Interview: Family foundation in Germany

FIV: So that we can all get an idea, what are the big family foundations that everyone knows about?

Stephan: There are some well-known examples that most people will be familiar with. The “Krupp Foundation” and the “Siemens Foundation” are two of the best-known family foundations in Germany. Both foundations have set themselves the task of preserving the family fortune and passing it on to the next generation. However, they also support social and cultural projects. The purpose of a family foundation is primarily to secure and increase the family’s assets in the long term.

FIV: What is their purpose, why do these well-known families set up foundations?

Stephan: Large family foundations such as Krupp or Siemens are often about keeping the company and its assets in the family and protecting them across generations. The foundation separates the assets from the private assets and they cannot be sold or inherited so easily. Family foundations also enable long-term tax optimization and provide a legal framework to protect the inheritance from external influences.

FIV: We also stand for names and who has what! Can you give us a small top 3 of the larger foundations?

Stephan: Let me think for a moment.

• There is the Körber Foundation, which I believe has a volume of around 600 million euros and was founded by Kurt A. Körber,
• There is the Robert Bosch Stiftung, founded by Robert Bosch and worth a few billion euros,
• Or the Quandt Foundation, which everyone knows BMW with a volume of around 1 billion euros, founded by Johanna and Susanne Klatten.

Family foundation explained: What is it?

FIV: What exactly is a family foundation and how does it differ from other foundations?

Stephan: A family foundation is a private foundation whose main purpose is to preserve the assets of a family over generations. In contrast to charitable foundations, which focus on the common good, family foundations focus on the protection and preservation of family assets such as real estate, companies or other investments. The highlight here is that the assets are transferred to the foundation and therefore legally belong to the foundation and no longer to the founder or descendants. This offers a number of advantages, such as protection against inheritance disputes or third-party access.

What are the benefits of a family foundation?

FIV: What are the specific benefits of a family foundation? What advantages can you expect from it?

Stephan: The biggest advantage is certainly the protection of family assets. Through the foundation, the assets remain bundled and cannot be split up or sold so easily, for example in the event of a divorce or inheritance disputes. There are also tax advantages. Income generated within the foundation is usually subject to a lower tax burden than private income. Gift and inheritance tax can also be legally minimized by setting up a family foundation.

Here again very briefly:

1. Protection of family assets from sale or inheritance disputes
2. Tax advantages due to lower tax burden
3. Minimization of gift and inheritance tax

Who establishes a family foundation?

FIV: Who does this? Is there a certain type of person or family for whom a family foundation is particularly worthwhile?

Stephan: Family foundations are particularly attractive for entrepreneurial families who want to keep their company in the family for generations, or for families with large real estate holdings. But wealthy private individuals who want to secure their capital and optimize it for tax purposes also use this option. The establishment of a family foundation often comes into play when assets exceed the limit of around 1 million euros – at this point it really is worth considering.

How can you set up a family foundation yourself?

FIV: If you want to set up a family foundation yourself, what are the first steps?

Stephan: The first step is to get comprehensive advice. There are many legal and tax aspects that need to be considered, and mistakes can be expensive. Basically, everything starts with drawing up a foundation charter that regulates the purpose of the foundation, the organization and the management of the assets. The foundation must then be registered with the relevant tax office and the foundation supervisory authority. It is also important to think about the composition of the foundation board, as this is responsible for the administration of the foundation.

FIV: Can real estate and assets also be transferred to a newly established foundation?

Stephan: Yes, that is possible, I have a great guide online, maybe you can link to it: Transferring real estate to foundations.

FIV: Thank you very much for the interview, Stephan! Is there anything else you would like to tell our readers about the family foundation?

Stephan: Yes, I would say: inform yourself well and get professional advice. A family foundation is a great instrument for protecting assets and saving taxes, but it needs to be well planned and carefully implemented. If you do it right, you can protect your family and your assets in the long term. May I give you two more link tips?

FIV: Yes, of course!

Stephan: If you want to know more about

1. Foundations in general, you can also visit the Federal Association of Foundations
2. Establish family foundations for real estate, please have a look at my website under foundation establishment
3. And now generally on Saving One about family foundations in Germany

Interview: This is what it’s all about

As an entrepreneur, it is important to think from the outset about how one’s own assets and business can be secured and maintained in the long term. A family foundation can be an interesting option here, as it not only offers asset protection and inheritance planning, but can also have potential tax advantages. By establishing a family foundation, for example, entrepreneurs can reduce their tax burden and thus achieve tax savings.

We talk in the interview about:

1. What is a family foundation, why and when do you “need” it
2. What are the 3 central advantages of a foundation
3. What about taxes? Corporation, donation, inheritance & Co.

We conduct the interview with Immobilien-Erfahrung.de (in conversation “IE”).

What is a family foundation?

FIV: Let’s start with an overview:

IE: To ensure that family assets are preserved in the long term, it is important to protect them from various risks such as inheritance disputes, creditors and the tax office. One possible option here is to set up a family foundation, which can provide the founder and his family with economic security over generations and protect the assets from being broken up. This is a legally independent foundation that manages real estate, company shares and other assets.

So in a nutshell:

• Protection of family assets over generations
• Avoidance of inheritance disputes and break-up of assets
• Possibility to manage assets such as real estate and company shares in the foundation
• Tax advantages due to the taxation of the foundation with corporate income tax
• Possibility to avoid the right to a compulsory portion of family members

Well-known family foundations in Germany

FIV: Strong, because we have many articles on the subject of first capital investment buy & Co. So that it does not become too abstract for our readers, what are the most well-known family foundations in Germany? Who do you know? Can you tell us 3 examples?

