Is Real Estate In Europe A Bad Investment?

Key Takeaways

In order to obtain financing for a property, certain mortgage requirements and criteria such as a good Schufa score must be met.
When it comes to real estate investments, one must canot forget the importance of the old saying “location, location, location“.
The purchasing costs when buying a property in Germany can be between 5.5% and 15%, depending on the purchasing area.

Introduction: The European Real estate market

We sometimes get asked what we think about European real estate as an investment. Well – we can’t say much about Europe as a whole, but we can talk investing in German properties. There are three key factors to consider:

The mortgage requirements
The right location
The purchasing costs

If you consider these three key factors, you will be well prepared for your first real estate investment. In this blog article, we will explain all three factors so that you can see for yourself whether real estate in Europe is a good investment for you.

1. The Mortgage Requirements

In order to obtain financing for a property in Germany, certain requirements and criteria must be met. These prerequisites include several factors that are taken into account by lenders. First, it is important to have a permanent employment contract that indicates a stable job and a regular income. This ensures that the borrower has reliable means to repay the mortgage in the long term. Another essential condition is that the probationary period at the workplace has expired. This means that the borrower has already passed the initial assessment period at his or her workplace, which is another confirmation for the lender.

Another important factor taken into account by lenders is the applicant’s creditworthiness, which is determined using the Schufa, a credit score used in Germany. A good Schufa score is an indicator of responsible financial behavior, which manifests itself in punctual payments and low credit risk.

It serves as a measure of reliability and creditworthiness and enables lenders to assess the borrower’s ability to meet financial obligations.

In addition, a decent income (+2.500€/month) is an important prerequisite for being granted a mortgage. A higher income gives lenders confidence that the borrower will be able to make the mortgage payments without straining their financial resources. A high income also indicates a higher ability to repay the loan, which reduces the risk for the lender.

Finally, low debt is crucial when applying for a mortgage loan. Lenders evaluate the borrower’s debt-to-income ratio to assess their financial stability and ability to repay. Lower debt means that one is better able to handle the additional financial responsibility of a mortgage, which increases the likelihood of loan approval.

If you do not meet the mortgage requirements just yet, there is another way to profit from rising real estate prices in Germany by investing in real estate securities from GermanReal.Estate starting from just 100€.

2. The right Location

When it comes to real estate investments in Germany, one must not overlook the importance of the age-old saying “location, location, location“. This saying is as true in the German real estate market as it is in many other countries. The country is very diverse in terms of landscape, there are great differences between the federal states and a stark contrast between urban cities and tranquil rural areas.

To make a successful investment, it is essential that you invest time and effort in finding a property that not only meets your requirements but is also in a desirable location.

This involves thorough research and exploration, analysing market dynamics and specific trends in each region. This will help you identify areas that offer the potential for attractive rental yields and ensure a profitable return on your investment.

There is no doubt that finding the ideal property in a desirable location can be a difficult task. However, it is not impossible. With commitment and the right resources, you can successfully navigate the German property market.

Employing the services of professionals, such as real estate agents or property consultants, can prove extremely beneficial. These experts have in-depth knowledge of the local market and are able to guide you to properties that meet your investment goals and offer promising rental returns.

3. The Purchasing costs

When considering buying a property in Germany, it is important to weigh up the fixed costs associated with the purchase. In some cases, these costs can be significant, making renting the cheaper and better option. The lowest notary and land transfer taxes, at 5.5%, are in Bavaria, for example. In cities like Berlin, however, the costs can rise significantly. In addition to the 6.5% land transfer tax, there are 2% notary fees and possibly high real estate agent fees, which can exceed 7%. The cumulative purchase costs can therefore amount to 15%, which immediately reduces the value of our investment by 15% when you buy.

Although it is possible to recoup these upfront costs in the short term, especially given the remarkable rise in German house prices during the pandemic, with increases of 9.6% in 2020 and 14.2% in 2021, such rapid growth is not the norm. Normally, house prices in Germany tend to rise moderately over time, in line with the general income trend. Thus, it is important to remember that past performance is no guarantee for future results.

If you are interested in buying a rental property in Germany, feel free to reach out to us to discuss your ideal investing strategy.

Conclusion

Other factors to consider include the fact that if we hold a property for ten years, we are able to sell it completely tax-free – this is another reason to buy and hold for the long-term when buying property in Germany – think in terms of at least a decade.

So those are our quick thoughts on things to consider when investing in real estate in Germany. We hope you found these helpful! If you need help with your real estate investment, you are welcome to book a free meeting with us.

Is real estate in Europe a Good investment?