Are you about to make a property investment in Germany? Then make sure that you are not fooled by a builder trying to sell slum properties! As a buyer, you need to be vigilant and do your homework to avoid German junk property.
On this page, we would like to provide some tips and advice for aspiring real estate investors in the German property market.
As an investor, you will thus be better armed against some of the pitfalls of the real estate market in Germany…
For make no mistake: The German property market still offers particularly interesting real estate opportunities in terms of annual returns, value stability and added value potential.
You just need to find out how to separate the wheat from the chaff…
Table of Contents
- 1 Dreaming of a renovated flat, waking up to German junk property…
- 2 Legal disputes have been the order of the day in Germany for 25 years
- 3 What is German junk property?
- 4 Financial implications of the purchase of German junk property
- 4.1 Unpleasant financial surprises from German junk property
- 4.2 Turning back the clock is very difficult after buying German scrap property
- 4.3 Savings evaporate like snow in the sun with German junk property
- 5 Tips to avoid suppliers of German junk property
- 5.1 Go on site inspection in Germany
- 5.2 Meet the property promoter to avoid German junk property
- 5.3 Consult a notary for the small print
- 5.3.1 Weakened contractually guaranteed rental income
- 5.3.2 Hidden costs – Common problem with German junk properties
- 5.3.3 Right of superficies (Erbbaurecht), right of leasehold or shares
- 5.3.4 Identifying other defects – Avoiding German junk property
- 5.3.5 You can also go to your own notary
- 5.4 Thoroughly screen the construction promoter from a financial point of view
- 5.5 Enforce transparency to avoid hidden costs – Common problem with German junk properties
- 5.6 Go into detail about taxation – Sellers of German junk property will show their true colours
- 6 Avoiding German junk property with the following step-by-step plan
- 7 Only choose German investment property of TOP QUALITY
- 8 Other information about Germany
Dreaming of a renovated flat, waking up to German junk property…
As a prospective buyer of German real estate as an investment, you should pay close attention. As an investor, you have to rely on your common sense…
Something that seems beautiful and perfect can, in practice, cause a lot of financial problems and headaches. Wise advertisers know that everything revolves around perception…
Brochures that are too beautiful and too shiny should therefore immediately raise the first question marks!
Agreed, a shiny brochure with fantastic returns can make your head spin… But then it is a matter of remaining cool and unemotional.
What you definitely do not want is to sign a purchase contract for a German flat without having been on site for a targeted and thorough inspection.
If you are planning to buy property in Germany, you should make time and energy available to visit.
If you do not do this, and decide to take everything pictured and explained in brochures as the truth, you run the risk of a bitter, bitter aftertaste…
Buying German property on plan, for example based on pictures of a model flat, without doing your due diligence [AVAILABLE SOON] and homework yourself, is not a good idea.
If you do not decide to find out how things work on site, the chances are that you will be disappointed afterwards.
The only way to get a realistic picture of a German investment property is to see it with your own eyes.
Otherwise, you might imagine that you are buying a beautifully renovated flat, while in reality it turns out that you have invested in a dilapidated and thoroughly rotten building…
Legal disputes have been the order of the day in Germany for 25 years
In the past, numerous court cases and disputes have arisen in Germany between property investors on the one hand and property companies on the other.
The German property market has thus been struggling for more than two decades with countless lawsuits filed by people who invested in rotten German property.
Because this has been a known problem for so long, specific jargon has even developed for it in Germany: Schrottimmobilie.
Freely translated into English: junk property, slum property, hovel or shanty.
As the name suggests, as an investor you want nothing to do with this.
The cause of such disputes has time and again been a deviation between the expectations of the buyer and the bitter reality in practice.
Time and again, these were investors who were under the impression that they had bought a property of a certain standard of quality.
Until the sobering moment when they went to see and inspect the building in question in person…
Only to find that they may have paid far too much for the property.
What is German junk property?
German slum housing is simply property ripe for demolition. It is real estate that is actually worn out to the bone…
No sober person would consciously invest in such a property, that is clear.
As an investor, you feel like a slumlord
German junk property is the kind of investment property in which you are really deeply ashamed as a landlord.
Because it is ethically irresponsible to rent out such a thing at all…
The condition of such property is so appalling that, unless you are unscrupulous, you feel guilty as a landlord (you really feel like a slumlord).
There is no question of socially and socially responsible investment in real estate with such dilapidated real estate.
