29 Apr INVEST IN THE FUNDAMENTALS PART 1
One of the first issues a new property investor might face is what city to invest in. If you’re a typical a property investor looking to buy a house in Germany you’ll probably be thinking Berlin. Before you begin your property search you need to first address the issue of the fundamentals.
There’s a great saying I heard regarding investing: a cheap stock can be expensive and an expensive stock can be cheap. In other words, it’s not just about price but about the fundamentals: The same applies to buying a property. What makes a great real estate investment? To have a solid investment, you need to buy in an area that has strong tenant demand, rising rents and prices—not just now, but also in the future.
Is it really a good price?
The second thing after establishing where to buy is to establish a rent to price ratio, or as it’s more commonly known the cap rate or yield as it’s usually referred to in Germany. A good rule of thumb is to stick avoid anything under 3% as it tends to be fully valued and anything over 5% it could mean there are problems and the owner had to drop the price to make it saleable. It doesn’t mean you should not look at it just ask yourself why the price is so low.
What is your budget?
Finally, the last thing is establishing your price range. When I first started looking, this was 15 years ago, our price criteria was very simple. We wanted a really cheap place. It was just my wife and I so a one bedroom apartment would be fine. Once I started looking for investment properties I became a little more structured. Our price range was between 80,000 and 120,000 Euros. This meant I couldn’t really invest in the center of Berlin or even in the center of Frankfurt. Instead, it meant I need to look at the suburbs surrounding both cities.
I ultimately decided against buying a place around Berlin because it was too far of a drive for us to visit regularly, something I was keen to do.
Finally if you are looking for Berlin property for sale be careful about where you buy. Anything in the former East Germany you need to be looked at very carefully with. I didn’t know Berlin well enough back then to feel comfortable buying outside of the center of Berlin. Instead I decided to focus my search around Frankfurt, a place I can visit regularly and that was, at least back when I bought, really undervalued compared to the rest of Germany.