The real estate market in Berlin appears to be in full bloom. Over the past decade, property prices have doubled and the urban population is growing every year. If you already own an apartment in Berlin, there are situations in which you may have to move out: an addition to the family, for instance, or the need to relocate for work. So the question will quickly arise: should you sell your Berlin apartment or rent it out?
Doing two things at once is always a complicated adventure, especially for real estate investments. Keeping your previous home might seem profitable on the long run. But it also represent a commitment in time and money that you must be ready to deal with. Before taking any decisions, you should do some serious planning and consider all the elements. ADEN Immo walks you through a list of questions to determine if you should sell your Berlin apartment or rent it out. Remember: as with most real estate questions, these are not universally “right or wrong”! Once you understand the options and the current real estate market in Berlin, you can make the best choice for your situation.
Will the property produce a monthly profit or a loss?
The first element in deciding whether to rent out your apartment or sell it, is to make a financial estimation of the monthly outcome. You want to have a realistic idea of how much is left from the rental income after you deduct all of the expenses associated with it. Remember to add both running expenses and exceptional ones. Think about upcoming renovations in the building, also known as capital expenses!
Below is a list of all the common monthly costs endured by a landlord in Berlin:
- Mortgage: what are your monthly repayments, and how long will it take before the total credit is reimbursed to your financial institution? Beware of the moment when your interest rates are being re-calculated after the Zinsenbindung. Take a look at our article on the mortgage system in Germany.
- Taxes: all properties in Germany are subject to local land tax (Grundsteuer) which can be included in the rent. Real estate transactions are also subject to a number of punctual taxes. Take a look at our complete guide on the fiscality of real estate in Berlin.
- Utilities: most utilities are reflected in the rent and therefore are covered by the tenants, such as heating costs, water supply, wastewater, garbage collection, street cleaning, etc.
- Insurance: in Germany, all properties are required to be covered for fire insurance, but there are additional ones you can get (floods, water damages, theft, etc.).
- Building management: usually accomplished by the Hausverwaltung (homeowner assocation)
- Vacancy: in your calculations, keep in mind that between tenants your apartment may not be rented at all time. In Berlin, apartments can legally be left empty with no long-term lease for 3 months. Longer periods incur penalties.
- Repairs: you might need to fix some things in the apartment, like water systems, floors and windows. These expenses are the responsibility of the owner. Keep them in mind when considering how much money you invest in your Berlin apartment!
- Capital expenditure: houses and city buildings alike need frequent repairs, which can create large expenses for landlords. For instance, a facade renovation or a new roof can quickly add up in 6-figure bills. So it is important that you understand the way your building is managed (monthly deposits into a collective fund called the Rücklage, or punctual calls for cash called the Sonderzahlung). Take a look at the Guide to being a landlord in Berlin
Compile all these numbers in an excel file, and deduct them from your rental income. What you are looking for is a positive cash flow where the property produces a profit every month. It’s important to have all the elements in mind! Forgetting something –like capital expenditures– can prove to be disastrous for your finances. For instance, you think that your cash flow (profit) is going to be €2,000 per year. However, in two years you need to contribute a €5,000 sum to the co-property to renovate the roof… That’s not such a good deal, is it?
How much should you charge for rent?
In Berlin rents tend to be quite low. Discover more in our guide to Berlin real estate prices and trends in 2018. Keep in mind that there is a rental index, called the Mietspiegel, which determines what the rent of each property should be: you can calculate it online on the official website of the city of Berlin. And recently, a rental brake law was passed, the Mieterpreisbremse which curbs rent prices. Below is the Berliner Mietmap which shows, according to data collected in 2015 from online listings of apartments for rent in Berlin:
What would your Return on Investment (ROI) be?
The next question is: how much would you profit if you sold your Berlin apartment today? Remember that most transaction costs (agent fees, taxes and notary costs) are at the charge of the buyer. So it is likely that you will make a profit from the sale compared to your initial investment, especially since real estate prices have been rising in Berlin. But would it be better to keep the apartment and rent it out? Rental prices are quite low in Berlin and there are many other types of investments that yield higher returns. For more information on Return on Investment from real estate, check out this guide to Analyzing Rental Properties.
Consider the Capital Gains Tax exemption
Property prices are increasing every year all across Germany, especially in urban areas in the past decade. Therefore, it is possible that the sale of real estate will generate extra income: this is called capital gains. Under what conditions is a capital gains tax levied in Germany for residential properties like your Berlin apartment?
If the apartment was your main residence for two complete calendar years (January to December), the profits will be exempt from capital gains tax.
Properties that have been owned for over 10 years are exempt from capital gains tax.
For all other cases, the capital gains are taxed as additional income.
Remember that ADEN Immo is not a tax advisor and provides this article for your information only. It is based on our experience as real estate brokers in Berlin, and may contain errors and omissions.
Are you willing to be a landlord?
Some tenants are easy to manage… But in other situations, renting out your Berlin apartment means significant time and patience to deal with. Aside from paying the rent on time, other problems can be created from the poor behavior of some tenants –disturbing neighbours, trashing your apartment, and much more. The internet is full of stories about “crazy tenants”! Of course, this is exceptional, but still something to be aware of. More in our Guide to being a landlord in Berlin.
Selling your Berlin apartment while it is occupied by a tenant: the discounted price
Furthermore, be aware that German law is very protective of tenants. Most rental contracts are signed for an unlimited duration (unbefristet). Once this is set, there are very few conditions under which you can legally ask a tenant to leave if you want to sell your apartment after a few years. Find out more about how to terminate a rental contract in our Guide to being a landlord in Berlin.
Most people on the Berlin real estate market are looking for empty apartments, precisely for that reason. They want to move into their own flat, quite naturally, instead of having to deal with asking the current tenant to leave. So in the end, those who willing to buy an already occupied apartments are investors looking for a good deal. They are looking for higher returns on their investment, and so they will only offer discounted prices for your apartment.
ADEN Immo has observed that, on average, an apartment sold while there is already a tenant are usually priced 30% lower than an equivalent property.
If you want to leave your current apartment and buy a larger one, for instance, that will accommodate your family, you should consider selling your apartment now instead of renting it out. It is likely that the returns from rental income will be quite low, and once you have tenants in your apartment, you may not have the same sale opportunity before long!