IE: Yes, of course, there is the Bertelsmann Foundation, for example, founded by Reinhard Mohn, is one of the largest foundations in Germany and is involved in the areas of education, society and culture.

There is also the Robert Bosch Stiftung, founded by Robert Bosch, promotes projects in the fields of health, science and technology, and international relations. Another flagship would be the Krupp Foundation, founded by the Krupp family, is involved in the areas of culture, education and science as well as in the promotion of social projects.

Then there is:

• Aldi Nord and Aldi Süd Stiftung Stiftungs GmbH
• Otto Group Foundation
• BMW Foundation of Herbert Quandt
• And many more!

When does a family foundation make sense?

IE: Roughly speaking, very roughly speaking:

It only really makes sense to set up a family foundation with a capitalization of around 1 million euros.

Protection of family assets and businesses

FIV: Now let’s get to the core of the interview, the why and wherefore! What does protecting assets mean, from whom and why should I protect my assets – once I am a millionaire?

IE: Even though the family foundation is not tax-exempt, several factors can make it worthwhile to establish:

Raising a family is often a long and arduous process of hard work and hardship. It is therefore understandable that entrepreneurs are concerned that their legacy will not be carried on in their spirit after their passing.

One way to alleviate these concerns is to establish a family foundation.

Divorce, inheritance, family dispute – examples

Establishing a family foundation ensures that the entrepreneur’s assets remain in the family and are not fragmented by divorce or inheritance.

A foundation can also help avoid the breakup of the company, as foundations do not issue shares that can be bought out. This provides effective asset protection, as the foundation retains control over the assets and manages them in accordance with the wishes of the entrepreneur and his family.

In addition, family foundations can also help preserve family peace by providing a clear structure for the management and distribution of assets.

However, the foundation can also play an important role in supporting charities and non-profit projects, which can be of great importance for entrepreneurs who want to engage in social responsibility, of course also in the point of self-PR.

Inheritance: taxes and protection

FIV: According to the Hans Böckler Foundation, the annual inheritance volume in Germany, including gifts, will amount to up to 400 billion euros in the period up to 2027 – per year. Inheritance is an important topic. Therefore the question, what can a family foundation do in terms of inheritance?

To illustrate this, here are the figures for the number of taxable inheritances and gifts in Germany from 2008 to 2021.

400 billion per year

180,000 inheritances per year

You can find more statistics at Statista

IE: By establishing a family foundation, family members can be provided with binding security during the founder’s lifetime. The clear structure of the foundation can help to defuse potential inheritance disputes in advance. This can be of great advantage, especially in the case of large estates or complex family structures.

Inheritance and mandatory shares

Another advantage of setting up a family foundation is that the founder can avoid the claim of children or parents to his inheritance (so-called claim to a compulsory portion) if he transfers the assets to the foundation ten years before his death. This can be particularly important if the founder intends to concentrate his assets on certain family members or if he wishes to support a charity, for example.

In addition, the establishment of a family foundation can also help to protect the assets from creditors. As long as the assets remain within the foundation, they cannot be seized by the founder’s creditors. This can be important for entrepreneurs who have a high personal liability risk or who operate in a particularly high-risk business field.

Tax advantages: Only 15% tax

FIV: Now to question that everyone is most interested in, what is it about “saving taxes” when you set up a family foundation?

IE: In Germany, the establishment of a family foundation can bring tax advantages. The foundation is subject to corporate income tax, which can lead to a lower tax burden compared to other types of companies such as a GmbH, which have to pay trade tax. In addition, donations to the foundation may be tax-deductible under certain conditions.

FIV: Can you explain that in more detail?

IE: Simply put:

You can legally lower your tax burden to 15% with a family trust.

FIV: With a family foundation you can legally reduce your tax burden in Germany to 15%, ok. How does that work and what does a “normal” GmbH pay?

IE: The establishment of a family foundation can indeed help to reduce the tax burden in Germany to 15%.

This is the corporate income tax levied on the income of the foundation.

In contrast, a “normal” GmbH must pay trade tax, which can vary depending on the municipality. In addition, there is corporate income tax, which is levied on the income of the GmbH and is usually higher than for a family foundation.

However, the 15% corporate income tax for family foundations only applies up to a certain exemption amount and depends on various factors such as the size of the assets and the structure of the foundation. But it pays off, especially over the years.

But we don’t want to go into too much detail!

Inheritance tax and gift tax

FIV: As far as I know, you also have advantages in terms of inheritance tax and gift tax, especially through the allowances, which are taxed more favorably and can thus be paid in year after year. Can you tell us something more about this?

IE: Unlike charitable foundations, the family foundation does not enjoy any automatic tax benefits – that’s just in advance. Nevertheless, it can offer great potential for tax optimization compared to other corporate forms.

Transfer of assets to the foundation

When assets are transferred to the foundation – in particular when they are established – gift or inheritance taxes are incurred. In the case of a “normal” private foundation, the unfavorable inheritance tax class 3 is generally applied. In the case of a family foundation, on the other hand, the relationship between the founder and the entitled family members (beneficiaries) is decisive. If only the spouse and the descendants (children, grandchildren) are beneficiaries, the favorable tax class 1 applies.

Here’s a tip on the side, we also have a handy gift tax calculator. Here you can calculate what typically has to be taxed.

However, in the case of family foundations, a fictitious inheritance is assumed every 30 years, on which inheritance taxes are incurred. Here, an allowance of 800,000 euros applies, the so-called double child allowance. Otherwise, the general regulations for inheritance and gift taxes apply. However, if there are favored business assets, the corresponding exemption discount can lead to significant tax savings.

