The letting of your apartment following completion can be one of the most painful parts of the investment process, however, this does not have to be the case. This article should help you prepare for the Berlin renting process as well as provide you with the knowledge to ask the right questions of your letting agent.
With a 0.8% vacancy rate & queues around the block, Berlin's lettings market is particularly strong, making it easy to rent out your apartment when you partner with the right company. The below article is based on our partners WMS Lettings & Management practices.
How does it work in Berlin?
Rent controls, which were widely publicized, were a nightmare for any investor in Berlin. Fortunately, those laws have changed somewhat.
The rules are now as follows - There are only rent controls on residential apartments that were built prior to 2014. The rents for these apartments must follow rules set out by the German Government which determine the amount of rent that can be charged as well as in what circumstances and how much this rent can be increased.
Apartments built after 2014 are not governed by these laws. Typically speaking the rents for apartments built after 2014 will be between 50% - 75% higher than those under rent control, but this can end up 100% or more in prime locations.
When renting an apartment in Berlin you can choose to rent furnished or unfurnished. With the current market being as strong as it is, we would recommend unfurnished & on a short term basis (two year contracts rather than the standard unlimited) for the following reasons.
-Under this model, the tenant rather than the landlord will take on the majority of the apartment’s costs i.e. water, heating, electricity, internet etc.
-Furnishing an apartment can be costly (it is important to furnish with goods that last rather than items which have to be replaced after a couple of years). This is especially true in the current market as the cost of goods soar.
It is important to note that whilst it is possible to fix contracts with the prospective tenant to 2 years, tenant protection laws are very strong in Germany, and they are trying to reduce limited contracts barring exceptional circumstances. Therefore, there is always a possibility the tenant will choose to stay for longer than 2 years. To counter this possible eventuality, our standard practice is to include a mandatory increase in rent of circa. 4% per annum in the contract. Should a tenant decide to stay longer and continue to pay the circa. 4% increase, they can still be asked to leave if you or whoever the apartment is sold to in the future would like to move into the unit themselves.
The tenants we would suggest focusing on under this model are internationals who would be unlikely to stay in the apartment long term, therefore there is more opportunity to increase rents with new tenants matching market value.
What’s the process?
If you were to employ our partners - WMS, the process would be as follows.
Step 1 - Engage WMS & sign a contract
Step 2 - Sign a POA so we could represent and speak on your behalf for the below.
-Pre inspection of your apartment to identify any faults in the apartment. (Two to four weeks are given to rectify any problems found.)
-Handover & collection of keys and taking all utility readings.
(WMS would send a report & photos after each visit.)
-Conducting apartment viewings with tenants
-Signing of tenancy agreements
-Managing home owner meetings
-Processing bill payments
Step 3 -
It is vital to open a German or SEPA compliant bank account. Almost all European bank accounts are SEPA compliant.
If you are arranging your mortgage through a bank i.e. Berliner Sparkasse, LBS or equivalent, then you will automatically receive a bank account and therefore do not need to worry about setting up an additional one.
The reasons are as follows:
-End of year accounting – tax return
-Setting up standing orders
*Service charges -
This includes all the services related to the building such as water, underfloor heating, waste disposal, cleaning, building insurance etc. This is all taken care of by the House management company (Hausverwaltung). We would send an end of year report with a breakdown of all costs. Your payments will be altered according to usage just like a typical heating or electric bill.
Under a non furnished rent model these fees, which are charged monthly, would be split between you and the tenant with the tenant paying the majority at 70%. This is calculated upon signing of their contract and charged monthly on top of rent. The remaining 30% will be taken from your rent each month before transfer.
Step 4 - Once a handover date is fixed, we would start advertising.
Advertising would take place on our website and a portal we have had proven success on. WMS would conduct viewings and interested parties will be vetted. This includes passport, work contract, references if applicable, bank statements and a credit check if they have lived in Germany for over 2 years.
You would be contacted and have the final say on any selected applicant.
A follow up email will be sent to the successful applicant explaining the procedure and arranging a time to sign the contract.
Once the two months security deposit is paid, we will arrange a sign in. The deposit is kept in a specific deposit account in accordance with German law.
Step 5 - Move in
We would arrange the key handover with your tenant. At that time we would make a note of meter readings & the contents of the apartment would be agreed with the tenant.
Step 6 - Receiving rent
WMS would send rent (minus fees & service charges) to your account each month, along with a monthly rent statement.
What are the fees?
There are three key fees associated with lettings & management
- Monthly management fee
- Renewal of tenants contracts
- New tenant finders fee
These fees will be discussed with you upon contract signing.
Our partners at WMS are well versed in managing the lettings process & subsequent tenancies with overseas landlords and are here to make the process as smooth as possible. As partners of Volsung they manage contracts with your investment in mind to ensure you get the best returns.
If you have any queries please reach out to our Volsung team who will be able to assist you.