All Forum Posts by: John Stanley

Thanks for the replies.

My goal, ideally, is to put 20% down, have rents cover all standard costs (mortgage, regular maintenance), then sell the property after ten years without capital gains. The proceeds would be used to buy the next property.

Hi everyone,
I live in Germany and have been looking at buying rental property for about a year. In my area, buildings have gotten quite expensive but rents have stayed relatively low. In residential I'm seeing cap rates of 2-3% with full occupancy. I would have to put about 50% down in order to not have to pay out of pocket every month on the mortgage, which can mean 500k€ up front. In commercial property it's possible to find deals with 6-7% cap rate but the banks don't want to finance these as they see it as higher risk. People here tend to stay in their homes for a very long time so if you buy a rented residential property it's seen as a safe investment. How would you approach a situation like this? I don't want to get stuck with a money pit that I'm having to float along just to try to make profit on the back end when I sell the property. Thanks for your insights!

So if you take out a mortgage for, say, 600k at 1% for 30 years, your monthly payment is around 2100€ so already you'll be paying 700€ out of pocket every month, in addition to any repairs and renovations you'll inevitably need to make with a 300 (!) year old house. Your cap rate would only be about 2.5%. You will need to rely on the house continuing to appreciate at 6 or 7% p.a. to make this worth it (IMO). The advantage is after 10 years you can sell it without paying any capital gains tax, as long as the IRS doesn't know about it. I'm not sure if you're American but if you are and you file US taxes jointly then you'll still owe capital gains in the US.

Hi @Sean Snizek

Sounds like a good opportunity. My advice would be to analyze your cash flow on this property. What I have noticed around Stuttgart is that purchase prices are through the roof but rents are still relatively cheap so it's hard to get positive cash flow. If you only put down 10% on this property you might be in the same situation. I would get a financing offer (I used check24.de recently) so you know what you're looking at for a payment and then compare that to your potential rental income. Don't forget to add buyer costs like Notar (1.5%) and Land Registry cost (varies by state). You'll at least be able to avoid Makler fees in your case.

Hello Dana,

Your first hurdle will be to get financing. The banks will only give financing to someone with permanent residency. So you and/or your partner will need to have an unlimited residency permit (Niederlassungserlaubnis).

From what i can tell of the residential property market, the cap rates are very low (3% range) and the rental income doesn't cover the mortgage costs often times. I guess people are relying on the values continuing to grow at 7%p.a. in this area and will make their money on the back end when they sell. This seems risky, though. With negative cash flow you have to continuously pay out of pocket for repairs or upgrades. Then if in X years the mortgage rates go back up to 5 or 6% it will drive down the property prices because suddenly people can't afford as much house because the rates are no longer 1% like now.

Hi, yes, that is what I mean. Could you please elaborate a bit on what anti-deferral rules are?

I'm a US citizen living in Germany, where I am buying rental property. The law here is that if the property is sold after >10 years' ownership, there is no tax on the capital gains. However, I would have to declare this gain on my US tax filing. I'm wondering if I can start a business to buy the property and then keep all the proceeds in the business to reinvest. I might take a small amount out as business income and would then only declare this on my US taxes. Is this legal? Or would I then have to file a separate US return for the business?

I came here to ask this same question. I have enough to put down on a first property but then I'm tapped out. To do a cash-out refi on the first property will take probably five years to build enough equity. I'm also curious how to get the capital for a second property.

I'm shopping for a property in Germany to rent out. Mortgage rates are very low here, around 1.5%, so I have somewhat of a unique situation where there isn't much loan interest to deduct from my taxes and of course rental income is fully taxable, making my taxable income significantly higher than cash flow. I don't intend to take out any cash flow as income. I just want it available to pay for repairs and periodic larger renovations. So I need a way to "spend" the cash flow to reduce my tax burden, yet have the security to cover expenses. Are there some strategies to buy maybe stocks/securities/gold/widgets/etc. to reduce taxable income, yet be flexible enough to sell quickly if a need for cash arises? These holdings would just sit around as a piggy bank of sorts.

All rentals here are typically triple-net so expenses for the owner are pretty small, unless major capital renovations are needed. Even residential leases have the renter paying the taxes and building insurance. In my case I'm looking at commercial property because residential prices in my area are eye watering. So I think my example figures are not too far off (hopefully). Plugging this example into a tax calculator leaves me with only 1000€ more per year of net income with my day job income. So from the real estate side I'm really only gaining in equity.