If you would like to learn more about this, please visit our blog. I can recommend, among others, the articles Asset Protection and Vermögensschutz durch Familienstiftungen by our foundation expert.

FIV: Thank you for the insight into family foundations!

Summary: 10 Learnings on the Family Foundation

Let’s briefly summarize the most important facts for you.

	Learning foundation
1	A family foundation provides asset protection and estate planning for family assets and businesses.
2	A family foundation can protect assets from divorce, inheritance and break-up, thus avoiding inheritance disputes.
3	A family foundation provides a clear structure for managing and distributing assets and can preserve family peace.
4	By establishing a family foundation, family members can be provided with binding security during the founder’s lifetime.
5	A family foundation can circumvent the claim of children or parents to the inheritance (claim to a compulsory portion).
6	A family foundation can protect assets from creditors.
7	A family foundation can be used as an instrument of social responsibility.
8	A family foundation is subject to corporate income tax and can thus reduce the tax burden to 15%.
9	A family foundation offers great potential for tax optimization compared to other corporate forms.
10	In the case of a family foundation, the relationship between the founder and the beneficiary family members is decisive for the tax classes for gift or inheritance taxes.

What exactly are business expenses?

The income tax law regulates in § 4 quite clearly what is meant by the term business expenses: It is all expenses that are necessary to make your business functional and to keep it. In other words, all purchases and expenses that are caused by your entrepreneurial activities and without which you would not be able to run your business. You can enter these necessary expenses in your tax return, they reduce your profit and therefore your tax burden. However, tax law does not accept all business expenses equally, immediately or even in full.

What types of business expenses are distinguished?

The legislature has sorted all conceivable business expenses into four different categories which are mandatory and decide the respective tax reduction status. These are as follows:

Anticipated operating expenses

The most important rule for all solo self-employed people: Carefully collect all receipts – and start doing so before you even get started with your business. All costs incurred in the preparation phase, i.e. before you are officially registered, can be claimed later as anticipated business expenses. This includes, for example, travel and financing costs, expenses for seminars and the like.

Immediately deductible business expenses

This drawer includes all the bills you need to pay in order to run your business at all. Classically, these include:

• Occupancy costs (rent, electricity, water and heating, cleaning and maintenance),
• Telephone, fax, Internet connection,
• Office supplies (paper, postage, pens) and office equipment (printer, copier, scanner),
• Insurance and car expenses, costs of travel by public transport,
• Training costs,
• Bank Charges.

The acquisition of an asset, such as a company car, is an immediately deductible business expense, but the costs are split over the expected useful life. Here, the so-called depreciation for wear and tear (Afa) applies.

Limited deductible business expenses

Not all costs that you incur in principle but not exclusively in connection with your business are recognised by the legislator as tax-reducing. This is especially true if there is no clear dividing line between private living and business. Thus, in the case of a study in one’s own living quarters, small details often make the difference. The same applies, for example, to the cost of meals while travelling (additional expense) or the expenses for coffee and biscuits that you offer your business partner.

Non-deductible operating expenses

Anything under this heading doesn’t reduce your tax payment. The catalogue is long, here are the most important points:

• Gifts over 35 euros (if 35.01 euros is on the invoice, the whole amount is void!),
• Travel expenses between home and work,
• Entertainment expenses “for business reasons” are accepted at 70 percent, the remaining 30 percent are not,
• Penalties and warnings, reminder fees or interest for evasion.

How can I deduct my business expenses from my taxes?

You simply enter your business expenses in your tax return. They reduce your profit and thus your tax liability. But be careful: In order for the tax office to recognize your costs, you have to prove them meticulously. You should therefore always and consistently keep all receipts and sort them regularly. If you lose an invoice or receipt, the tax officials can estimate the item or cancel it altogether – both are usually bad for you.

If you deliberately or even accidentally declare private expenses as business expenses, then you risk not only a “hefty” penalty payment in the event of a tax audit, you can also rely on the fact that the tax officials will henceforth keep a particularly critical eye on your tax return.

Who can claim business expenses as a lump sum?

Some self-employed people are granted the right by law to have their business expenses credited at a flat rate. These include:

• Childminders (flat rate 300 euros per month),
• Self-employed midwives (25 percent, maximum 1,535 euros per year),
• Freelance journalists and writers (30 percent, maximum 2,455 euros per year).

Members of these professions can, of course, still choose to itemise their business expenses if this is more favourable to them.

Bottom line: how can you lower your tax burden?

All costs and expenses that you incur in direct or indirect connection with your business are part of your business expenses. You should keep all receipts and invoices carefully and sort them regularly so that you can enter these expenses correctly in your tax return. There, they will then reduce your profit and thus reduce your tax liability. With smart accounting software, this is all a little easier to do. You can claim even the smallest amounts, because the proverbial little things save taxes. Just don’t forget to always separate private and business expenses – the tax office reacts very sensitively to such “inaccuracies”.

Tax advice simply explained: 7 areas

The tasks of the tax advisor differ depending on which tasks you take on yourself. The main tasks of the tax advisor are bookkeeping, financial accounting, accounting of wages and salaries, the annual financial statements and of course the general advice on the subject of taxes and tax optimization.

If you are interested in the processes, the individual areas of responsibility, then you are in the right place. Learn about the risks of hiring a tax advisor, as well as 3 tips to find a good, really good tax advisor. After that, we will give you deep insights into the daily cooperation with your tax advisor.

7 typical tasks of tax consultants in companies:

1. Advice on tax preparation and structuring
2. Bookkeeping and financial accounting
3. Payroll accounting and payroll
4. Profit and Loss Account (EÜR)
5. Tax returns (much more on this later)
6. Audits of tax assessments
7. Representation vis-à-vis tax office and court

Source: Lukinski.de, tax consultant for companies

Why is it so important to find a good, reputable tax accountant?

