Says Regina Borger, CEO of the management company WiP Immobilien GmbH from Munich.
This story is a real black hole. At each stage, new difficulties surfaced and there was no end to them. It’s hard to believe that this could happen in Munich. But still it happened. I think bad experiences should be shared. There are always lessons to be learned from it. I hope my story will help you make smart and thoughtful investments in Germany.
Part 1. Problem tenant
In 2015, a lady from Moscow, the owner of a commercial facility near Munich, called us at the bureau. She was looking for a management company.
She already had a tenant – a Turk who opened a retail outlet in the premises. But he had problems. He was constantly behind on rent. He complained about constant leaks, argued that the rates were too high and repairs needed to be made, said that he had no money … We went to look at the premises.
It turned out that there are indeed leaks and for such a room the stakes are really cosmic. We agreed with him that we will carry out repairs and reduce the rent. In this case, he promised to regularly transfer money.
When a woman bought an object, she was promised a 7% yield. For Munich, this is unrealistic!
Here they earn 2-3% on residential real estate, 3-4% on commercial real estate, maybe 5% if you are very lucky. Such conditions should have alerted her, but, apparently, greed won over common sense.
With real market rates, the profitability of the object fell to 4%, but it was important for the owner to regularly receive rent, since a loan hung on the property. She agreed.
They invited a repair company, the specialists eliminated the water leak. It cost €14,000, but the insurance company paid for everything. By the way, when during the repair they discovered how the Turks arranged the draining of water, everyone was horrified. He made a hole in the facade, brought the pipe out into the street, did not even connect it to the sewer, and the water simply went into the ground. This mess has been removed. If the city authorities discovered the discharge of waste into groundwater, the fine would be from €20,000.
The first couple of months the tenant paid according to the schedule, and then the situation repeated itself.
Then we asked him to leave. He didn’t want to. I had to expel with a lawyer and witnesses. When he was evicted, they breathed a sigh of relief.
True, the rent debt remained. But in this case, it is better to end the relationship, albeit at a loss, than to continue to incur losses regularly.
Then they handed over the object to a new tenant – a well-known bookmaker in Europe. The tenant admitted that no one demanded as many documents as I asked for before concluding the contract – a financial report for three years, a certificate from the chamber of commerce, recommendations from other places where he used to rent premises, even certificates of marital status. In general, they checked it thoroughly.
The new tenant began to pay regularly, the owner began to receive money regularly. But of course, not the 7% that the sellers promised her, but 4%.
The tenant even made repairs – invested €130,000, overhauled floors, walls, literally everything. He asked the owner for at least €30,000 to upgrade the plumbing. She refused. I don’t think it’s fair, but it’s up to her. As a result, the tenant carried out all the work at his own expense.
Part 2. Dubious purchase
Finally, the owner decided to sell the premises. She bought it in 2014 for €850,000. Her wish: “I want the same amount plus €100,000.”
I answered her that the request was inadequate to the market. The red price of the property at the time of purchase was €500,000. Considering that we found a reliable tenant, and he, in turn, invested in repairs, now you can sell for a maximum of €650,000.
The fact is that with the documents she had, to put it mildly, not everything went smoothly. When they began to figure out what she had bought, they grabbed her head. She was sold a room of 360 sq. m., of which 100 meters is the street. In Germany, there is a so-called charter of division of areas, where you can see what each square meter is. I wonder why she didn’t check it when she bought it. Apparently, the seller misled.
Thus, the third part of her property is air, for which she paid €3,500 for each “square”.
That is, if these 100 meters were a retail space, then the price of the entire object would be about €850,000. But this is not so.
Not only that… The facility consisted of three rooms. One of them is a 30 sq. m. Permission for its construction was obtained in 2008, but the registration of ownership of this lady was not carried out. And this means that the extension does not actually belong to her.
Having studied the land book, we found out that the previous seller had pulled off a cunning scheme. The mediator agreed with the previous Turkish owner that he would buy his object for €650,000. He went to the notary and made a preliminary entry in the land register. After he pays the entire amount, he would be registered as the owner. But this step was not taken.
