If you were interested in the first part of Real estate as an investment in Berlin and would like to find out more, the following tips and information are just the thing to help you decide whether investing in real estate as a capital investment is right for you.
When and where you should invest in a Berlin property as a capital investment
The profitability of your property depends on A where it is located and B when you buy it. Because the circumstances that make a property profitable – or not – are constantly changing and require prior analysis, especially in Berlin’s dynamic real estate market.
The right time
Are you considering investing in a property as a capital investment and have already thought about financing? Then perhaps you should make a purchase decision soon, because the sooner you invest in a property, the sooner the rental income and therefore your return will pay off – just as you will benefit from low interest rates. However, you should never be tempted to make a hasty investment if you have not cleared up any doubts beforehand.
Which property is best for you
When choosing your property, you should first weigh up your personal priorities in addition to the amount of the investment. While a condominium may initially generate a low return, the management costs are far lower than those of an apartment building, which in turn gives you the opportunity to achieve a significantly higher return through multiple rental income. If you are planning to sell the property at a later date, you should bear in mind that the increase in value particularly affects the land and that properties such as detached houses should therefore be the focus of your search.
Value appreciation in peripheral areas
Do not invest in towns with fewer than 10,000 inhabitants, as it may be difficult to find a suitable tenant here. You should also steer clear of areas with a declining population for your property as an investment, as the risk of a reduction in value is significantly higher here.
Peripheral areas of large cities with a higher population could in turn be worthwhile: sudden and strong increases in value are quite possible if they become the focus of other investors. In Berlin-Reinickendorf, for example, an increase in value of over 20 percent was recorded in 2019 compared to 2018!
Check your property
In any case, you should carry out a thorough inspection of your potential property in order to be able to realistically estimate future costs. Take a look at the construction plans and minutes of owners’ meetings; these will provide you with information about any modernization measures or frequently occurring problems with the property. Whether you are investing in a new or old building is of secondary importance, as all properties require proper maintenance.
Energy efficiency
When it comes to energy efficiency, however, you should pay particular attention to whether the heating system in old buildings has been installed in line with the times and whether appropriate insulation material has been used – or whether you can expect high ancillary costs for heat generation.
Furnishing your property
The furnishings of your property can be decisive for its profitability – if you have purchased a property without age-appropriate provisions, for example, your potential tenants may already be missing the important group of pensioners. Additional facilities such as a bicycle storage room or a garden can also be decisive for some tenants. The attractiveness of your property as an investment increases immensely with modern and luxurious furnishings!
Tax advantages
As we have already established, real estate as an investment offers attractive tax advantages. At this point, however, it is important to emphasize once again that these benefits often do not apply to owner-occupied properties. If you live in your property yourself and do not use it as an investment, the wages of gardeners or domestic helpers, for example, are deductible up to 20 percent, but not the far more decisive cost factors such as acquisition costs, property tax or ancillary costs.
What else you can deduct
There are a few more ways to save on taxes when investing in real estate. Have you set up a special account for your property? If so, you can also deduct the account management fees from your taxes. You can also use the office costs and travel expenses incurred in connection with the property to offset your expenses. If you rent out the property furnished and take care of the interior furnishings yourself, these can also be deducted.
If your property generates taxable income, you can declare your loan interest as income-related expenses and deduct it from your taxes – this category also includes fundraising costs, real estate appraisal and notary fees.
Advice & tax factor
If you understandably lose track of tax issues, professional advice from a tax advisor is a good way to take advantage of all possible benefits. Incidentally, the costs for your tax advisor can also be deducted.
Nevertheless, the tax advantages should not be the decisive factor for the purchase of your property, as these mainly come into effect at the beginning and play an increasingly smaller role over time – tax advantages should be seen as an attractive side effect!
Have all doubts been removed?
If you are convinced of your property and its profitability as an investment, you should go through the following checklist again before you finally go ahead with the purchase. However, if you can tick all the boxes, you have probably made a good decision when choosing your property as an investment!
Final checklist for real estate as an investment in Berlin
- You have given sufficient thought to the type of property
- The location of the property and the surrounding infrastructure were explored
- Building plans and minutes of the owners’ meeting were reviewed
- the condition of the property has been sufficiently inspected and any defects are known
- the energy efficiency of the property meets modern standards
- Your property is equipped in such a way that it is suitable for many different tenants
- You are familiar with the housing situation and potential tenants
- You have a plan for financing and have obtained several offers
- You have an estimate of the market value of your investment
- the possible purchase price including ancillary costs was calculated
- Rental income and yield were at least roughly estimated
- Unexpected costs and risks were taken into account
- you are aware of the tax advantages