Every euro that is not spent on taxes can be reinvested and generates further returns (profits)

That means if you pay too much tax, your money is gone. You can’t use it for new ideas and projects, which in turn bring you more profits and wealth. That’s why a good tax advisor is so important for your wealth creation.

Tasks of the tax consultant: tax returns, wages & Co.

According to Lukinski, the 4 central tasks consist of these areas in simplified form:

1. Tax returns (monthly filings and annual evaluations)
2. Wages for employees
3. Balance sheets (annual financial statements)
4. Tax structuring (set-up and optimisation)

Consulting: foundation, day-to-day business and development

The most important, especially for founders, is the tax advice and design. Taxes are not only a topic for large companies and corporations. It already starts with the managing director’s salary and tax allowances. In the growth process there are also changes in the legal form of the company (list external). If you look at a possible process, this could include, for example, the following stages that you go through step by step as a self-employed person.

Evolution a company (exemplary):

• Sole proprietorship
• Entrepreneurial company (UG haftungsbeschränkt)
• Limited liability company (GmbH)
• Stock corporation (AG)
• Holding (with subsidiaries)

Tax advice therefore begins even before the company is founded. It continues with simple, initial aspects such as your managing director’s salary and goes on to the change of the individual legal forms of companies.

Processing of tax matters

Consultations on tax structuring, concept creation for tax avoidance, that is of course not the daily routine in the cooperation. The daily cooperation with your tax advisor is mainly about the processing of tax matters, from payroll accounting, bookkeeping and preparation of tax returns, to special requests. A list of key points is worth a thousand words, so here is a summary of what the “day-to-day work” is about, the tasks of the tax advisor.

Tax consultant tasks in detail:

• Bookkeeping; this includes setting up bookkeeping, creating a chart of accounts, bookkeeping itself, account assignment of documents).
• Payroll accounting
• Tax returns; this includes wage tax, capital gains tax and turnover tax advance returns
• Preparation of tax returns; these include income, corporate, trade, sales, gift and inheritance tax returns.
• Preparation of financial statements; this includes the income statement (EÜR), opening balance sheet, annual financial statements, interim financial statements, liquidation balance sheet and explanatory reports
• … and special requests

For the sake of completeness, tax advisors naturally help not only in setting up or setting up the business, but also in winding it up, i.e. insolvency, should something go wrong.

Do I need to hire a tax advisor?

As a company and self-employed person, you are not obliged to hire a tax advisor.

However, if you do not have a sound education yourself or the risks are too great, for example because you are not a small business (with “only” 5,000, 7,000 or 10,000 turnover per year), then you should definitely rely on the support of a tax consultant. The higher the turnover, the greater the risk of making mistakes. After all, in your company you are not only responsible for yourself personally, but also for your employees. They rely on you, as well as on regular salary payments.

The perfect segue to your duties!

Even if you have hired a tax advisor, it is worthwhile to take over certain tasks yourself. Depending on how many tasks you take over in your company yourself (or through employees), you save costs with the tax advisor.

Whose work costs you more per hour: employees or accountants?

Some founders collect all receipts, then give them collected, but unsorted in the office. Already the first mistake, because so happens the assignment, to the individual account movements, by the tax adviser. With 100 receipts quickly a few extra hours, with all the queries.

Your tasks: Work with tax consultants = save money

Every hour that your tax consultant works for you, apart from the regular tasks, costs extra. If you send your documents (incoming invoices and outgoing invoices) unsorted, the tax advisor or an employee has to do virtually everything. Conversely: If you deliver everything sorted, allocated (document = account movement) and assigned, it minimizes the workload extremely.

If you write invoices in which, for example, your tax number is missing, your tax advisor has to point this out, you have to change everything, send it again. If you don’t collect your invoices sorted and chronologically, your tax advisor has to do the job, some receipts are unclear, again queries, time and costs. If you don’t use digital accounting yet, through tax software, receipts still have to be entered by hand. These are all factors that drive up the cost of your accountant.

So, in quick summary, what are your responsibilities when working with an accountant? Because:

Work with the tax consultant = save money

Very basically, there are 4 areas that you should work through cleanly.

Wages, registration, health insurance, etc.

Theoretically, the tax comes first, determined by the monthly accounting. But for us one thing is most important, your employees! Because only through good teamwork, you can achieve good results with your company. Therefore, for us first of all wages, health insurance and other liabilities that provide for a good and effective team.

PS: Good teamwork always means that you are a good motivator for your employees.

Central is the submission of wage data, always on the 15th of the month. In the middle of the month? Yes, exactly, because the payroll data must first be processed, often by external payroll offices, which in turn are commissioned by your tax advisor. This happens especially in smaller tax offices when the necessary personnel resources are not yet available.

This means that halfway through the month you send wages, fixed hours and probable hours to the tax advisor. If you have employees who do not have fixed monthly working hours, you must extrapolate the probable working time. These estimated times will then be offset against the actual working times (of the previous month) in the following month.

Caution, unaware cost trap! Health insurance

Health insurances are not part of the wages and especially company founders often only (!) calculate with the sum for wages and salaries instead of seeing the total costs that arise for employees.

Here’s a small example:

• Salary (transfer): 1.500 €
• Health insurance: 700 €
• Costs for payroll accounting: 15 €
• Central wage costs: € 2,225
• Unconscious costs: + 32,6 %.

The gap between the €1,500 calculated in the mind and the €2,225 actually paid is a whole €725, or +32.6 per cent. Therefore, always remember that the cost of wages and salaries ultimately includes not only the actual payment to the employee, but also the health insurance and payroll costs, which are additional for each individual employee.

