All Forum Posts by: Sebastian Koellner

Let's see...

LTV: I have gotten 100% financing; usually they like to see 10% down though, and you get even better rates at 70% LTV

Debt-to-Income: for investors (up to small MFH) they will take all sources of income, apply their formulas for cost-of-living-expenses, and then look at what is left over for debt service. I am not sure what exactly their approval algorythms want to see. And, so far, we are in splendid debt-to-income ratios, so I haven't experienced the limit yet (problem, right now, is not finding the money for me, it is finding the deals...)

Are you curious, generally, or looking at anything in particular to expand your portfolio?

Thanks Adrian. As for your question - overall, money is easy to get right now and rates are low - at least if you qualify ;) 

Customarily, people get ARMs - 5, 10, 15, 20, 25 years. You can however, also set up fully amortized loans with your bank. Currently, the equivalent of a 30 yr fixed interest loan probably runs somewhere like 5.5% (principal and interest). A potential difference over here is that virtually all banks have pre-payment penalties built into the loan contracts - so taking out a 20 year loan and selling after 10 years could cost you quite a bit of money in interest penalty to the bank, depending on how market rates have moved over the course of the 10 years.

The 10 year ARM is of interest to some investors, because if you hold an investment property for at least 10 years, all profits upon sale are tax free...

Other than that, I would see a lot of similarities to the US - lots of paperwork, closer scrutiny in the days right after the financial "collapse" a few years back, now balanced by the dynamic of low interest rates...

Any specific aspects you are interested in?

It's a small step on the slow and steady path to wealth. We are trying to move to MFH, but stumbled upon this Condo at about 60% FMV.

After some negotiation and the usual procedures, we just closed yesterday – bought the condo in a midsized town in Germany for €22,100. We financed it for €30k to cover closing costs for this deal and pocket some money for the MFH deal we are working on.

Cash flow will be only about €60 per month – everything considered, including a 20% vacancy rate, management fee, repairs etc. That appears to be way less then what investors state-side get up for, but we also got the equity upside, so it was worth it to us.

Anyone out there investing in Germany?

@Raymond B.  Thank you for the technical support :) I think I got it now...

@ Larry T. Thank you for your thoughts. We are looking at a property that will likely appreciate reasonably well – there is new infrastructure being built, connecting the neighborhood more directly with the “hubs” in the region etc. Plus, in 15 years we could sell without being taxed heavily on the gains…

Thus, I think we will max out the capital, rather than “preserving” some €50 per month in cashflow…

Hi everyone,

I am looking for a reality check here on the scenarios below.

A few general notes up front: the property in question is in Germany, thus the € amounts. Some things with respect to loans work a little differently over here (i.e. points, pre-payment penalties, loan duration), but for the purposes of the question, this should not matter too much. I have further (over)simplified some things, as I am looking for input on the general logic (thus, rent increases, appreciation etc. are not factored in).

So, here it goes:

We bought a condo in the spring and fixed it up. The transaction at the time was all cash, as I didn’t have my job long enough yet to qualify for conventional loans. Now we are going to refi the condo.

The condo is rented out for €420 a month, leaving €179 after all expenses (including HOA dues, taxes, repairs, 20% vacancy allowance, and a theoretical property management fee). ARV (official bank valuation) is €47k, total capital invested (purchase, closing, renovation, holding) was €37k.

The two financing scenarios are laid out below. To allow for comparison, each option is based on a 15 year loan period (meaning ARM 15) with annual principal payments of 2%.

Option A - 70% LTV - €39,000 at 2.2%

monthly payment - €115

net cashflow monthly - € 64

annual tax credit - € 165

remaining loan balance after 15 yrs - € 21,219

total income over 15 yrs - € 13,946

net capital (w/o opportunity cost) - € 25,627

net capital with 5% rate of return p.a. - € 61,124

Option B - 100% LTV - €47,000 at 2.4%

monthly payment - €170

net cashflow monthly - € 9

annual tax credit - € 177

remaining loan balance after 15 yrs - € 30,114

total income over 15 yrs - € 4,224

net capital (w/o opportunity cost) - € 21,110

net capital with 5% rate of return p.a. - € 71,819

Given the low interest rates and the plan to buy more properties this coming year (fix and flip and/or buy and hold), I am leaning strongly towards maxing out the available capital for more deals… especially since the analysis is conservative at an expected rate of return on available capital of 5% p.a.

Which option would you choose? And, more importantly, have I overlooked any critical variables that factor into the decision?

Thank you for your input!

Thank you for the suggestions, everyone. Building my keyword alerts now :) So many things to learn - and put into action ;)

Vielen Dank @ Elizabeth Colegrove. Sounds like you are well on your way then - will connect to stay in touch...

Thank you @Brett Synicky. Will prepare my questions and dive in :) Right now I am working on translating the RULES - 2% and 50% - to the German context, as rents here are usually expressed as gross rent PLUS operating expenses that can be billed to the tenants...

Hi there,

and thank you everyone for your active engagement on the site - listening to the podcasts and reading some of the posts has been a terrific education so far.

I am Sebastian Koellner, a German-American currently living in northern Bavaria, Germany. After moving around for quite a bit in the last years (Marshall Islands, Seattle, WA, Leipzig...), it is now time to treat my JOB as the vehicle to build a RE portfolio :) 

The goal over the next years is to build the cashflow to the equivalent of my paycheck, to gain the freedom of choice what we want to do with our time and where we want to spend our lives. We started with the equivalent of a small condo-rehab in Leipzig this year, which is now rented out. My wife and I are in the process of financing this unit (once my probationary period at the job is done with in December), to get our capital back out. Next step for 2015 - purchase at least one MFH and go from there... 

Anyone over here from Germany interested in connecting? As far as I could tell, we are - unfortunately - lacking such a great online community over here thus far... And, while we may move back to the US in the future, being closer to family for the next years is the current plan.

Seb