About Plauen and buying property in Germany I own investment properties in Plauen myself and have, as consultant, assisted a number of overseas buyers with the acquisition of investment property in Plauen (and elsewhere in Germany).
Plauen is a city with a population of approx. 66,000 in the federal state of Saxony (
Sachsen). Take a look at the city's website to get a first feel for it (google 'plauen.de', there is also an English section) and check out Google Maps to get an idea of the geographic location. The city is situated approx. 300 km south of Berlin, c. 350 km east of Frankfurt (Main) and c. 250 km north-west of Prague, the capital of the Czech Republic.
Anyone that considers investing in real estate in Germany should be aware of the importance of the various property markets in - broadly speaking - what used to constitute former East Germany and former West Germany.
With very few exceptions, such as the area surrounding Berlin in the state of Brandenburg (but not the rest of this state),the cities of Weimar and Rostock (far too expensive at this stage) and - to a certain extent - Leipzig and Dresden, most areas and cities in the former 'East German' states saw a still ongoing and very significant outward migration to the conurbations in the former 'West Germany' since the early 1990s, resulting in dramatic drops in population figures. Accordingly, there is a significant oversupply in residential real estate in most of the eastern, so-called 'new federal states'.
Population development in Plauen is currently more or less stagnant (i.e. there is not a lot of outward migration),but the existing population is ageing, so that there is an overall net decline in population (as is the case with Germany as a whole). The population decline until 2020 is expected to be c. 10%. Unemployment in Plauen is the lowest within the federal state of Saxony.
While the 'East German' market often appears to offer quite attractive yields with up to 10% or 12% (in my experience you - unless you are an adventurer and can afford it - might as well forget about anything above this - remember: if it sounds too good to be true it probably isn't!),one should be very cautious about this market. It is not without reason that a lot of German real estate investors say that they will under no circumstances go East with their money! (Then again, German investors are not exactly known as great adventurers.)
Some people will nevertheless consider this market interesting because it allows them to acquire quite significant properties at what appears to be very reasonable prices or, more generally, to acquire property that they would never be able to acquire elsewhere. It is a buyer's market! A client of mine, for example, bought a fully refurbished property (in Plauen) with 10 apartments and a (sustainable) yield of just above 10% for EUR 300,000. Three years on, he recently extended his Plauen portfolio by two other properties.
But you want to know what you are doing!
To start off with, consider all the questions
teepeeseller raised above and make sure you tick them off as you go. Do your research. Do not rely on one estate agent or advisor. Go there, walk the place, get a feeling for the place. Do you like it? If you don't like what you see, go away and find somewhere else! Trust your instinct when it tells you 'No!'.
Be aware of the risk that you are taking - 10% yields come at a price! There are good reasons why institutional investors invest big time in western conurbations at starting yields of 4%. They rely on the excellent lettability, frequent rent increases and almost guaranteed capital appreciation that will be achieved over time. You will not find this in most places in the East.
Property prices in most locations in the eastern part of Germany do not look likely to increase in any significant way in the foreseeable future because of the general lack in demand by both tenants and investors. The same applies to rents.
Be aware that it may take a long time to fill a vacant apartment in a lot of East German locations. Will you be able to sustain your mortgage - or simply the ongoing costs (a vacant property costs money!) - for extended periods of time (6-12 months +)? Remember, if you do not keep up your payments, your property may be foreclosed!
Also remember: It is a tenant's market. So you want a property that is in near-perfect condition (avoid properties that still need work as this will eat up your yield!),a great location (avoid busy main roads!) and that has a very reasonable rent (as determined by the tenant!). Did I mention the balcony?
I am currently achieving rents of EUR 4.-- per square metre (as compared to twice to three times this amount in western conurbations),a pretty much standard rent for a standard, refurbished apartment (your typical '1-Person-Household' apartment) in Plauen.
If you have an apartment like this, with, say, 45 square metres, your monthly net rent will be in the region of EUR 180.-- (when someone quotes rents to you, make sure it is the net rent -
Kaltmiete - and not the gross rent -
Warmmiete -, which includes heating costs etc. and which will totally distort your calculations. Find out how much will be deducted from that to pay for property management, repair funds, if any, etc.). Deduct from the net rent the management fees, payments into the repair fund, property tax etc. and you're left with approx. net EUR 150.-- per month or a true net before tax of EUR 1800.-- per year (not considering any financing costs).
I recently got a quotation to the amount of EUR 1750.-- to replace four doors and door frames in one of my unrefurbished apartments, i.e. this would cost me a full year's net rent. Then there are new floors, electrics, gas connections ... How many years do I have to rent an apartment for to make back the money of a full refurbishment/renovation? Get my drift?
Please don't get me wrong, I don't want to put anyone off investing in Germany or in the East of Germany in particular - there are certainly great opportunities everywhere and yes, it is a great market to invest in!
But I am of the opinion that it is important that people know what they are getting themselves into.
A good starting point to begin your research on the German real estate market in general is the recently published
German Residential Report of Deutsche Bank Research. This will give you some insight into the German residential real estate market as a whole. Read that report and take it from there ...
Good luck with your investments in Germany, it is a great real estate market!