This calculation error increases with each individual employee. So, for example, if you hire 5 employees directly at the start of the company through an investment or a loan and do not keep an eye on the costs for health insurance and payroll accounting, you will have a monthly deficit of 3,575 euros in the calculation example. If you have a loan of 50,000 euros or an investment, hire 5 employees, it has consequences quickly. After a period of 6 months, the sudden, supposed loss is already 21,450 euros. Finances are the number 1 reason for the failure of companies.

This is where another statistic comes right into play, 9 out of 10 businesses fail in the first 5 years. The most common reason is lack of funding and capitalization. Supposedly, because maybe it’s just the wrong calculation.

That’s why it’s always important: You have to take an interest in taxes and duties yourself.

Don’t leave the work (only) to your tax advisor!

Let’s recap wages, employees, and health insurance:

• Submission of wage data by the 15th of the month
• Submission of actual and estimated working times (depending on employee type)

Monthly taxes: sales tax, trade tax, etc.

From our long look at employees now to the point at hand, monthly taxes! As a business (except small business) you are obliged to charge VAT if the invoice recipient is in the country (business) and always if the customer is a private person.

The very most important thing for accounting and for accountants:

Each posting (transaction) gets an assignment (document)

Or in other words, for every receipt and withdrawal on your account, there is a receipt that provides proof of what the money was used for.

This monthly evaluation determines the amount of sales tax you have to pay to the tax office.

If your turnover is high enough, the tax office will ask you to pay business tax for the first time. The sales tax is a transitory item. The trade tax reduces your profit, the sales tax does not. Read more about the types of taxes in Germany here.

Once again summarized the most important tasks for you, in the preparation of accounting:

• Each posting a document
• Accounting almost 1 month together
• Submission no later than the 10th of the following month (tax office, previously to tax advisor)

Annual taxes: annual accounts

At the end of the year, depending on the legal form and company structure, financial statements are sent to the tax office.

If you do not file your tax return yourself, the annual accounts will be prepared in full by your tax adviser.

Your annual accounts provide information about the financial situation of your company. The annual financial statement is mandatory for all types of companies and is also sent to the Federal Gazette. In this way, company balance sheets can be viewed by the public. This facilitates credit checks for other companies and gives the tax office an insight into the current situation.

At the end of the year, there are various declarations that need to be filed, depending on the legal form(s) and company construct. For the self-employed, this includes the income tax return or, in general, the VAT return. As I said, all these aspects are taken care of by your tax advisor.

The annual accounts must be submitted by 31 July at the latest. Unless you are assisted by a tax advisor, then the submission can be extended to 28/29 February of the following year.

Now before we get to the 3 tips to find a good tax accountant, first the risks and dangers of hiring the wrong tax accountant.

Compare tax accountants: Risk when hiring

You want to find a good accountant! Because you want to avoid risks and dangers, after all, it will cost you money if you hire the wrong firm for your accounting. Ultimately, also a reason why startups fail. Cost of additional processing, advice and service and of course losses, for example if tax benefits are not taken (quote above). In the article on Lukinski, 3 specific risk factors are described that usually only become apparent after years of working together. The 3 risks first at a glance.

Assign risks to the tax advisor:

1. Intensive, regular cooperation; means commitment and time for tax consultant changes
2. Amount of monthly and additional costs; money missing for reinvestment
3. In the long term: lose money (pay too much tax, plus costs for tax advisor, lack of reinvestment) due to lack of qualitative / quantitative advice

Learn even more about 3 big risks in contracting here:

• Hiring a tax advisor: 3 mistakes

Find a tax advisor: 3 tips

In order to find a good tax advisor, there are in the article on Lukinski directly 3 practical tips with to the hand, for your search, for a good tax advisor in the proximity.

These 3 tips will help you find a tax accountant:

1. Don’t click on the ad in the search results (go directly to page 2)
2. Rating on online portals (more than 5 opinions)
3. Experiences and recommendations from successful entrepreneurs

Avoid advertisements in search results and portals

For one, never click on the ads, because these search results do not come from quality. The ads are here solely because money is paid for it. Money that is spent on advertising, of course, must be taken again. Already the costs for the tax adviser rise, because marketing is expensive. Maybe it is also not the best tax office, after all, customers still need to be recruited. Word of mouth is not enough to acquire new customers through recommendations, that is, through satisfied customers.

Ratings with quality and quantity

Tip number 2 deals with the evaluation in online portals. Here you should pay particular attention to the fact that there are a relatively large number of opinions. Buy reviews is quite simple. For as little as $19, there are real reviews in search engines and on social networks. Therefore, you should on the one hand compare the number of reviews with other offices, on the other hand read the opinions or even read through. A simple “very good” could possibly be bought.

Tax consultant experiences of other successful entrepreneurs

Tip number 3 is the safest way, you ask experienced and successful entrepreneurs in your area who can give you good recommendations. Another advantage, you have a door opener to the firm. Because good tax accountants don’t wait for new clients, they have enough inquiries through referrals.

Here again, briefly summarized, the 3 tips from practice to find a good tax advisor:

1. Don’t click on the ad in the search results (go directly to page 2)
2. Rating on online portals (more than 5 opinions)
3. Experiences and recommendations from successful entrepreneurs

Conclusion: Find and hire a tax consultant

That was our insight into the topic of finding and hiring a tax advisor. So remember, don’t leave the work (only) to your tax accountant! The more you understand and do, the less you pay for the tax advisor and the more money or profit you have left to reinvest.

