Business apartments in Munich with a yield of 4-7% per annum?
Probably everyone who is even slightly interested in investing in overseas real estate has thought about Munich. This is the most liquid local market in Germany, where housing prices rose by 13.7% in 2017 alone. The reverse side of the reliability of investments is low profitability, up to 3% per annum. And a high entry threshold – usually from half a million euros. If this is what stopped you, read our article. The idea of investing in a business apartment should appeal to you.
Prerequisites
Munich is the most prosperous city in Germany. There is extremely low unemployment, high salaries and… offices of large international companies. Millions of tourists come here every year – not only for recreation, but also for business. Guests who stay in Munich for a couple of days – a week choose hotels. But what about those who need to stay for a month or two?
Living in a hotel for so long is expensive and not always convenient. And renting an apartment, according to the law, is impossible. Daily rent of residential real estate is prohibited in Munich.
“If you own a residential property, you cannot rent it out for a short period of time,” says Regina Borger, CEO of the management company WiP Immobilien GmbH. “The authorities are tightening control over this. Last year, the mayor’s office allocated 16 people just to keep track of apartments that are rented out on specialized portals. The penalties for this are huge. Up to €500,000 per owner.”
The solution is the so-called boarding houses (business apartments or apart-hotels). This is a type of commercial property. It is an apartment building with elements of hotel infrastructure. Apartments in such complexes are small (20-35 sq. m), furnished, equipped with everything you need. By law, they can be rented daily or long-term, but not more than six months to one client.
The target audience of boarding houses is businessmen who come to Munich on business trips, foreigners who are treated in local clinics, students of correspondence programs … Plus, many locals settle in the surrounding cities for economic reasons, while the head of the family travels to Munich to work. In such cases, companies rent housing for their employees in the capital of Bavaria.
The essence of the scheme
For an investor, the advantage of a room in an apart-hotel compared to buying an ordinary apartment is the ability to rent for a short time, which means increasing profitability by 2-3 times.
Rental prices here are lower than in hotels: if a night in a hotel costs an average of €100, then in a boarding house it costs €60. But this is still much more than an apartment rented for a long time will bring in a day. At the same time, the owner of a business apartment can flexibly manage pricing by raising rates for important events, such as international exhibitions. And the owner of an ordinary apartment is limited by the contract and does not have the right to arbitrarily raise the rent.
Legally, buying a room in such a hotel is no different from buying a home. The investor becomes the full owner of a particular object.
After the purchase, the owner decides how to manage the property. For example, in a 50-apartment building there may be several dozen owners. They unite, create (or hire) a management company that rents the entire building, keeps order, resolves issues of residents, etc. The more options, the more expensive such services.
You can rent a business apartment on your own or through your representative in Germany. In this regard, the owner has freedom of choice. The amount of his profit will depend on how much the room actually rented, minus the cost of maintenance and management.
“We were recently at the Munich Real Estate Show,” adds Regina Borger. – They presented a different type of boarding houses – with guaranteed rent. The investor immediately concludes two contracts – for the purchase of real estate and for the long-term delivery of an object (for example, 10 years) to one company. And all these years the company guarantees you a profit of 4.5% per annum from the cost of the apartment, regardless of how much the object will actually be leased.
Read also: Real estate management in Germany: useful tips
Entry threshold
Another advantage of boarding houses for investors is relatively low prices. From €150,000 to €260,000.
For this money you will get a small apartment, most likely a one-room apartment. Moreover, furnished and furnished with everything you need, ie. you won’t have to spend extra money on repairs, except to buy dishes and bed linen.
In the vast majority of cases, existing proposals are under construction. By the time of commissioning, all buildings in Munich have already been sold out, so you need to buy at the stage of excavation.
It will take about a year to wait for the readiness of a house for 50-100 apartments, for a larger one – up to 20 months.
“Boarding houses are initially built for a specific target audience. And they are not located in the old town, closer to Marienplatz, where tourists like to settle. For example, they recently sold out the last apartments in the area of an international exhibition, an analogue of VDNKh in Moscow. Events are held there 240 days a year,” says Regina Borger. – This is a very interesting place, because. the investor will be able to rent apartments at higher prices 240 days a year. These are the places to look for when choosing such objects.