Most of the known cases are ramshackle flats with numerous defects… Here are some common features…
Characteristics and deficiencies of German junk properties
- Moisture and mould spots on the walls, resulting in harmful mould spores floating around, which in the long run can cause physical damage and lung diseases to residents
- Windows that are completely rotten and damp
- Old heating systems (worn radiators) that fail more often than not, which is a big problem in winter and causes a lot of frustration
- Water leaks caused by worn out water pipes and drains
- Malfunctioning or broken shutters
- Façades with holes caused by prolonged exposure to the elements
- Communal gardens with proliferating weeds and rubbish lying around. In short, gardens where you could break your leg if you tried to walk in them
- Worn-out floor covering, usually consisting of wood covered with linoleum
- Communal areas such as halls that are a complete ruin and where the plaster falls right off the walls
- Window hardware that is not windproof (through gaps) causing a draught in the flat
Financial implications of the purchase of German junk property
It is very important to understand that you should not be saddled with a German dilapidated property.
In other words, investing in German real estate can certainly be a top investment, IF and ONLY IF you select the right partner.
And this is where the shoe pinches. Once you have signed a purchase contract, it is not so easy to turn back the clock and cancel the purchase.
Let alone to resell the property at the same price to avoid making a loss.
As a good family man, you should do your homework and do it thoroughly! So don’t do a half-assed job, but get to the bottom of it to avoid a financial catastrophe later on.
Unpleasant financial surprises from German junk property
- Invoices for maintenance and repairs that keep pouring in
- Cost items for common parts and services that are increasing
- Rental guarantees that in practice turn out to be empty promises, causing the cash flow of incoming rents to stop and dry up
- A high risk of capital loss as the actual value is lower than what you paid for the property. In other words, in the event of a resale, you will tear your trousers
- Possibly even completely loss-making if you do not want to rent out the property after the awful discovery, given its status. In practice, there are cases of owners who refuse to rent out such German junk property (which results in a negative annual return after all costs have been paid)
Turning back the clock is very difficult after buying German scrap property
Recalling an investment property is very difficult. A purchase contract remains a purchase contract and, as a buyer, you should therefore be particularly vigilant before you sign.
The real estate market functions according to the principles of a free market economy.
This means that the price of real estate is freely determined by the play of supply and demand.
So from a legal point of view, it is no problem at all if a seller sells a property for more than it is actually worth.
Turning back the clock and undoing the investment is only possible if there is demonstrable evidence that the buyer was misled:
Misleading information can lead to annulment of purchase contract
Providing misleading information is prohibited for sellers of real estate.
Such prohibited misleading information may relate to how the risk is presented or to how the availability and/or valuation of the property [AVAILABLE SOON] is communicated.
The seller must therefore have clearly and unequivocally stated pertinent lies and untruths in the documentation in order for the contract to be null and void (and for the money invested to be refunded).
You should approach it as follows: Misleading information occurs when the buyer would definitely NOT have purchased if he/she were aware that the information provided by the seller was incomplete or incorrect.
But duty of investigation for buyer often throws a spanner in the works
If, as a buyer of German junk property, you wish to invoke the annulment of the purchase contract due to misleading information, you will have to prove that you were not too lax …
The principle of being a good family man in the context of planning and managing an asset comes into play.
As a buyer, you have a duty to approach an investment critically. An inspection of the property in question is therefore actually the basis for avoiding German junk property.
Even if you invest in German real estate, it is therefore advisable to go on an inspection. After all, it is about investing in real estate abroad.
Fraud/deception can also lead to the annulment of the purchase contract
If, as a buyer, you want to enforce the annulment of the contract through this route, you will have to prove two things:
- That you have been deceived by misleading information, and
- That there is fraudulent intent (the seller has deliberately misled the buyer in order to benefit himself)
It is important to understand that these are often questions of fact in which free-market principles often prevail…
A commercial employee of any company will always focus on the plus points and the unique characteristics.
In other words, files are positioned and presented everywhere in the most favourable way.
This does not necessarily mean that incorrect information was communicated on purpose.
As a buyer and investor, you should be well aware of this game.
Things are always presented in the most positive way possible in order to highlight the plus points.
Savings evaporate like snow in the sun with German junk property
You will already understand by now that it is no easy task to undo the purchase of German junk property on the basis of misleading information.
It is not impossible, but in practice it is extremely difficult.
And if the purchase contract is annulled on the basis of fraud (misleading information with fraudulent intent), it remains to be seen how you will recover your invested capital at all.
In cases of fraud, the bird has usually long since taken flight and the money has long since disappeared to faraway places.
And even if the bank accounts of the fraudulent debtor are frozen, you should first let the privileged creditors (such as banks) go ahead…
So there is a real chance that nothing will be left for you, even if your purchase contract has been declared null and void.
Tips to avoid suppliers of German junk property
Go on site inspection in Germany
Purchasing a buy-to-let property? Go and see and inspect the flat or building in question.
If you do not know enough about real estate, take along an expert or a person with experience (feel free to pay them for their advice, it is definitely worth it).
Do not settle for just a visit to a sexy and over-engineered model flat.
