Apartment values in Berlin are rapidly increasing at the moment, and because of poor construction policy in Berlin, there is no end in sight to this price development. Due to this, Berlin real estate is a safe choice for capital investment, and a strong flow of monthly income is very realistic. Investing in property in Berlin allows you to build up private wealth, as well as lay the groundwork for your future retirement. Tenanted apartments in Berlin are often considerably cheaper than comparable apartments that are currently empty or under construction, and you can profit from these cheap prices. Further information can be found under → To rent or to buy?
Working with our independent experts, you can feel safe and confident and avoid the risks involved in buying an apartment as a capital investment. We have no quarterly quotas that must be met, so we will never put pressure on you to buy an apartment, and we have been trusted by both national and international property owners for many years. As real estate experts, independent from banks and property developers, we have sold, rented and managed property in Berlin and the surrounding area for over 25 years.
Buying an apartment in Berlin as capital investment isn’t suitable for every investor. Firstly, this is about the solid demand analyses. In this case, as our client, your objectives are best discussed and clearly defined during an appointment. What is it that you specifically would like to achieve? What are your expectations? Do you already have experience with real estate, and are you investing in other investment opportunities?
What does your monthly income without a real estate investment look like, and what does it look with a real estate investment? Do you have capital that could be invested in real estate for a long period of time, and how much would bank financing be? What kind of a budget would you like to work with, and what properties on the market fit within that budget?
Which factors are especially relevant for you in the future? (e.g. high rental income, or high appreciation, solid location etc.?) Do you have specific goals that are not related to purchasing real estate, but which are equally as important as the purchase itself?
This is where „experts“ strongly disagree. Before the low interest phase, that is before 2009, it was predominantly high income-earning clients (over €65,000 per year income) already living in a property they owned themselves who were buying property as investment. That changed with the low interest rates and rising rents. In the meantime, less wealthy people can afford to buy property as capital investment, but less so in larger cities like Berlin.
It is advisable to speak with a tax agent about the issues of taxes before deciding to purchase a property. In addition with the long-term investment period, you should also keep an eye on the performance. As interest rates rise again, think about the possibility that the property for a buyer, for example in 10 years, isn’t guaranteed to be as lucrative of a capital flow source as it might be today. Presumably, rental prices will also rise in 10 years, but we do not know today how the relationship between the potential rise in interest rates and the rental performance in 10 years will be. Therefore, you should strongly analyse the location, as well as the size, the floorplan and the particular qualities of the property with several potential buyer groups in mind.
Contrary to many other well-known real estate and investment consulting firms, we advise towards a more conservative approach in terms of the prognosis for rental income and appreciation:
In good, mid-class locations in Berlin, you can expect a solid rental return of 2.5% – 3% per year ( yield per year = net income per year from rental income of the property / 1% of the purchase price of the property). In top-end locations in Berlin, you can expect about 1 – 1.5% return.
If you place more value on a location as an investor in a Berlin property, you have a poorer return than in middle locations. If you choose less sought-after locations in Berlin, it is possible to get returns of 4 – 5% per year. In addition to rental income and capital flow, you should also think about the appreciation The previous appreciation is always a bit restricted in its ability to project future appreciation. Nevertheless, you can still take industry trends into consideration.
The industry trends in Berlin are very exciting at the moment. View our other articles about it here. We project an average increase in value of 5% per year, and Berlin currently stands at about 10%. The prices in Berlin have practically doubled in the last 10 years. (Read further explanation of information here and ask us for supporting documents.)
Again and again our clients ask us about the risks. So, what exactly are the risks of buying an apartment as capital investment?
This is where we should differentiate between whether you should buy an apartment that is already tenanted or a newly built apartment e.g buying an empty apartment and renting it out yourself. Apartments which are already rented out have the disadvantage that the rent is often below the current average of the rent possible on the market, and that the amount you can raise rents is limited. (More on that topic can be found under „rental price break“, rent index, or directly from the tenant association). That also means that tenanted apartments are often offered at a cheaper price.
