Having been a property investor for the better part of 20 years, Mat from ProVenture gives us his thoughts on German Property Management.

This is a huge topic, one which I am still learning after 5 years in the market as an investor in both single apartments and also of apartment blocks across different regions of Germany. There are some huge differences in the way property is managed, certainly to my domestic market of the UK, mainly commensurate with the higher level of renters in the sector and longer residence times.

There are 2 distinct markets to cover here, that of single apartment management and that of apartment houses (including commercial offers). The management functions are broadly similar in each of course, it is just how they are controlled:

1.Tenant Finding, tenant management and rent collection
2.Communal repairs and property development
3.Management of ancillary costs such as heating building insurance etc
4.Caretaking and general maintenance
5.Establishment and building of maintenance fund

For point 1, this is generally the same for both apartments and apartment houses. The structure and reward systems vary across regions of the country but it is typical for the following:

Tenant Finding – 0 – 2 month net rent Tenant management and rent collection – 15 to 25 Eur per month, regardless of unit size

Tenant finding rates differ according to buoyancy of the tenant market and effort required to find and install a tenant. For example, in Dresden it can be common for all marketing fees to be passed to the incoming tenant, such is the demand in the city. In Leipzig and Berlin, 1-2 months net rent is usually charged to reward the marketing and inspection effort needed to find and and reference a tenant. Of all the fees, other things being equal, this is not one to negotiate down. You will put your unit(s) at a distinct disadvantage in doing so, unless you have a large scale of business with one agent. It is quite common however to market a unit with multiple agents to gove maximum exposure. Things to check here are what marketing strategy the agent uses. Is he on the major national internet platforms [most successful, but they cost money] or does he rely on local press and banners in the window [effective only in the areas of highest demand]. In terms of the charge for tenant management, these are usually fixed and not proportionate to unit size or level of rent. As long as a unit is renting and paying, the fee is extremely good value and a sign of a competitive and fragmented market.

For the other 4 points on our list, the manner in which they are managed differs for single apartments and apartment houses. In terms of point 2 and 5, communal repairs and property development and the maintenance fund, with an apartment house this is clearly the gift of the owner of the whole building. Repairs development and maintenance can be planned and budgeted for. It is usual for a letting agent to offer their services in this area, perhaps charging 10% to project manage works, take up quotes and see the job through satisfactorily. For single apartment owners, any works need to be planned and agreed by all owners. This is usually conducted at an annual meeting, or in emergency cases by contacting all owners for agreement. It is normal for a maintenance or “sinking fund” to be established for this purpose, so works can be planned and paid for in an efficient manner. Owners cannot opt out of this arrangement!

Next on the list is the management of the ancillary costs associated with the running of the property and caretaking duties.

This would include items such as:

- Heating costs, where a shared heating system is in place
- Building and liability insurance
- Ground Tax [not always included]
- Caretaking duties such as bins, sweeping stairs, small repairs such as painting and locks.
- Street cleaning
- Water and sewerage services
- Boiler maintenance
- Lift maintenance
- Chimney sweeping
- Communal lighting
- Snow clearance to the front of the property

These ancillary costs are in the most cases transferable to the tenant and called “warm rent”. Cold rents are net of these costs and are what the property yield is based upon. Nice and transparent. In the case of an apartment building, these costs amount to between 1.5 Eur – 3 Eur per sqm, depending on heating arrangement, level of caretaking service etc. Your letting manager will usually take care of all of these aspects. For single apartments, it should be remembered that you will usually have a mix of owner-occupation and renters in the property. For this reason, these costs, and the sinking fund will usually be lumped together and called the “wohngeld”. One further charge unique to single apartments is the cost of managing the co-ownership arrangement, the holding of meetings, communication to owners etc.

Things to Look for – Apartment Houses

When evaluating an investment, here are a few things to consider:

- Who has been managing the property in the past, and should I continue? It maybe that the owner has run the property himself, in which case a new manager should be found.
- How is the current manager doing? What is the feedback from occupants with regard to conducting maintenance and caretaking duties?
- How is the current manager doing with rental collection and tenant finding? Don't just ask the seller, demand to see the last 1-3 years accounts.
- Does the warm rent stated on the rent list you are given actually cover the costs of running the property? Again, get the last 1-3 years accounts and check. If the charges are not high enough to cover the running costs, this will come from the net rent cashflow. This is particularly relevant when renting to government-paid tenants, as the government will usually only pay warm rent to a specified level, and the tenant must pay for any additional costs. And try getting it from them...
- What length of management contract is being offered? A one year contract should be sufficient for you to evaluate the manger's effectiveness and amortise the setting up effort on the part of the manager. Question longer contracts, sometimes 5 year contracts are attempted. Unless you have a strong reason to sign, and are convinced by testimonials from other owners do not sign!! Trying to withdraw from a contract can be emotional and expensive – trust me!
- For single apartments, all of the above is relevant. In addition, just be careful when evaluating an investment for its cashflow. Ensure that you consider all costs that will come out of the gross rent. You could argue that the payment for the sinking fund should not be taken out of your yield calculation, but all other elements of the wohngeld should be discounted from cashflow. It's important – the wohngeld can be more that the net rent in cities such as Berlin.

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