detail – collection, levy & allowances

As an object or property tax, trade tax is by its nature one of the real taxes. Effectively, it belongs to the municipal taxes and contributes significantly to their financial system. The municipalities are entitled to levy the tax and set the tax rate valid for one year by resolution. Trade tax is payable quarterly in equal instalments on 15 February, 15 May, 15 August and 15 November. As of the 2008 tax period, these taxes are no longer deductible as a business expense, but can be offset as a lump sum against the income tax payable.

Dates for advance payment of business tax:

• February 15
• May 15
• August 15
• November 15

According to the Trade Tax Act (GewStG), natural persons and partnerships may offset their tax burden with an exemption amount – currently 24,500 euros; legal entities may reduce their tax burden by a reduced exemption amount – currently 3,900 euros.

Which companies are subject to GewSt?

Most commercial enterprises are charged with trade tax. Since all corporations are in principle considered to be commercial enterprises, this type of tax is particularly relevant for the limited liability company (GmbH) and the stock corporation (AG).

In addition, the general partnership (OHG) and the civil law partnership (GbR) are usually subject to trade tax – at least insofar as their annual income exceeds 24,500 euros. However, a GbR among freelancers remains exempt from trade tax. The same applies to the freelancers themselves: A sole proprietorship only has to pay trade tax levies if the company founder is a small trader or a registered merchant (e. Kfm.).

Overview of company law forms

You can find more information about the different legal forms under the following links. Starting with the sole proprietorship and the registered traders… to the various partnerships and corporations… to other companies such as the family foundation – all the essential aspects of formation, liability, tax burden and more explained simply and understandably! First of all, an overview of the individual legal forms of companies:

• Sole proprietorship (EU)
  • Freelancer
  • Small business
  • Registered traders (e. K.)
• Silent partnerships
• BGB companies / civil law partnership (GbR)
• Partnerships
  • Limited partnership (KG)
  • General partnership (OHG)
  • Limited Liability Company and Company Limited Partnership(GmbH & Co KG)
  • Limited Liability Company and Compagnie General Partnership(GmbH & Co OHG)
• Corporations
  • Stock corporation (AG)
    • AG & Co KGaA
  • Partnership limited by shares (KGaA)
  • Limited liability company (GmbH)
    • GmbH & Co KGaA
  • Entrepreneurial company / UG (limited liability)
  • European Company / Societas Europaea (SE)
    • SE & Co KGaA
• Other companies
  • Foundations / Family Foundations
  • Insurances
  • Partnerships
  • Registered associations (e. V.)
  • Registered cooperatives (e. G.)

Taxes in Germany: List

Corporation tax (KSt), income tax (ESt), capital gains tax (KapESt), turnover tax (USt), trade tax (GewSt) – who pays what? In this overview of the different types of taxes / tax forms in Germany, you will find relevant taxes for you as an individual and for your business, depending on which legal form you have chosen. Also, after the tax list: How does the tax cycle work around month-end closing, year-end closing and balance sheet? A little insight for those starting their first company. What taxes are there? Simple explanations, definitions, tax optimization, an insight into taxes.

• Taxes: List

Der Beitrag Trade tax (GewSt) explained simply: Calculation, tax-free amount and assessment rate erschien zuerst auf ℄ Real Estates.

Supervisory Board – The controlling body

The supervisory board is the supervisory body of a stock corporation and consists of at least three members. The Supervisory Board is appointed by the Annual General Meeting for a term of four years and is obliged to report to the Annual General Meeting.

More on the other bodies of a public limited company:

• Board of directors
• AGM

Duties of the Supervisory Board – Appointment, Supervision, Dismissal & Co

As the name suggests, the supervisory board is primarily responsible for supervising the management board, in addition to appointing and dismissing the management board. Furthermore, it is responsible for reporting in writing on the annual financial statements after they have been prepared by the management board and audited by the auditors, and it prepares annual reports. Formally, the Supervisory Board issues the invitation to the Extraordinary General Meeting and can submit proposals to the General Meeting on the appropriation of the profits generated.

Tasks of the Supervisory Board at a glance:

• Reporting to the Annual General Meeting
• Appointment of the Management Board
• Supervision of the Management Board
• Dismissal of the Management Board
• Written reporting
• Preparation of annual reports
• Invitation to the Extraordinary General Meeting
• Proposal for the appropriation of profits

The members of the supervisory board are registered in person with the registration court and at least the chairman of the supervisory board must also be listed by name on the AG’s business letters. Upon taking up their office, supervisory board members may not simultaneously act as members of the management board of their company, and they are also prohibited by the prohibition of cross-linking from being appointed as a member of the management board of another company. Remuneration is paid to all members of the Supervisory Board in accordance with the Articles of Association or the amount is decided at the Annual General Meeting.

AG: foundation, legal form, special case real estate

1. Stock corporation (AG)
2. Real estate stock corporation (REIT-AG)
3. Real estate company

Stock corporation (AG): Formation, liability, legal form & Co.

Aktiengesellschaft (AG) – The stock corporation is a German legal form founded by at least one person and organized by different bodies. Instead of a managing director, the company is managed by a board of directors consisting of at least one person. As the name already indicates, this legal form of a company primarily stands for stock trading. You would like to start a company alone or together with other people and learn more about company law forms in advance? Then you’ve come to the right place!

• Stock corporation (AG)

Real estate stock corporation (REIT-AG)

Real estate stock corporation / REIT-AG – You don’t find the idea of a stock corporation bad at all and are now wondering how you can combine your capital company with the real estate industry? A real estate company is a company that serves the financing, development, realization, leasing, or marketing of real estate – starting with a single property up to a real estate portfolio in the three or multi-digit range. The management of real estate property or third-party real estate on behalf of third parties can also be handled by a real estate company.

• Real estate stock corporation (REIT-AG)

Real Estate GmbH & Asset Management GmbH

Alternative – In this article you will learn the basics about real estate companies. Briefly explained, a real estate company is a company that has the purpose of leasing, developing, financing, realizing and/or marketing. It doesn’t matter if it is one or more properties. The management of residential and commercial real estate – in its own interest or as a service offered to third parties – is also a popular focus for real estate companies and asset management GmbHs. Find out more about the main advantages and disadvantages of buying real estate and the expected costs.

• Real estate company

Der Beitrag Supervisory Board – controlling body of a stock corporation (AG) erschien zuerst auf ℄ Real Estates.