With few alternatives available on the capital markets and a desire to protect their assets against possible inflation, many people are considering buying a flat as an investment. To make the investment the success they hope for, however, there are a number of pitfalls to avoid. Not every flat is suitable as an investment. Its ability to attract tenants is the central factor in determining success. “The location, layout and fittings must meet the needs of as many prospective tenants as possible; otherwise, the flat concerned may remain empty for an extended period,” explains Burkhard Blandfort, Chairman of the IVD West branch of the German Property Federation. “The financing must also work. Will the repayments still be affordable while the flat is being prepared for a new letting and is temporarily empty?”
Tip 1: Choose the right location
Demographic trends in the region are very important when choosing possible locations. The greater the population growth, the better the chances of finding tenants. It is also important to consider that different population groups have different housing needs. “Older people look for different flats from young families,” says Blandfort. Buyers should therefore establish whether the region’s population structure means that many or relatively few tenants are likely to be interested in the flat in question. The flat’s accessibility is another important consideration. Good connections to local shopping and service centres are desirable both by car and by public transport.
Tip 2: View the flat with an estate agent or surveyor
A flat should never be purchased without a viewing. The first impressions of the building already provide important indications of the property’s quality. “Visible damage to the building will lead to repair costs,” explains Burkhard Blandfort. “We therefore always recommend carrying out the viewing with an estate agent or surveyor,” Blandfort continues. “Experts identify defects more quickly and can assess whether the purchase price should be renegotiated or whether they should even advise against buying the property.”
Tip 3: Keep an eye on the investment costs
The cost of the investment is one of the most important factors when buying a flat. Before buying, purchasers should compare the asking price with similar properties to avoid paying too much. “Residential property price guides provide a good overview of prices,” Blandfort advises. The ancillary acquisition costs payable in addition to the notarised purchase price (including property transfer tax, estate agent’s commission and the notary’s fee) must also be factored into the financing. For let flats, the monthly service charge, including the property manager’s fee and maintenance reserves, must be added. Investors should bear in mind that not all ancillary costs can be passed on to the tenant. The tax aspects of the purchase must also be considered.
Tip 4: Check all relevant documents
Before the purchase, the prospective buyer should request and carefully check the land register extract; for new flats, the building specification; the property tax assessment; proof of fire insurance; the service charge statement and budget; the energy performance certificate; the floor-area calculation; the declaration of division; and the minutes of owners’ meetings. The minutes will also show whether there have been disputes between the parties in the past. “Unlike the owner of a house, the owner of a flat holds property that is bound up with that of the other owners in the development and with their interests,” says Burkhard Blandfort. “A flat owner cannot decide freely on investments in the building but must coordinate with the other owners.” Property buyers should also check with their advisers whether the property is located in an inner-city regeneration area, as this may result in restrictions on letting and resale.
Tip 5: Check the property manager’s qualifications
The property manager plays an important role in a residential development. After all, the manager looks after a significant proportion of clients’ assets. They prepare service charge accounts, chair owners’ meetings, obtain quotations for repairs or investments, supervise tradespeople and propose necessary renovation and repair work on the building. To protect themselves against defective services and financial losses, owners should pay particular attention to the manager’s qualifications and insurance cover. “A property manager should have a basic qualification related to the property sector,” says Blandfort. “The traditional qualification is that of a property management professional. Professional indemnity and fidelity insurance should be mandatory.”
For investors, the flat’s ability to attract tenants is the most important factor. Buyers should therefore speak to their estate agent or other experts about the letting situation in the immediate area. How strong is demand for rental flats? What rents were agreed in the most recent tenancy agreements in the immediate area? A city’s rent index provides only limited information here because it includes newly agreed rents to only a small extent. Lists of new-contract rents, such as those published by the IVD property federation in its price guides, are more suitable. They provide an up-to-date picture of the rental market.