The mediator was not going to pay the money. Instead, he began looking for a buyer. I found this lady and took €200,000 more from her. And the deal never went through.
The mediator was in cahoots with the seller. When he offered this object to a Muscovite, he had a lease agreement with a Turkish owner for 10 years. He just provided the 7% yield that he promised her. The day before the signing of the sale and purchase agreement, they terminated the lease and entered into a new one with another tenant.
At this stage, the woman should have felt the danger. When a new contract is slipped to you right at the notary, they do not confirm the solvency of the tenant in any way, you should have been wary. But apparently, the promised 7% of income turned the client’s head. What problems then were with the tenant, you already know.
We explained all this to the owner. And they said that the maximum she could count on was €650,000. The lady did not believe us. At the Russian exhibition, she found some firm from Berlin, which promised to sell the property for any money. Buyers, of course, were in no hurry to them.
Part 3. Forced sale
Meanwhile, a parallel process was going on. This room is located in the passage. In addition to our Muscovite, there are about 30 more owners. The concern became interested in the whole complex. He began to offer small owners to buy out their parts. He also offered us €250,000. Our owner refused, she wanted a million.
The concern began to gradually buy up the passage in parts. And soon received more than 50% of the votes in the partnership of owners. And this means that he could organize meetings himself and make any decisions.
Then the concern hired a five-star expert – one of those who do expertise for Siemens and other giants. And this specialist decided that the whole building needs reconstruction. And he made two proposals for repairs – for € 2 and € 3 million. These € 5 million were supposed to be taken from the owners. Our share was about €200,000.
I went to a lawyer. We discussed the situation and found out that the decision of the owners’ meeting for €2 million can be appealed. The probability of winning in court is 99%. This means our costs will go down. They pulled another small owner into the case and filed a lawsuit.
Meanwhile, the concern also found out that an extension of 30 sq. m does not formally belong to a Muscovite, but is the common property of all members of the association of owners. This means that the owners can claim or share with all the money for the rent of these 30 sq.m., or ask the tenant to move out in order to use this space for general purposes. This would result in the loss of part of the lease.
In general, they began to blackmail the woman, offering to sell the object cheaply. Before the repair and the appearance of a new reliable tenant, the concern was ready to pay €250,000, now it offered €400,000.
Moreover, he set a condition: that he was ready to buy real estate only if she withdraws her complaint from the court. She agreed.
Muscovite took the claim. According to German law, whoever withdraws the claim pays all the costs of it, including the costs of the lawyer of the other party. And just 2 weeks later we received a notification that the complaint was satisfied. After all, it was submitted on behalf of two owners, and the second did not take it.
The money raised by the Muscovite was barely enough to pay off the loan she took out to buy this property. There was no mention of any income. She also owes us a large sum for services.
P.S. The problems didn’t end there.
Since the Muscovite abandoned her claim, she must pay all legal costs. This is about € 30,000. This debt does not hang on her personally, and not on her company (GmbH), on which the property was registered. We terminated the contract with her. As far as I know, she does not intend to pay.
She simply underestimates the gravity of the situation. If the parties concerned start to pursue their debt, this money will be “hung” on her personally. The next time she enters Europe, she could be arrested at the border.
She may also try to sell the company. And in this case, he will substitute the one who buys it …
As you can see, in this situation, problems drag on one after another in an endless stream. But if you start to analyze, you see that there were alarming signals.
Compliance of the areas of the object with the charter for the division of areas has not been verified.
Termination of the old and the conclusion of a new lease for 10 years on the day of purchase of the object.
- Lack of documents on the solvency of the new tenant.
- Lack of technical inspection of the premises.
The woman should have been wary when she was offered a property with a yield twice as high as the market average. She had to refuse to sign an agreement with an incomprehensible and unverified tenant. Be careful! Real estate transactions in any country, even in such a stable one as Germany, always require careful verification. Don’t take the sellers word for it. Work with reliable partners.
The text was prepared by Anastasia Faley