Multi-family rental apartments as an investment - What loan shares %?

Hello,

who is supposed to act as the borrower? You and your brother as GBR? How does it look for you? Will you then pursue an occupation in Germany? What is your brother doing? Although 700k is available as equity, I cannot estimate the actual cost of the construction project. The banks will not rely solely on rental income. It is also important what other income the borrowers have.

Thanks again to both of you for the very helpful tips! Dirk, the realtor did not say 4%, that was just my initial estimate. As I said, I am currently planning, calculating, and assessing risks/opportunities. My consideration of the 4% came about roughly as shown in the table below. Reserves and vacancies are included in the rents/year. I would appreciate any feedback on how realistic this is!

So if I now pay 2% effective interest, after an initial discussion with the bank and considerations about Kfw loans, this should be possible, leaving 2-3% taxable return (on the construction costs, the land is already owned). But rents are rising, hopefully also in Brandenburg at least. I will also amortize, or invest part of the surplus in Australia to have it available towards the end of the fixed interest period. Here there are ~5% deposit interest rates but of course a currency risk which at the same time is also a positive opportunity.

Well, you notice this project is in an early stage and all suggestions from you are very welcome. The fact is that the meadow (the building land) has been empty since reunification, so 25 years, generating no return and I would like to change that.


Post worst mid best
Rent / M2 € 7.50 € 7.75 € 8.00
Construction costs € 1,500.00 € 1,400.00 € 1,300.00
Rents / year 8 9 10
Rent / year € 60.00 € 69.75 € 80.00
Return without interest 4.00% 4.98% 6.15%

Hello HilfeHilfe,
we have not yet decided on the legal form either, but I think GBR would probably be the best?

I would continue to receive 50% of my salary from Australia in Germany; of course, that depends on the exchange rate, but it would be about 40,000 EUR per year after taxes. If the construction project allows me time, I would certainly have some opportunities in Germany to earn a little extra part-time as a lecturer or consultant for a company (I am a scientist), but certainly no huge salaries. By then, my brother will (hopefully) be a young teacher, so he won’t earn much either, but it is a secure future. So income is generally there, but not very large. The bank I spoke with has already signaled that from 40% equity (including land) we have a good negotiation basis (i.e., low interest rates), with significantly less it would be more expensive with this bank.
Regards

Hello

As I said, I cannot assess such large projects. Income from abroad is generally a risk for banks (they have no access via wage garnishment). For such a project, I would still try to secure a long fixed interest period. At least 15-20 years.

I cannot tell you anything about the legal form! A tax advisor has to take care of that!

Sorry, f.a.b.,

You urgently need to sit down with someone who knows what they’re doing, my suggestion would be a property developer who can pre-finance something like this and take over part of the buildings from you.

Your 4% return is absolutely unattainable with your numbers, because from the 4% you calculate in the worst case, you still have to cover

- repayment
- provisions
- income tax

and that will probably break your neck just with the repayment alone. Even with an interest rate swap, you will hardly get into the profit zone, because if the bank doesn’t see repayments, the loan usually gets more expensive, as they have to rely on a one-time repayment coming in 10-15 years and your interest rate trades working out in Australia.

So there are only two ways – either you learn quickly or you find professionals to do it for you. One point should make you think … if the plot has been lying there since reunification waiting for development, why haven’t local developers/investors been banging down your door for 25 years? Why is it supposedly such a prime piece just now and not for the past 25 years?

Best regards
Dirk Grafe

I consider the interest rate of 2% p.a. for the construction of a rental property unrealistic given the volume. Who was consulted about this? Better orient yourself towards the 3 before the comma. If it becomes cheaper, that's good.

In this project, personal income is almost irrelevant. Whether 40 or 80 TEUR and whether DE or AU.

The equity capital will probably be eaten up during the planning phase.

How high are the construction costs? I am orienting myself on Mr. Grafe... 20x150 TEUR makes 3,000 TEUR construction costs, plus 500 TEUR for the plot.

That would be only 15% equity at 85% debt capital. That will be very tight to impossible. For orientation: Normally, one expects at least 25%-35% equity capital in such cases. You will probably not be able to avoid direct marketing and the sale of a house (4-5WE) if you are looking for a reputable bank. That is my opinion.