In 2019, buying property in Germany takes 2 to 3 months on average. The maintenance costs for an apartment start from €100 per month, while the annual rental yield is 5–7 %. The representatives of Tranio, an international real estate broker, will tell you how to buy an apartment in Germany. The article describes a typical purchase scheme. The details depend on the exact transaction terms.
- Determine the purpose of your purchase
Firstly, determine the purpose of your purchase: whether it’s own use or rental business. The best way to register the purchase – either to an individual or to a legal entity – depends on this.
For individuals the tax rate ranges between 14.77% and 47.475% and is calculated progressively. Legal entities pay the tax at a rate fixed at 15.825% if this is the company’s only commercial activity.
If you decide to open a legal entity, it can be done in 2–4 weeks. Company registration costs €2,000 – 3,000, another €300–400 per month are to be spent on its maintenance.
2. Choose the apartment
Choose the property type and determine the budget. In 2019, the prices for German property start at €2,000 per square metre. When planning your budget, allow for the general expenses running at least at 10–15 % of the apartment value. They include a purchase tax, notary fee, real estate agent’s fee and property registration fee. Additional expenses on bank appraisal, mortgage arrangement, legal entity registration, property audit and trust account transactions may be required.
You will need a real estate agent’s (realtor’s) assistance to purchase an apartment. Sign an agreement with the agent and pay a fee ranging from 3% to 7% of the property value. The agent will offer you various options to choose from.
Your presence is required only when opening a bank account and registering a legal entity. Your representative in Germany will do the rest under a notarised power of attorney.
3. Reserve the apartment
Sign a reservation agreement with the seller so that the agent could book the property for the time required to get the paperwork done. After that a deposit of up to 10 % of the property value is most likely to be paid.
When buying a commercial property, you have to sign a letter of intent (LOI) with the seller. Specify the transaction terms and closing date in the letter. Usually, no deposit is needed and the buyer holds no financial liability to the seller.
4. Order an audit
Order a comprehensive Due Diligence when buying an expensive apartment. Be ready to pay between 0.5% and 1.5% of the property and wait for the results for about a month. Auditors will assess the transaction risks and conduct a legal analysis, technical evaluation, financial examination and tax assessments.
5.Opening a current account with a German bank.
You will need a current account to pay for the apartment purchase and accounting services, pay taxes, utility bills and receive rental payments. Prepare a CV, passport and a documentary proof of the money’s legal origin. Usually, opening an account takes a week, but in the case doubts about the legality of the money origin arise, the procedure may take several weeks.
When taking out a mortgage, open an account with the bank that issued the loan. A mortgage helps to increase the rental yield, as the loan payments are deducted from the income, which reduces the tax base. Mortgage rates for German non-residents run at 1.5–2.0% per annum, the loan-to-value ratio range from 40% to 70% of the property price, mortgage costs account to about 1% of the loan amount, and the average loan term is 15 to 20 years.
6. Register the transaction
To register the transaction, you need to contact a notary who will assist you in negotiating the details of the contract, drawing a sales agreement in German and checking the apartment information on the Land Register (Grundbuch). The notary will tell you everything about the apartment’s ownership history, the outstanding restrictions on property use, mortgage and third party right encumbrances. You have the right to choose a notary independently, as you pay for their services.
Once the parties sign the agreement in the notary’s presence, the latter places a new preliminary property ownership record on the land register. After that you must pay the seller for the apartment either directly or using a trust account if the transaction is a major one. If the apartment has mortgage encumbrances, transfer the amount necessary to pay off the debt to the bank and the rest to the seller. The notary will arrange for the seller’s bank to remove the mortgage from the Land Register. Once the payments are confirmed, the notary will place on the land register a definite record making you the legal owner of the apartment.