Checklist 1: Acquisition of investment properties/income properties
Be on the safe side with just 27 questions - how to make sure your investment is a success!
1. Preliminary considerations at purchase:
Do you already have a fixed idea as to what type of investment property, e.g. a freehold apartment or an apartment building, should be purchased to let?
2. Your own ideas:
Do I want to use the investment property until my retirement as a yield earner and later move into it myself so that I can live rent free in my old age?
3. Only yield or later self-use?
A chapter in itself. Ideally, equity should be used for at least 20-30% of the total investment including incidental costs. The rate should never exceed 25% of income.
4. Basic financial and tax considerations:
Does the acquisition of one or more freehold apartments or one apartment building as a global property make sense? What is the financial budget and/or tax potential sufficient for?
5. Capital investment resalable?
Is an investment property worthwhile at all? It should be at least resalable. The sales price should then exceed the purchase price plus incidental costs.
6. The search costs time and money:
If you are looking for a suitable income property, you should plan a lot of time for several inspections, comparisons of several providers and money for travel costs and, if necessary, for board and lodging.
7. Inspect the property several times:
To be on the safe side, you should inspect your chosen investment property at least twice! Different weekdays and times of day deviating from those suggested by the estate agent are advisable.
8. Check location and environment:
The location and environment are key for the value and change in value, as well as for achieving sustainable returns. Make sure you see the property for yourself!
9. Is there anything that has a negative impact on the location?
Is there anything that has a negative impact on the location and environment, such as a motorway, excessive noise from industry or exhaust emissions, environmental pollution, etc.?
If the infrastructure is sufficiently developed, this includes not only access roads, but also bus and train connections, the proximity to business locations, schools, children’s facilities, medical centres, supply and shopping facilities. What plans are there for the future?
11. Location development:
Is the development of the location and its environment assessed as positive? What are the future prospects for the city/area in question? Will there be rent increases or fluctuation?
12. Assessment of the situation based on rents and prices:
The more familiar the neighbourhood, the better. Here you can assess the rent and purchase price development better and more realistically yourself, or question trusted persons.
13. Property from the tenant’s point of view:
How do you assess the residential location from the tenant’s point of view? Good? Average? Poor? Average residential areas are fairly inexpensive. What could make it more difficult to find a tenant or result in rent problems?
14. Taking into account loss of rent:
Before making an investment and possibly taking out a loan, the risk of falling rents or even loss of rent (risk of loss of rent) should be taken into account in order to avoid nasty surprises!
15. Obtain key economic data beforehand:
Is the purchase price realistic compared with other prices and would professionals also pay it? Are all rent agreements, comparison rents and, if applicable, the rent index and statements of account available? Comparison figures for purchase prices and rent can be found in the internet, daily newspapers and advertisements.
16. Examine business plans or have them examined:
How high are the payments for common charge and allocation to the maintenance reserve, the property management costs? Are the apportionable operating costs to the tenant and the non-apportionable costs to be paid by the owner calculated exactly and reported in full?
17. Assessment of condition of the property:
Here, meaningful property documents with drawings and documentation for all repairs and renovations / modernisations, conversions and installations should be available.
18. Expert recommended:
A surveyor, expert, architect or civil engineer should be called in before every purchase in order to check the building fabric for possible defects.
19. Partition deed and community rules:
It is important to take a look at the notarial partition deed with the community rules which govern all the rights and obligations of a community of owners. Here too – you have to examine all of the records!
20. Any incidental costs of acquisition known?
These consist of property transfer taxes, notary fees, land register costs and, if brokered by an estate agent, the estate agent’s fee and can amount to approx. 10-12% of the purchase price. For example, property transfer taxes can vary depending on the federal state!
21. Property management and reletting, settlement of service charges:
For sound management and administration, a property management company is essential. It takes care of the settlement of service charges, the caretaker and reletting.
22. Have the notarial contract of sale checked:
The draft contract of sale, which is usually drafted by the seller through his notary, should be examined very carefully by an independent advisor (if necessary also tax advisor, bank advisor, etc.).
23. Return consideration:
How much will be invested in the property today and in the future? In particular, the so-called repair backlog, which reduces the return on investment, should be taken into account here. In the medium and long term, the return (without depreciation!) should be higher than for fixed-interest securities.
24. Liquidity analysis:
Be aware that if a rent default or rent reduction occurs, there may be a financial shortfall compared to the loan repayment. A sufficiently long buffer should be built in here.
25. Forecast for the future:
How are property values expected to develop in the region, as well as rents, management and maintenance costs? And your taxable income?
26. Tax considerations:
Please always consult a tax advisor about this. However, tax advantages should not be included in the calculation of long-term financing, because interest and redemption payments still have to be made if tax advantages are smaller than expected or non-existent.
27. Bank financing:
A chapter in itself. Ideally, equity should be used for at least 20-30% of the total investment including incidental costs. The instalment should never exceed 25% of income.