No, what you want to see is the property or properties in question that you wish to purchase.
You would also like to see examples of recently renovated properties by the same property developer.
This is so that you can see for yourself in practice what the quality of the renovation is and what materials are used.
You will soon be able to identify the promoter’s house style.
Meet the property promoter to avoid German junk property
Visit the property promoter in the official offices and get to know the people behind the company.
Is there substance, such as a building, offices, real employees and activity?
Or is it rather a PO Box company or an intermediary with a shady little office of 10 square metres?
Does it already have a track record and is it an established player in your preferred region?
Is there a good atmosphere? Will you be received professionally and warmly? Are your questions handled with the utmost attention?
Will they make time for you and give you a chance to look at different options and possibilities? Without any obligations?
In short, go and ask properly, it is your right and a professional party will respect this.
Let your gut feeling and people skills speak for themselves when you engage in dialogue. You can feel and observe many things yourself in practice.
Consult a notary for the small print
Are you not a lawyer by training? Then don’t take any risks and have the small print of the purchase contract checked.
The small print is often very sobering. They can make the beautiful promises in brochures much less beautiful in reality.
A notary public is an appropriate professional for these small details and can provide you with excellent service.
Before signing the contract of sale, you can have it completely analysed by a German notary who is familiar with the local situation in Germany.
The most common pitfalls in the small print are the following:
Weakened contractually guaranteed rental income
Often the small print shows that the posted (guaranteed or unguaranteed) rental yields are not actually guaranteed.
Have this double checked to see exactly what is guaranteed and certain in terms of rental income and for what period.
Also consider the exceptions to the rule, if any.
To sum up: It is in the small print that you can find out if it is a genuine, worry-free contractually guaranteed rental guarantee [AVAILABLE SOON] without all kinds of built-in loopholes that can negatively affect your return.
Another common problem is that the small print is the ideal place to cover up hidden costs.
After all, who reads the small print completely and thoroughly?
It would not be the first time that particularly annoying cost items are mentioned in the small print, of which nothing can be read in brochures or presentations.
Sometimes it is referred to briefly by means of a * sign.
As an investor, you should avoid hidden costs like the plague.
They can seriously affect your return, making a good-looking investment turn out to be a bad one after all those nasty surprises.
As a potential buyer, you should have the sales contract checked by a notary before you sign anything.
A notary public specialises in such matters and can therefore analyse the sales contract thoroughly and professionally.
A German notary is familiar with the local customs and is therefore highly recommended.
The local notary will certainly pay attention to the type of property you would acquire.
In practice, the sale and purchase of German junk property in the majority of cases is NOT through the sale of full ownership of the property.
In other words, most buyers of German junk property found out afterwards that they were not the full owner of their property.
In most cases, it is a right of superficies (known locally as Erbbaurecht), a right of emphyteusis or a share construction.
There is nothing wrong with this, but most buyers simply do not realise it.
Consult a notary
That is why consulting a notary is worth its weight in gold. He will, in any case, make you aware of this fact, and will outline the consequences for you…
The consequences are not to be underestimated, think for example of the impact of such a building lease or ground lease construction on your taxes, your inheritance, your control and participation in practice, and last but not least: your negotiating position if you later wish to sell your investment property…
It is obvious that your investment is worth less if you are not the full owner!
A 99-year building lease is therefore not the same as a classic house sale where you acquire full ownership. So watch out or you’re screwed…
The fact that it is not full ownership should translate into a lower purchase price than the price of similar properties of which you can acquire full ownership.
Identifying other defects – Avoiding German junk property
It is the legal obligation of a notary to look after your interests as a buyer.
A notary public should identify and report all defects.
An example of this is the possible lack of a specification, which can be considered a serious defect.
The notary has the obligation to determine and report this.
You can also go to your own notary
Did you know that you can also consult a foreign (European) notary if you intend to invest in German real estate?
At European level, information is exchanged between notaries through a coordinated network to streamline the exchange of information.
Thoroughly screen the construction promoter from a financial point of view
It is important to research with whom you are doing business. Request the balance sheet and profit and loss accounts of the construction promoter and look at the figures.
If you don’t know how to do this, call in an expert (such as a local bookkeeper).
Transparency regarding the financial health of the company is crucial. As an investor, it is important to keep one’s finger on the pulse to avoid German junk property.
Is the construction promoter in perfect financial health or is it more likely to be in debt?
It is important to find out because otherwise you may end up with a company that fails. And what if your flat has not been delivered yet?
Or what if you can count on contractually guaranteed rental income but the company that has to pay this income goes out of business?
That’s right… It can save you a lot of trouble if you audit the company financially.
Guaranteed rental income, for example, is worth its weight in gold IF AND ONLY IF the company that guarantees it is built on rock-solid financial foundations.
