Property purchase checklist
Things you need to be aware of when purchasing a freehold apartment
So you have decided to buy a freehold property. Whether you are planning to live there yourself or intending to acquire and let out the property as a capital investment, there are some important points you need to be aware of before you purchase. We have summarised the most important aspects for you below in ten golden rules. We have also listed for you the five commonest mistakes in connection with property transactions. These you should take care to avoid at all costs.
10 golden rules for purchasing a property
- Consider the location of the property
Real estate professionals observe a frequently quoted motto: ‘Location, location, location!’ The location of a property is crucial, as it is the only thing about it in real estate terms that is not going to change. What is the local neighbourhood like? What public transport connections are available? Is there a school or kindergarten in the vicinity? What kind of noise are you exposed to? You will be faced with all these questions, it goes without saying, if you are moving into the property yourself. But even if you are wanting to let it out, you should put yourself in the shoes of the future tenants and consider all these aspects.
- Inspect the property before purchasing
You must inspect the property! This may sound perfectly obvious, but there are actually many capital investors who purchase a property without ever having set eyes on it in person. Pictures and prospectuses may give you some idea, but they are definitely not a substitute for direct inspection. Only by visiting the property yourself can you form an opinion of its fixtures and features, its character and the surrounding area.
- Find out what the district is like
The reputation of the district or the road where a property is situated is often crucial for its future value. In order to form an impression of the image of a location, you need either to be familiar with the area or to call on the advice of a qualified expert. In a strange and unfamiliar locality, it is often difficult to answer questions relating to the neighbourhood unaided.
- Talk to the residents and other tenants
When you visit a property, make sure you talk to the people living there! They will be able to give you information at first hand about the property and the location. Above all if you are purchasing a freehold apartment in a building where a number of tenants have already acquired apartments for themselves, this speaks in its favour. If you find people have been living there for many years, this also points to the high quality of the building.
- Check out the rents
If you want to rent out the apartment, find out about current rent levels and any relevant upper limits. If there are such upper limits which will prevent you from raising the rent to the extent otherwise permitted by statute, you need to know about it.
- Read the minutes of the AGMs of residents’ associations
When you buy a freehold apartment, you are just acquiring a limited part of the building. But many areas, like the roof, the stairwell and the outer façade, belong to the residents’ association. Take a look at the minutes from recent residents’ association meetings to see if there are any plans for extensive work on the building, and whether you would be obliged to make a financial contribution. A glance at the minutes will of course also tell you something about how the residents get on with each other.
- Don’t forget the incidental costs
You should work with realistic values. When purchasing you should be aware of the amount of the common charge [Wohngeld] that you will be obliged to pay as an owner. You need to know the amount of the maintenance fund and the administrative costs. And don’t forget to allow for real estate tax [Grunderwerbsteuer] and lawyer’s fees.
- Compare your financial options
Compare various financial options. Don’t just look at the interest rate – you should also pay attention to the length of time for which fixed interest applies. And you also need to get clear the possibility of paying off the mortgage in a lump sum.
- Get all the contracts looked at by an expert
You should take advice from an expert who is able to answer any questions you have about your purchase. Get the contract of sale sent to you in good time, and ask a lawyer to look it over if necessary. You should also check the Land Registry entry before you sign the contract of sale. In the last resort, you need to be informed about all the details relating to the purchase.
- Use a checklist
It goes without saying that you aren’t going to be able to think of all the important points at the same time. So draw up a checklist summarising all the points that are important to you in connection with the purchase, and work through them before you sign the contract of sale. If you are buying a freehold property as a capital investment, you should also put yourself in the shoes of a future tenant. Only the tenant’s rental payments are going to secure your returns.
How to avoid the commonest mistakes
Many people in Germany realise their dream of living surrounded by their own four walls, and purchase a freehold property. Whether as a provision for old age, as potential insurance against inflation or a security against rising prices and rents – purchasing your own property is a popular strategy. But not every purchase is a success. Many people commit themselves to a transaction which they later regret. So that your investment in your own home can be a success, you must take great care to avoid the following five cardinal errors:
Mistake 1: buying a pig in a poke
You should never buy a freehold property without having inspected it! Only when you have visited the place yourself can you form an accurate estimate of the features of the property. An inspection of the property moreover not only gives you an impression of the property itself, you can also get an idea of the neighbourhood. Just looking at the condition of the façade, the hallway and the stairwell will tell you a lot about the locality and the kind of people who live here.
Mistake 2: failure to check the documents
Don’t ever sign a contract of sale until you have scrutinised all the important documentation! When perusing the documents, care is advised. You should check all the documents relevant to the purchase, such as the property tax statement [Grundsteuerbescheid], the Surface Area Calculation, Declaration of Condominium, House Regulations, Archive of Residents’ Resolutions and the Construction Document, to ensure that everything is as it should be. You also need to have a clear picture of the assignment of any special rights of use in relation to attic and basement areas and parking spaces. So as to avoid unpleasant surprises, you should also check to see if there are any charges on the property registered with the Land Registry for which you could become liable as the purchaser. Another important thing when purchasing a property is inspection of the minutes of the residents’ association. Check to see that there are no costly repairs due to be carried out, and how high the maintenance reserves are. You can also discover from these minutes whether there have been disputes between the residents in the past. This can be very useful to know. After all, you will have to get along with them at residents’ association meetings in future.
Mistake 3: failure to get a survey when purchasing
Get a survey done (with a value estimate) in order to make sure you are not paying a price that is over the odds! We can’t all of us be experts – so if you don’t have detailed knowledge of the real estate market of the locality where you plan to purchase, get a survey or an appraisal of the current market value from a qualified professional.
Mistake 4: failure to check existing contracts
Above all when you are acquiring a property as a capital investment and plan to let it out in future, you should inspect all existing contracts. Your income from rents is in the last resort crucial for the success of your investment. As well as looking at any existing tenancy agreements, you should consider the number of properties left vacant and the rate of fluctuation of tenants, both in the building and in the neighbourhood. And it is essential to get clear just what the average net basic rent is, and whether you will actually be able to achieve this in the long term.
Mistake 5: undue haste
Don’t take precipitate decisions! Purchasing a property is a major decision, and you should give yourself time to analyse all the important factors and check the relevant documentation. Of course you can’t go on putting off the decision indefinitely, above all when you look to purchase in a popular district where there is a high demand and apartments are in short supply, as for example when purchasing a freehold apartment in Berlin. All the same, you should go into all aspects of the transaction thoroughly, and avoid signing any contracts until you are one hundred percent sure. A careful and detailed scrutiny can help you avoid a purchase will you come to regret.
So have you thought of everything? Then there’s nothing more to stand in the way of your purchasing your dream apartment!