You’ve learned a lot about working together, from monthly bookkeeping and wages, to your company’s financial statements. Also the 3 biggest risks and 3 tips so that you do not make mistakes when choosing a tax advisor.

You can find more on this topic in the source of the article on Luinski.de: Steuerberater.

Costs and billing

How much does a tax consultant cost per hour? How are the fees of the tax advisor calculated? How much should a tax accountant cost? And how much does a small business tax accountant cost? If you haven’t experienced tax accountants yet, here are official costs and rates for you, from the federal Chamber of Tax Advisors. Tip. Under the explanation of value fee you will find the cost table for 100.000, 200.000 and 500.000 Euro – that’s how much your tax advisor costs / earns!

• Tax consultant costs

Mistakes: 3 risks for your company

Hiring a tax accountant / mistakes – You want to find a good tax accountant! Because, you want to avoid risks and dangers, after all it will cost you cash if you hire the wrong firm for your accounting. Costs for additional processing, advice and service and of course losses, for example, if tax benefits are not taken (quote above). In the article on Lukinski, 3 specific risk factors are described that usually only become apparent after years of working together. The 3 risks first at a glance.

• Hiring a tax advisor: mistakes

Tax consultant in the vicinity

Nearby Tax Accountants – Find a good tax accountant near you? We have searched the internet for you for days to find the best recommendations for tax consultants in your area: Hamburg, Berlin, Cologne, Dusseldorf, Munich, Stuttgart & Co. for your private tax return or income tax return or more complex accounting for companies, from monthly financial accounting to annual financial statements. Including adresses, telephone numbers and website.

• Tax consultant in the vicinity

Hiring a tax advisor: 3 mistakes

In our great overview on the subject of tax advisors, the recommendations for many cities, for good tax advisors in the area, the tax advisor costs everything on the subject of starting a company and possible legal forms; taxes are so important for entrepreneurs that today we once again focus on the tax advisor choice. Because, especially the selection of the tax advisor is a central factor, for the success of your company. Before we look at the 3 mistakes in detail, here is an overview for you.

Assign risks to the tax advisor:

1. Intensive, regular cooperation; means commitment and time for tax consultant changes
2. Amount of monthly and additional costs; money missing for reinvestment
3. In the long term: lose money (pay too much tax, plus costs for tax advisor, lack of reinvestment) due to lack of qualitative / quantitative advice

Source: Lukinski.de, article tax consultant for enterprises

Let’s look at each of the commissioning risk factors.

Communication and bonding – risk number 1

First of all, a risk factor that is not directly related to the topic of “losing money” or “costs for the tax advisor”. It’s the regular, intensive relationship you have with your tax advisor. While most business relationships are relatively irregular, you’ll need to talk to your own tax advisor for many, recurring transactions in the. Whether it’s levies, consultations or queries.

If you don’t feel absolutely comfortable during the first meeting, or if you are not on the same wavelength, then you should refrain from working together. That is why it is so important to compare tax advisors, through recommendations from experienced entrepreneur friends or through initial discussions with different tax advisors. Also important so you have different quotes in front of you. How often you will communicate, you can already see by the weekly to annual meetings, even if only digitally.

Deadlines for submission of accounts, wages and annual financial statements

Regular communication includes, for example:

• Monthly submission of the accounts, by the 10th of the following month (deadline at the tax office)
• Wages and salaries, as of the 15th of the month
• …
• Financial statements

As an entrepreneurial person, you are in constant contact with the tax office. Therefore, you should also look for people with whom you, as described, are on the same wavelength. If it quickly comes to disagreements and disputes, the share of communication decreases and so you come to risk number 3: The lack of tax advice.

At the same time, you’re just as reluctant to make contact and won’t ask some questions you would have asked an accountant you trust.

So in addition to all the facts and figures, the personal level also plays a role.

Change of tax advisor: When mistakes add up

Already by the above points you have seen how in your company is connected with the tax adviser. Accordingly, a change is not possible overnight, it must be well prepared. You need to find a new firm that will take you on as a client. Especially good law firms check if they want to work with a client. The new tax advisor must then, as immediately start working for a smooth transition, for example, if you have a dispute with your old tax advisor.

So the commitment is relatively long-term, until you notice mistakes (we’ll get to that in a moment) and find time to change tax advisors in addition to the day-to-day business of your company. But don’t worry, if you find someone who accepts you as a client, the change is made relatively quickly, from the first conversation to the start is maybe 7 to 14 days.

Thanks to digital accounting, the change of tax advisor is possible within 24 hours if the mandate is accepted by a law firm.

Monthly, too high cost burden – risk number 2

Of course, tax consultants don’t work for free. When you look at the costs of a tax consultant, you also look at two values.

Cost factors: 1) Regular and 2) Additional services

Cost factor 1: Regular services – The basics, i.e. your bookkeeping and financial accounting, are usually calculated according to the value in use. Value in use means that the monthly amount of the costs is based on the amount of your turnover. The more turnover you make, the more you pay. The fees are calculated according to an official scale of fees. In addition, tax consultants have a small margin, up and down.

This means you pay a fixed value depending on how much revenue you make. Nevertheless, offers from different tax advisors can differ, as they have a percentage margin.

Cost factor 2: Additional services – In addition to your monthly basic costs, there are also additional services, for example consulting, but also the annual financial statement is charged extra. Here lies the risk factor, how much consulting is good, how much is bad for you and your company? There is no general answer to this question. Because, depending on how much previous commercial knowledge and also interest you bring yourself, ideally only 1 or 2 hours a month. Consultation means already inquiries here. Just about every minute is billed. If your tax advisor talks to you on the phone for 10 minutes, then an employee has to be informed (5 minutes), another 20 minutes of documents are procured, a decision is made and a call is made back – already 1 hour of additional effort has arisen, for one question. At 120 euros / hour, quickly a relevant topic for young companies.