In the opposite case, where the promoter is financially unstable, contractually guaranteed rental income is worth nothing.
You may get a guarantee, but what good is it if the guarantor goes bankrupt?
Find out what the common costs are and select a property promoter who offers complete transparency.
In many cases, common costs apply to the apartment building.
In itself, this is normal, but you should know what to expect.
Are they being vague about this? Then walk away from the table and that party as quickly as possible…
It is a sign that you are dealing with a party you would rather lose than lose.
You must be able to offer complete transparency in terms of the costs of stewardship, maintenance costs of common parts and garden, costs of repairs, creation and accumulation of reserves for the common parts, costs of administrative obligations, and so on.
Go into detail about taxation – Sellers of German junk property will show their true colours
Are they capable of handling your local tax obligations, such as the annual reporting of taxable rental income minus the relevant expense items?
And are they able to clearly explain to you what your tax impact will be in your current country of residence?
A slick salesman who is only out to sell you German junk property will quickly be in over his head when it comes to this kind of subject matter!
How does the double tax treaty work? Who is authorised to levy taxes?
What is the impact on your assessment notice for personal income tax in your country of residence?
Can you take out a loan and does it qualify for tax deductions and/or a deduction of the interest paid?
How much is the annual property tax? What are the registration fees on the purchase?
Is there always a capital gains tax to pay if you sell at a profit? How much is the capital gains tax?
What about the annual German tax on your rental income? How much net remains of the posted gross return?
What are deductions accepted by the German tax authorities to reduce the taxable base? And so on.
In this context, please also read the page on German property taxation [AVAILABLE SOON] as a general introduction.
Avoiding German junk property with the following step-by-step plan
- Analysis of the balance sheet and profit and loss account of the construction promoter
- On-site inspection of the property/properties in question (do not settle for just a model flat) – To establish with your own eyes whether it is high-quality property or rather German junk property
- Explore the area and region on your own. Soak up the atmosphere and find out if you believe in the area. In the meantime, go and see some real estate agents to check the prices of similar flats in the neighbourhood
- Have the sales contract checked by a notary
- Only if all the previous steps have gone well, can you now proceed to sign the sales agreement
Only choose German investment property of TOP QUALITY
General features of such offers
The offers below relate to high quality properties in which you can invest FULL OWNERSHIP.
You can benefit from a contractually guaranteed rental guarantee, which is issued by particularly stable and financially strong promoters.
Moreover, here you are really invited for an interview at the office + viewing all kinds of properties of your choice – Transparency is key.
The investment properties in question are located in prime locations in booming B cities.
These are characterised by a real estate market that is growing in value every year.
Flats for sale with rental guarantee in Germany
- German real estate as investment with income guarantee, carefree rental service and stewardship – 3 unique guarantees in Gelsenkirchen
- Real estate in Germany as an investment – unique passive investment property in Essen with high value-added potential and secure rental income (notarised)
- Buy-to-let flat in Germany [AVAILABLE SOON]: Including rental guarantee and stewardship – Investment in full ownership
- Income properties for sale in Germany as an investment with secure rental income and completely passive without worries
- Invest in real estate in Germany [AVAILABLE SOON] – With hands-free service and management service – Unique passive investment in full ownership
- Buy a flat in Germany as a carefree, secure investment in full ownership
- German real estate in Sauerland [AVAILABLE SOON] – Investment property with rental security, invest in full ownership
- Online investment in apartment building in Berlin [AVAILABLE SOON] – From as little as 500 Euros
Complete yield properties with multiple units in Germany
- Rental property for sale in Hagen [AVAILABLE SOON]: Rooming house with ten units for rent (including free stewardship and secure rental income)
- Investment property in Germany for sale [AVAILABLE SOON] – Four flats with rental guarantee for sale – Invest in full ownership
- German apartment building as investment [AVAILABLE SOON] – Nine flats + shop space, all with guaranteed return – Investment in full ownership
- Flat block for sale in Germany – Renovated yield building with 12 rental units and 4 years guaranteed rental income and secure returns
Other information about Germany
- Invest in German property [AVAILABLE SOON]: An overview of the taxes and costs
- Chronological overview of a German real estate purchase [AVAILABLE SOON]
- German real estate – Good yielding and low risk property (accessible to various investment budgets)
- Buying property in Germany in North Rhine-Westphalia: Attractive investment location with high appreciation potential
- Why North Rhine-Westphalia is the best state in Germany to invest in rental property
- Building up your own retirement with real estate in Germany is safe thanks to 4 characteristics of some growth regions
- German investment properties – Advantages and frequently asked questions of this investment
- Investing in German real estate offers the opportunity to surf on Germany’s hard growth and reliability
- Germany [AVAILABLE SOON] as the economic heart of the EU