Buying rented apartments depending on the location (see our artical „rent return“) in Berlin in good to mid-range locations between 1.5% and 3% rent return per year. The advantage of buying a tenanted apartment is, however, the purchase price. The purchase price in relation to the rental return remains, and if the rental income is low then the purchase price will be even lower. Many of our clients are specialized specifically in buying tenanted apartments, renovating them and then renting them at market rate or adjusting the rent. This is a relatively unpopular market which is advertised only to a limited extent, however, provided that the rules are fair and that the rights of the tenants are correctly observed, it can be a very lucrative market.
Purchase of an apartment in Berlin Pankow, mid-range location, rented at €4 net cold rent after deduction of all costs. 70m2 of living space in need of of renovation.
€8.00 possible on the market after renovation in accordance with the rental rate with existing tenant. Purchase price of the apartment with tenant is €117,600 = 2.86% return. Market value of the apartment after renovation and increase of the rent by 8% with a return of 2.86% = €234,900. There is a price difference for the same apartment (similar location, similar floor plan, similar features just in a better condition) of €234,900 – €117,600. The worth is basically doubled. There is still no appreciation per se included in the calculation here, as well as the fact of whether or not the tenant would like to pay for the renovations. You should also include the cost of renovations for the apartment as well as projected time it will take to complete the renovations.
Let’s continue with our example of the Berlin, Pankow apartment . The apartment is renovated, empty and has a possible market purchase price in Berlin Pankow from c. €3,500 (view our buy and sell rental price map here). 70m2 x €3,500 = € 245,000 purchase price.
Rent according to market value (not according to rental price!) Is €10 net cold. This is €8,400 per year of positive cash flow.
You buy this apartment with the chance of generating a rent return of 3.43%. That is a very good value. Also assume that the seller can sell the apartment at a higher price than €3,500 per square meter, since many customers would by such an apartment up to €4,000 per square meter. Personal occupiers will possibly pay even more for an attractive apartment of this size in this location.
As you can see from this example, there is a market for the purchase of a tenanted apartment for both an investor who can make a solid investment, as well as for buyers who are interested in renting out an empty apartment.
This is a rather subjective and very German perception. Real estate as capital investment for private investors is popular around the world, even more so in other places than in Germany.
That is why, for example, the rent rate in Berlin is still well over 60%. This is extremely unique for a European capital city. Also internationally, in other places like the US, China, etc. there are no other Metropoles in which so few apartments are owned as capital investments as in Berlin. Hence the development within the last year is more of a catch-up to the group than an actual strategic change, which is mainly concerned with low interest rates.
Real estate is now considered sexy, and many people are looking for easy income. This means that the apartment takes care of itself, generates free disposable income and contributes to one’s cost of living. Many of our clients would like to buy more apartments up until their retirement, have these apartments debt free, and live off of the rental income during retirement.
In comparison to other investment possibilities, real estate when well researched before the purchase, offers timely security in addition to freely available capital flow.
In the case of stocks, the dividends are the freely available capital flow as far as the stock company pays a dividend. With real estate, you can almost certainly assume that you will get your rent, at least in comparison to shares or other investments.
The appreciation or also a possible depreciation of a property does not have to happen just because you generate a positive capital flow. That means that in the case of depreciation, it doesn’t have to show up on the books. Also in the case of appreciation, it doesn’t have to happen right away, you can also „leave“ the profit as a quiet reserve and obtain it at the sale of the property. In any case, in terms of real estate, you are in a good position as the owner when compared to other options. The only disadvantage is the problem of immobility, real estate is in a fixed place making it immobile, but also stable, and a possible sale or purchase is always associated with some considerable costs for the parties involved. In times of low interest rates and with no end to this interest rate policy, many people are taking on this element of immobility with their purchase as long as they generate a stable income.