You are the owner of an apartment that you have rented out. Now you have decided to sell this apartment. In principle, it is possible to sell a rented property. However, it is important for you to know that the tenancy is not affected by the sale. This means that the new owner cannot simply give notice to the tenant. German tenancy law also applies if the apartment changes hands. Termination is only possible on the grounds of personal use. The new owner must prove this. If the new owner is unable to register personal use, they are obliged to take over and continue the tenancy. This is the only restriction you should be aware of in connection with the sale of your condominium: You must find a buyer who is willing to purchase a rented condominium. It is somewhat easier to sell a condo that is not rented. Nevertheless, in most cases you can expect a quick sale.
Who buys a rented condominium?
There are two groups of buyers who are interested in a rented condominium.
Capital investor
For many potential buyers, the focus is on investing in real estate and saving tax. The purchase of a home is made with the aim of investing capital. In times of inflation and low interest rates, home ownership is a very popular investment, even apart from the tax savings. Prospective buyers can expect an increase in value that is inflation-proof. In addition, it is possible to generate regular income by paying rent. In the first few years, the rental payments can be used to pay off the loan installments that prospective buyers have to make to purchase the condominium. In addition, the real estate market in Germany is very much in flux. Prices are rising, especially in large cities, but also in structurally strong peripheral locations. The more potential buyers there are, the higher the price you can expect for your condominium. This is especially true if the apartment is in a very attractive location.
Owner-occupiers
There are buyers who are specifically looking for a condominium in a good location in order to make use of the owner-occupier provision and move into the apartment themselves. The current tenant also belongs to this group of potential buyers. If you are planning to sell a condominium, it is a good idea to ask the tenant whether they would like to purchase the apartment. You benefit from the advantage that the tenant takes ownership of the apartment. This means you are effectively selling an apartment without a tenancy, which generally generates higher proceeds.
How is the sales price of the condominium determined?
If you are planning to sell a rented apartment, you need to define a price. The sales price is an essential criterion for the success of the sale. If you set it too high, in the worst case scenario the condominium may be unsaleable. A low price often leads to a quick sale. In this case, however, you are giving away money. You are selling your apartment below its value. It is therefore important that you define a price that leads to a sale within a reasonable period of time and also corresponds to the value of the apartment.
When determining the sales price for a rented apartment, there are additional criteria. If you are selling the apartment to an investor who does not wish to register their own requirements, it is advisable to draw up a sample calculation. The prospective buyer will want to know how much it costs to maintain the apartment. This is compared with the rental income. The state of renovation of the apartment is also an important criterion for determining the purchase price. Tenants are only obliged to carry out cosmetic repairs in an apartment. Renovations or modernizations are the responsibility of the landlord. If work is due in the near future, a not inconsiderable additional cost factor is sometimes added to the purchase price for the apartment. This is shown in the example calculation. The so-called return on equity is determined from the various items in the calculation. The higher this return is, the more attractive the apartment purchase is for the prospective buyer. In the end, you can set the purchase price higher if the return on equity is high. You can still hope for a quick sale and make a good profit on the sale of the apartment.
Calculation of return on equity
You can calculate the return on equity quite simply. You divide the income by the expenditure and the result is a percentage value. This corresponds to the return on equity.
Do I have to expect a reduction in value if the condominium is rented out?
The purchase of a rented condominium can be very interesting for investors if the rental income is at a high level and the tenant has not experienced payment difficulties over a longer period of time. This is often the case in excellent city locations. In the case of condominiums in peripheral locations for which the seller has demanded an average or rather low rent, the tenancy can have a negative impact on the sales price. It therefore depends on the location and the level of the rent whether or not you have to accept a reduction in value when selling a rented condominium. The market decides here. When selling your condominium, you can benefit from the fact that investments in real estate are currently extremely popular due to the low interest rates on traditional investments. In direct comparison, however, an unrented condominium is more interesting for a buyer:
- He can use the apartment himself without having to register personal use
- He can decide to let the property and define a rent himself
- He is not bound by existing contracts
- He has the option of leaving the apartment to friends or distant relatives
- He can use the apartment as a second home
If you sell a rented condominium, the new owner does not have much freedom in dealing with the tenant. They must accept the tenancy agreement as it is and are not allowed to make any changes. Old contracts often have a low rent, which the new owner could set higher for a new tenancy. However, a termination is only possible for personal use under very strict rules. The new owner may not claim personal use for friends or distant relatives. The tenancy agreement and tenant therefore determine the value of the apartment. In principle, when selling a rented condominium, you can expect to receive up to 30 percent less than the purchase price you would have received for a vacant condominium. However, this is not a fixed value. Supply and demand are also decisive in this case.
What documents are required for the sale of a rented condominium?
You will need various documents to sell your rented condominium. If these are not in your possession, you must obtain them. You will bear the costs, because as the seller you are obliged to make the specified documents available to the interested party for inspection.
Floor plan, site plan and parcel map
If you do not have these documents, you can contact the land registry office. You will have to pay between EUR 15 and 60 to obtain them.
Land register extract
You may have taken over the extract from the land register from the previous owner. If you bought the condominium after the house was built, you may also have the extract from the land register. Otherwise, you can order a certified extract from the local court for a fee of EUR 20. If you choose not to have it notarized, you pay EUR 10. The local court in whose area of jurisdiction the apartment is located is responsible. Your own place of residence is irrelevant.
Calculation of living space
The calculation of the living space can be found in the building file. If you do not have this file, you can request it from the building authority.
