We came to Chemnitz with the ides of buying an old building in an auction and renovating it. It’s a nice idea to rescue a beautiful building and making money while doing it. There are plenty of buildings that still need renovating in this area of Germany.
After viewing the buildings in the auction that we were interested in, we narrowed it down to one. (a few others had lost most of the roof, missing floor due to wet rot, and one even had rotten foundation) Our choice was big corner building. 1281m2. In a nice, mostly renovated area of town and very close to the university. Ideal to rent out to students later. Starting sale price of 20000. Unfortunately it turned out to cost over a million to renovated it. New windows, plumbing, heating, electricity, facade etc, etc. Most old buildings take around 1000 euro per square meter to do up from scratch. More than we will ever have.
We started wondering about real estate prices here. Already renovated buildings are being sold for less than the renovation cost would have been. How is that possible?
Chemnitz has some great tax benefits for renovators. Depending of the building and the area you are buying in. 95% of all costs can be tax deducted over the next 12 years. So if you have a good job in Germany it sounds like a great thing. After 12 years you can sell the building cheap and still make a profit. (you would have gotten rental income too and after 10 years of owning a building you do not pay any capital gains tax)
This also explains why most of the buildings on the market have been renovated before 2000.
We started our search over. Now aiming at a renovated multifamily house (apartments) with a good rental return. A lot came up in Sonnenberg. An area of Chemnitz that is allways listed as “up and coming”. There are some beautiful houses here, but the overall area is not really that nice. We would prefer to buy in Kassberg (fanciest area) or Schloss Chemnnitz (old castle area).
Sonnenberg is the working class area of Chemnitz, and has always been so. It is called the up and coming area, but has been that way for the last ten years. There are a lot of pretty buildings in the suburb, but there are also a lot of people drinking in the parks at ten in the morning.
Kassberg is a Jugendstil area. Fancy buildings built at the turn of the 20th century. It argues with Leipzig that it has the highest density of these buildings. However as it is the most sort after area of the city, it is basically unaffordable. Then there is Schloss-Chemnitz. This is the very exclusive area on top of the hill overlooking the town. However there are areas that are not as expensive, and also quite pretty.
As we were focusing on a 10% return for our investment, we could narrow down what we were looking at. With extensive online research we started ringing real-estate agents in the city.
This proved to be an interesting experience. A lot refused to talk to us, and everyone required a german address and phone number before they would send us any information. We found out a lot later that this is to stop rival agents poaching the building. Apparently this happens a lot.
Still we used one of the contacts we had found when looking at renovating to talk us through the process. Mr Viedemann was very helpful, and set aside a few hours at his office to run through everything. Now we had an idea of what to expect, and a few buildings we wanted to look at. Still we had the problem that people would not talk to us. Not sure if it was Anna’s broken german, or if people really don’t want to sell buildings. By this stage we had narrowed down our buildings to three. Kreherstrasse, a nice old building that had the original paintings on the inside walkway. It had been advertised as a high quality finnish, and a rental guarantee for the first year. On the inspection however it looked good, but the rooms were tiny. 2 flats were under 35m2! Three were vacant (hence the guarantee) and there was a school assistance business at the bottom, which was good. However the finnishings were not what we had been led to believe. Hilbersdorf, which was a nice small building in a leafy suburb north of the city. This was good, as it was fairly cheap. However the real estate agent is telling us it is sold. We have told him it is still listed on his website, and to this date it is still there! Then there was a big brown building all by itself in an industrial area. Not the prettiest, but great parking out the back (a valuable commodity in this town) and close to the big businesses, and main park. However it is ugly and on the main, main street with a second hand car dealership next door. So these all scratched it was back to the drawing board.
On walking around town we noted all the people selling buildings (as they all have signs up, or banners hanging out the windows) and did some more research. Expanding our search to international sites. Here we found Sven, and another company Nagel. Nagel has a brilliant building in Schloss Chemnitz. 720+m2 of living, and roughly 70-100m2 units. Well layed out, big yard, parking and a nice building in a nice street. However it also needs three units modernised (new floors, tiles in the kitchen, paint). Still it has good return, and although it would be a problem renting out the office space on the ground floor, it would return our 10% without it.
Sven had a nice building a few streets away. It was single standing, and although a lot smaller, the owner was a person that buys repossessed buildings, renovates them and sells them. He also has his own management company and offers an all in one solution. The building is not as pretty, and is being fixed after a fire. But he does the rental guarantee, and we both got a good feeling about Sven and Joachin (the owner)
The deal that Sven has is perfect, but we have fallen in love with the other one. We were half way through the process with it, when we offered what we could to Nagel. Fully expecting them to say no, They said come in and talk it through, so we did. This has proved to be a bit of a run around. The price went up, than back to the same, then the same with 19% tax, then back to what we offered. We had expected to make a deal then and there, but now they are taking our offer to the owners. This is the same deal we had offered 3 weeks ago, and are a bit miffed at it. No where near as professional as Sven! So now we wait. We did debate whether just to buy Sven’s building, and if this one falls through we hope it is still on the market, as I will be calling him before we even leave the other office to see if it is still available!
A quick rundown on costs: Building Price. Stamp Duty (Government taxes): 3.5% Notary: 1.5% Commission: This varies from about 3.5% inc tax to 7.14% inc tax. Legal (If you choose to have a lawyer) $2,200 inc tax, Building inspector: Be crazy Australians buying in Chemnitz, and they will come along for the fun of it. We haven’t received the bill for this yet, but as it is the same guy that talked to us for a few hours, we think he deserves something! Thats about it. The main thing you need it time. It has taken us two months to get to this stage, and we can still leave here without buying.
We have walked around most of the city, checking buildings, and streets before deciding on whether we wanted more information, and managed to cut out a lot of time this way. However it seems as if you get faster replies if you book a viewing of the building rather than just more info on it.
Running costs will come later, as there are two sections to rent here. Cold rent, which goes to the owner, and warm rent. Warm rent is heating, taxes, electricity, water, grounds keeping etc. The only expenses in cold rent are the management costs. About 20 euro a unit a month. To find a tenant is two months of the cold rent to the agent, and if a unit is empty you pay a percentage of the warm rent to cover those expenses that are needed. EG: Taxes are paid by the tenant, and by the owner if no tenant.