Do I have to be German resident in order to buy in Germany?
No. Anybody can buy in Germany who has a valid passport and the purchase funds that will be needed. Owning a property in Germany does not give one a right to immigrate to the country. This point is vital to know. We had the case of a person who already owned an apartment in Berlin and had a deposit of about half a million USD at a German bank in Germany, and wanted to buy from that money another apartment in Frankfurt. She asked for a visitors visa for that reason and got her application declined. The German embassy in her country (somewhere in Asia) said: The risk is you buy an apartment and then stay in Germany and we do not want that. All her assertions that she wanted to buy this apartment for investment only and the apartment was already rented out which we told the embassy were fruitless.
So if you intend to buy property in Germany in order to live here, make sure first to get a Visa for being a permanent resident in the country.
What are the costs accompanying buying property in Germany?
In Germany, the buyer has to carry the following costs and fees:
1. Purchase Tax ("Grunderwerbsteuer"): from 3.5% to 6.5% depending on federal country of Germany, of the buying price. Due about four weeks after the notary deed has been signed by buyer and seller.
2. Notary fees. These are about 1.2 - 1.5% of the buying price, plus any fees for a needed translation of the deed. As they can vary strongly we recommend to check especially the translation fees in advance. We have seen differences from 300 EUR to 3000 EUR for the same type of work.
3. Agent fee. The buying fee for agents in Germany varies from Federal country to Federal country slightly. In most federal countries it is 5-6% plus the VAT of 19%.
4. Registration fees, these add up to about 0.8-1.2%.
5. If financing is needed, there might also be fees from the bank side for the mortgage, plus any additional notary and registration fees for that mortgage. Any mortgage needs to be secured in the land registry (Grundbuch) and that can only be done by a notary public.
So the total fees on top of the purchase price are about 13.5-14% in Hesse for example.
How long will it take until I own the house?
From the moment of signing the notary deed until receiving the land title confirmation from the land registry several weeks can pass. This however has no bearing on when you can take over the house as your own: this is usually the moment when the buying price is paid in full to the seller. That date is agreed upon in the purchase deed.
What are the costs accompanying owning property in Germany?
The costs that are to be paid are land tax (Grundsteuer) - this is different from town to town but very small (between 150 Euro and 300 Euro usually for an apartment per year, a bit more for a single-house; it depends on the size of the property ground and age and use of the apartment. New apartments have a higher tax than older ones). If you let the property, this tax is transferrable over to the tenant as part of the "Nebenkosten" (extra costs besides the cold rent or "Kaltmiete".
Then the building reserve fund which is mandatory when owning an apartments as part of a community; it is usually about 0.50 to 1.5 Euro per sqm living area per month;
Garbage disposal, water, common house electricity, housekeeping, maintenance of the heating system etc. are additional costs which sum up to about 0.5-2 Euro per sqm and month. All of these have to be paid by the tenant if apartment or house is rented out. Even the property owning tax normally needs to be refunded by the tenant to the owner or should be made part of the normal utilities prepayments.
Who takes care of the property when I am not in Germany?
Any house can be given into the care of a property management. On apartments this is mandatory as of today when these belong to a partitioned apartment house. Cost for property management is about 20,- to 35,- Euro per month for an apartment. Rental management is separate from general house management and can be transferred to an agency for a fee that is agreed upon by both parties. (We offer rental management too!)
Who would assist in selling the property once I want to do this?
At any given point, when you decide to sell the house or apartment again, you can give it to a Real Estate broker or also offer it freely on the market. There are no rules or laws saying that you must go via a broker. There are no shared listings in Germany where all brokers would offer their houses, this is a pretty individual market! It has the advantage that anyone has the chance to get his house on the market. Usually you put the house into local newspapers on the weekends and also would offer it on related websites. Ask us when you plan to sell.
What are the tax implications during the rental period?
We are not tax advisors and in any single instance the tax issues should be studied and explored carefully. Certainly as a private person you have to pay tax on the rental income. The amount goes on a sliding scale which starts around 25% and goes up to 42%, to which the so-called "Soli" of 5.5% has to be added. That means an extra tax based on the tax you pay, which is meant for the rebuilding of the Eastern part of Germany. It is considered by many people to be unneccessary but the German government did not change that so far. Depreciation, interest and advertising or management expenses can be deducted. Depreciation is usually 2% per year, based on the purchase costs minus value of the ground, as this is not depreciable. (On building older than 1925 or listed builtings the depreciation is higher.)
Any private person who is receiving rental income in Germany, even if not living here, must fill in and sign his annual "Steuererklärung für beschränkt Steuerpflichtige", which is a special tax declaration sheet for people who are not paying their normal income tax in Germany. The effects this has upon your tax duties in your home country have to be checked there with a competend advisor.
We can help you find an accountant for your annual tax declaration.
If a foreign company non resident in Germany purchases and rents out property, the tax issues are slightly different, but for that you must consult a tax advisor.
What tax to I have to pay when selling the property?
Currently, the regulation is such that if you sell before ten years after the purchase date, the profit is taxed. Again, this follows the sliding scale rule. But watch it: there is a nice hook built in, because the depreciation claimed in that period is voided or added to the sales profit. That applies only to property which was rented out. Owner-used property usually can be sold without tax on the profit after two years.
After the ten years holding period the profit is tax-free as per the current regulations for private persons - not for companies. There have been discussions since 3 years to change these regulations and various proposals have been made. But up to now - end of 2017 - no change has passed as law.
There is another tax-trap that you must know about. There is a rule that if you sell more than three properties within five years you might be considered a commercial property dealer. The consequence being that you have to pay commercial tax! And your profit is not tax-free even if the ten years holding period is over. Take the example of a multiple dwelling which you purchased as one unit and want to subdivide and sell as several units after ten years. Selling off more than three units out of that house makes you a tax payer on commercial tax which is about 25%.
All this is without any warranty of correctness or being complete. The best advise is really to hire a professional who is familiar with the tax laws in both countries, the one you live in and Germany.
Want to find the earlier parts? Use the links below. Use the Feedback form (at the end of each webpage) to send us your questions or feedback.
How to buy Real Estate in Germany Part 1: The current property market situation
How to buy Real Estate in Germany Part 2: Market view by Real Estate category
How to buy Real Estate in Germany Part 3: Steps to take when buying
How to buy Real Estate in Germany Part 4: Financing Real Estate in Germany
How to buy Real Estate in Germany Part 5: Frequently asked questions (this page)