Yield
Munich is the most expensive major city in Germany to buy real estate. A “square” in prestigious central locations costs more than €10,000, and an ordinary apartment in a residential area is cheaper than €6,000 per sq. m hard to find.
As a result – low profitability from long-term lease. Apartments in the vicinity of Marienplatz bring owners a little more than 0% per annum, but they are still bought, because the potential for price increases is great. In other areas, you can get 2-3% of the rental income.
In the case of buying boarding houses, experts predict a yield of 4-7% per annum.
“Business apartments are a new real estate format for Germany. In Munich, they began to actively build a few years ago. And judging by the fact that interest is growing, new projects are appearing, this idea justifies itself,” says Regina Borger. “We manage several such facilities ourselves. Due to flexible planning, low entry threshold and higher rental prices compared to conventional apartments, it is possible to achieve such profitability. But keep in mind that these figures do not take into account additional costs.
Expenses that await the owner of a business apartment:
Land tax. It is calculated individually for each apartment. For such apartments, the annual tax will be €100-200.
Utilities (electricity, water, internet, insurance, cleaning, etc.) – approximately €5 per sq. m. per month. As in a hotel, these costs are borne by the owner, but they are included in the amount paid by tenants for each day.
The management company, depending on the volume of services provided, will take 3-7% of the rental rate.
Tax on rental income in Germany. Calculated according to the table. The tax base is income minus expenses. The rate is from 0% to 35%, depending on the amount of profit, as well as the owner (individual or legal entity).
Boarding houses are initially built for a specific target audience. And they are not located in the old town, closer to Marienplatz, where tourists like to settle. For example, they recently sold out the last apartments in the area of an international exhibition, an analogue of VDNKh in Moscow. Events are held there 240 days a year,” says Regina Borger. – This is a very interesting place, because. the investor will be able to rent apartments at higher prices 240 days a year. These are the places to look for when choosing such objects.
Yield
Munich is the most expensive major city in Germany to buy real estate. A “square” in prestigious central locations costs more than €10,000, and an ordinary apartment in a residential area is cheaper than €6,000 per sq. m hard to find.
As a result – low profitability from long-term lease. Apartments in the vicinity of Marienplatz bring owners a little more than 0% per annum, but they are still bought, because the potential for price increases is great. In other areas, you can get 2-3% of the rental income.
In the case of buying boarding houses, experts predict a yield of 4-7% per annum.
“Business apartments are a new real estate format for Germany. In Munich, they began to actively build a few years ago. And judging by the fact that interest is growing, new projects are appearing, this idea justifies itself,” says Regina Borger. “We manage several such facilities ourselves. Due to flexible planning, low entry threshold and higher rental prices compared to conventional apartments, it is possible to achieve such profitability. But keep in mind that these figures do not take into account additional costs.
Expenses that await the owner of a business apartment:
Land tax. It is calculated individually for each apartment. For such apartments, the annual tax will be €100-200.
Utilities (electricity, water, internet, insurance, cleaning, etc.) – approximately €5 per sq. m. per month. As in a hotel, these costs are borne by the owner, but they are included in the amount paid by tenants for each day.
The management company, depending on the volume of services provided, will take 3-7% of the rental rate.
Tax on rental income in Germany. Calculated according to the table. The tax base is income minus expenses. The rate is from 0% to 35%, depending on the amount of profit, as well as the owner (individual or legal entity).
Example: apartments in Munich for short-term rental
- Type of property: guest business
- Location: Munich, Riem district (international exhibition venue)
- Cost: €227,400
- Number of bathrooms: 1
- Number of balconies / terraces: 2
- Commercial area: 32.35 sq. m
- Furnishing type: standard
- Total number of floors: 5
- Type of heating: central heating
- Barrier-free environment: suitable for wheelchair users
- Elevator: yes
- Construction phase: under construction
- Year of construction: planned commissioning – November, 201
Regina Borger: “Is this business idea popular among Russian investors? Not yet. Boarding houses are a new phenomenon, few people know about it. All available proposals are either under construction or were launched just a year or two ago. But someday, probably, there will be a glut of the market with similar objects, because of which the current profitability will decrease. Therefore, it is now important to pay attention to the location of the object so that it is in demand among tenants. Moreover, to evaluate it precisely from the point of view of the target audience, and these are not typical tourists, but those who come to Germany to work, be treated or study.”
April 24, 2018
Text: Anastasia Faley