Energy certificates
An energy performance certificate has been mandatory for the sale of real estate for some years now. It provides information about the expected energy costs. The state of refurbishment can also be read from the energy performance certificate: If the energy costs are unusually high, this may mean that refurbishment is due in the next few years. You can obtain a consumption-oriented energy certificate from the energy suppliers. The cost of obtaining one is between ten and 20 EUR. Alternatively, you can have a demand-oriented certificate issued. The demand-oriented energy certificate costs between 300 and 500 EUR. You can obtain one from an architect, heating engineer or chimney sweep.
You will also need documents that you should have in your possession. These include:
- Minutes of the last three owners’ meetings
- Rental list and rental agreement
- Statement of operating costs
Rights and obligations: What you should bear in mind when selling a rented condominium
If you want to sell your rented apartment, there are a few things you need to be aware of. In principle, you have the right to sell your apartment. You may sell the apartment to a new owner who makes it clear that they would like to move into the apartment themselves. In this case, the new owner can give notice to the tenant. This is permitted under tenancy law. If the tenant’s own needs are justified, they must look for a new apartment.
You can offer the tenant the apartment for sale, but you are not obliged to do so. The tenant is only entitled to a right of first refusal if the apartment was converted into a condominium during the existing tenancy and is then for sale for the first time. The tenant has no right of first refusal against you. The new owner, on the other hand, is obliged to take over the tenancy agreement without any changes. The change of ownership does not affect the tenancy agreement. If the new owner does not register any personal requirements, the tenancy will continue unaffected.
Interested parties would like to view an apartment for sale before making a decision. You can arrange viewing appointments, but you must take the tenant’s interests into consideration. After all, a viewing affects the tenant’s privacy. According to a court ruling, viewings may only be scheduled for two hours a week. The tenant does not have to agree to viewings in the early hours of the morning, late in the evening, during vacation periods or at weekends. However, individual agreements with the tenant that go beyond the requirements are permitted.
Tenants' rights and obligations when selling a rented condominium
When a rented apartment is sold, the tenants’ rights remain in place. For the new owner, this means that they not only “buy” the apartment, but also the tenancy agreement. He may not unilaterally change the terms and conditions of the contract. The tenant therefore has the right to continue living in the apartment as before. The only exception to this right is termination for personal use. The tenant is obliged to pay the rent to the new owner. The tenant may not refuse the sale of the apartment, but does not have to agree to it either. They can do nothing more than take note of the sale and adjust the payment of rent and ancillary costs accordingly.
The rights and obligations of the seller when selling a rented condominium
As the owner of an apartment, you have the right to sell it at any time. This also applies if the apartment is rented out. You do not have to ask the tenant for their consent. However, you are obliged to inform the tenant of the planned sale. You must also provide interested parties with all the necessary documents. A calculation of the management costs and rental income must also be provided.
The rights and obligations of the buyer when selling a rented condominium
If a prospective tenant has purchased a rented apartment, they enter into various obligations. As the landlord, he is the contact person for the tenant. He has the right to collect the rent, but must take care of the maintenance of the apartment within the framework of the statutory regulations. If the buyer wishes to move into the apartment himself, he has the right to register his own requirements. He may give notice to the tenant and must provide proof of personal use. Registration is not only possible for the buyer themselves, but also for close relatives. This includes, in particular, the parents or adult children of the buyer. The buyer must comply with the statutory notice period when giving notice. Termination without notice due to personal use is not possible.
However, there are special features that need to be taken into account with regard to termination for personal use. If a house with several apartments is redivided, tenants who were previously in a tenancy have special protection for several years. This period varies depending on the federal state, but a minimum of three years is mandatory nationwide. In Berlin, for example, this protection lasts for ten years from the first sale after the re-division, in Brandenburg it is slightly less. Registration is not only possible for the buyer themselves, but also for close relatives. This includes in particular the parents or adult children of the buyer. The buyer must comply with the statutory notice period when terminating the contract. Termination without notice for personal use is not possible.
Is the sale of a rented condominium subject to tax?
It is possible that you will have to pay tax when selling a rented apartment. The tax office can collect a speculation tax. This is a tax that is payable on the profit from the sale of the apartment. The price you paid when you bought the apartment is used to determine the profit. However, speculation tax is not automatically due. You do not have to pay tax in the following cases:
- You lived in the apartment yourself before the sale
- The apartment has been in your possession for a period of at least ten years
- You have occupied the apartment for at least two years prior to the sale
If you are aware of these requirements, you can avoid paying speculation tax by waiting until the ten-year period has elapsed, for example.
Tip: Include binding provisions on rent claims, operating cost payments, deposit repayments, etc. in the purchase agreement
Once you have made your decision to sell the rented apartment, it is important that you include all regulations in the context of the rental agreement in the purchase contract. As the purchase agreement is notarized, the details serve to preserve evidence.
You should take the following regulations into account:
- Payment of a deposit when taking over the tenancy
- Payment of operating costs
- Rent debts
- Rent reductions due to defects
It is advantageous if you can prove with documents that you have made these arrangements. The documents can form part of the purchase agreement by attaching them as an annex.
Conclusion
Should you sell or keep a rented condominium? This is always an individual decision that you should take into account your financial and personal situation. Selling gives you access to funds. This is an advantage if you need larger cash reserves, for example to buy a property or build your own home. You free yourself from your obligations as a landlord, which is an advantage for you if the role has not satisfied you. On the other hand, you will miss out on regular rental income. You may have to pay speculation tax on the sale of the home. You should also be aware that you will have to expect a discount when selling a rented condominium. These amount to around 30 percent compared to a vacant apartment of the same value.