So you have two cost factors and especially the additional services can quickly add up. If you use a lot of consulting, which many founders do, then every minute is charged. If you take an hourly rate of 120 Euros as a basis and only 1 additional hour per week, 4 hours of additional consulting (one appointment or distributed) will cost you 600 Euros. As a large limited liability company, this may not be a problem, but especially at the beginning, in the start-up phase, this is a lot of money.

Example calculation: Extra costs due to consulting

Here again in quick and simple summary, the calculation of the additional costs, by consulting service.

• Hourly rate tax consultant: 120 Euro
• Additional effort / week: 1 hour
• Monthly extra costs: + 600 Euro
• Annual extra costs: + 7.200 Euro

If a GmbH was founded with 25,000 Euro starting capital, an item of 28.8% of the equity capital, in addition to the costs for regular accounting.

Advice is important, but pay attention to dotted questions and be prepared, for example by doing your own research, this saves time

Dubious tax consultants? Too much advice

If you have a less reputable tax advisor and regularly 10, 12 or even 15 hours extra per month, which at first doesn’t sound like much, over the whole month, the risk quickly becomes a danger. This brings us to risk 3, the consequence: losing money due to too much overhead and taxes.

Losing money through bad / no advice – Risk 3

Through lack of communication (risk 1), too high fees for too much advice (risk 2) or even lack of knowledge, you lose money to reinvest and further tax benefits.

Too much paid money, tax benefits, you can no longer claim afterwards / partly costly, that’s why it is so important to have a good advisor at his side.

The tax advisor training is relatively simple, it is not a long, state training or a study, the training to the tax advisor makes one in a course, with subsequent examination. By and large, it is about the administration of taxes, not about the design of taxes.

Full-time training lasts (only) 2 months

No one learns the intricacies in the tax system in 2 months, it’s more about filing monthly and yearly correctly.

Many tax consultants also pass on their work to employees who then show little interest in the individual clients, for example because these employees are overloaded with tasks. Accordingly, the work is processed, that is, managed again, not designed. If you hire a tax advisor who does not attach much importance to communication, especially in terms of tax advice, you will quickly lose a lot of money, starting with tax allowances and ending with tax structuring for different legal forms.

Hiring a tax advisor: mistakes + 3 tips

Let’s summarize the four key risks again:

1. Intensive, regular cooperation; means commitment and time for tax consultant changes
2. Amount of monthly and additional costs; money missing for reinvestment
3. In the long term: lose money (pay too much tax, plus costs for tax advisor, lack of reinvestment) due to lack of qualitative / quantitative advice

Source: Lukinski.de, tax consultant for companies

This leads to the following question, how do you find a good tax accountant?

Find a tax advisor: 3 tips

Do I have to hire a tax consultant? What tasks does a tax consultant perform? How much does a tax consultant cost? Here you will find the answers to your questions and much more information on the subject of tax consultants in the area, finding tax consultants, costs, tasks, financial accounting, annual financial statements and taxes in general – but let’s start at the beginning.

• Find a tax advisor: 3 tips

Tax consultant in the vicinity

Nearby Tax Accountants – Find a good tax accountant near you? We have searched the internet for you for days to find the best recommendations for tax consultants in your area: Hamburg, Berlin, Cologne, Dusseldorf, Munich, Stuttgart & Co. for your private tax return or income tax return or more complex accounting for companies, from monthly financial accounting to annual financial statements. Including adresses, telephone numbers and website.

• Tax consultant in the vicinity

German taxes at a glance: Declaration and more

The German bureaucracy confronts many people with several questions, and the topic of taxes is no exception. We would like to bring you closer to the world of German taxes and introduce you to the common forms of taxation in Germany. Taxes are often an annoying matter, both as a private person and as a company, but if you can clear up and understand the confusion, you should no longer have a problem with taxes. But not for nothing there is the tax advisor in case of need, who can help, but may be very expensive. We owe our know-how to the experts at Lukinski, among others.

Source: Lukinski – Taxes in Germany

Income tax (ESt): tax for natural persons

Income tax – ESt for short – is usually levied on the income of natural persons, according to their ability to pay. The income is understood as the sum of all earned income within the meaning of the Income Tax Act (EStG) minus the sum of all deductions relevant under tax law (such as any allowances). Taxable individuals are divided into self-employed persons, who generally have to pay their income tax themselves, and employees, whose income tax is withheld by their employer in the form of wage tax and paid to the tax office on their behalf.

As a joint tax, this tax revenue is divided between the federal, state and local governments. The municipalities receive the rate applicable under federal law – currently 15 percent of wage tax and assessed income tax – while the remainder goes to the federal government and the states in equal shares. As a rule, all natural persons are liable to income tax and must pay tax on their income from self-employed and non-self-employed activities.

How much is the income tax?

Income tax cannot be calculated as a lump sum. Depending on how high the individual annual income is, a different percentage of income tax is due. From an annual income of approx. € 9,400, the initial tax rate is “only” 14%. The top tax rate is around 42% from an annual income of around €57,000 (as of 2020) – but only for single people.

For people who are married, however, the rules are different. For married people, for example, the initial tax rate is 14% with a taxable income of up to approx. 18,800€.

Between 14 and 42 %, depending on income level

Payroll Tax (LSt):

Since wage tax is not a separate type of tax, but only a special form of levying income tax (§ 38 EStG) on income from employment, the Income Tax Act (EStG) is the legal basis for wage tax.

The taxable income forms the assessment basis for income tax. The tax liability is determined by the income tax scale (§ 32a EStG). This tariff assigns a tax amount to each level of taxable income. Thus, the tax scale is the core of the Income Tax Act.

To facilitate the deduction of income tax, 6 income tax classes have been created in which the different rates are incorporated. Wage tax is paid by your employer and deducted from your wages every month.

Trade tax (GewSt): For commercial enterprises

As a rule, trade tax is levied on the income of every German commercial enterprise and is thus based on the objective earning power of the respective company. Since limited liability companies, stock corporations and the like are always regarded as commercial enterprises by virtue of their legal form, trade tax is mandatory for corporations – regardless of the composition of the founding team.

As an object or property tax, trade tax is by its nature one of the real taxes. Effectively, it belongs to the municipal taxes and contributes significantly to their financial system. The municipalities are entitled to levy the tax and determine the tax rate applicable for a given year by resolution.

How much is the trade tax? – Formula & Calculation

The individual trade tax for your company is determined with the help of the tax rate, which is currently 3.5 percent (as of 2020). This means that you have to pay 3.5 percent of your trade income to the tax office. The trade income is made up of your profit minus the legally given tax-free amount (currently €24,500). This trade income multiplied by the statutory measurement figure results in the sum that you have to pay to the tax office as trade tax.

Formula for calculating: Trade income (profit minus tax-free amount) x statutory measurement figure (currently 3.5%)

Important dates: Prepayment

Trade tax is payable quarterly on 15 February, 15 May, 15 August and 15 November in equal instalments as an advance payment. These taxes are no longer deductible as a business expense beginning with the 2008 tax period, but may be credited as a lump sum against income tax payable. Dates for advance payment of business tax:

• February 15
• May 15
• August 15
• November 15

Value added tax (VAT): Tax for delivery & service

Sales tax is usually levied on all sales that a company generates in the domestic market for sales tax purposes. This includes all supplies of goods and services, as well as occasional ancillary transactions, which the company provides for consideration as part of its business activities. VAT amounts that a company has paid for supplies and services it has received and that can be substantiated can be claimed as input tax deductions and thus reduce the company’s VAT burden.

Sales tax = value added tax

From an economic point of view, the own turnover tax thus represents a general consumption tax, but in Germany it ultimately functions as a transfer tax and is ultimately charged to the end consumer. Because it is passed on, sales tax is typically classified as an indirect tax. Currently, the standard German VAT rate is 19 percent – 7 percent on reduced goods – and is one of the main sources of revenue for financing the federal budget.

Important dates: Prepayment

• On the 10th of the following month (submission to the tax office)

How much is the sales tax?

The value added tax in Germany is a community tax. The standard tax rate in Germany is currently (as of 2021) 19 percent. For certain transactions, however, there is also a tax exemption or a reduced tax rate of currently 7 percent.

Value added tax Germany (normal tax rate): 19%.

Real estate transfer tax (GrESt): Purchase of property or land

Whenever a property or share of a property is purchased, land transfer tax is incurred in Germany. The tax is levied on the basis of the Land Transfer Tax Act (GrEStG). The amount of the land transfer tax is determined by the federal states. It is therefore a state tax. The respective federal state can therefore decide for itself whether to pass on the tax levied to its municipalities.

After you have bought your property, the purchase still has to be notarised. The purchase contract states who has to pay the real estate transfer tax: Buyer or Seller. Without this additional agreement, it is the case that according to the law (§13 No. 2 GrEStG), the previous owner and the purchaser are initially liable for the tax, i.e. both together, buyer and seller.

After notarisation, the notary sends the signed purchase contract to the responsible tax office, which then writes to the party to be charged with the real estate transfer tax notice. The tax is due one month after notification of the tax assessment. However, the tax office may set a longer payment deadline if necessary (see Real Estate Transfer Tax Act (GrEStG) §15 Due date of the tax).

How much is the land transfer tax?

The real estate transfer tax is determined by the individual states and is therefore not uniform. Currently (as of 09/2020), the real estate transfer tax is between 3.5 and 6.5 %. In Saxony, for example, the real estate transfer tax is 3.5%, whereas in North Rhine-Westphalia it is 6.5%.

Between 3.5 % and 6.5 %, depending on the federal state

Corporation tax (KSt): For legal entities

Corporate income tax is usually levied on the income or profit of legal entities domiciled in Germany and is thus complementary to income tax (ESt), which is usually levied on individuals. Taxable persons typically include corporations, associations, cooperatives and foundations. A limitation of corporate income tax comes into play, for example, if the management and headquarters of the legal entity are located abroad. Political entities, federal companies, state banks and social security funds, professional associations and some others are fully exempt from the obligation to pay corporate income tax.

As a corporate tax, corporate income tax counts as a community tax and is levied by both the federal government and the states. The amount of the levy is based on the taxable income, which is the result of the profit less special expenses and extraordinary burdens, and is currently 15 percent plus the solidarity surcharge (SolZ), resulting in an overall burden of 15.825 percent. Corporate income tax is payable quarterly on March 10, June 10, September 10 and December 10 in equal instalments as an advance payment and is offset against the actual tax liability at the end of each financial year.

Important dates: Prepayment

Dates for advance payment of corporate income tax:

• March 10
• June 10
• September 10
• December 10

How much is the corporate income tax?

Corporate income tax is a business tax for legal entities and is currently 15%, in some cases plus a solidarity surcharge, resulting in a total of 15.825%.

Corporate income tax: 15

Capital gains tax (KapESt): Tax on profit distribution

Tax law provides that (in addition to the income tax of any natural person with shareholder status) capital gains tax is levied on all natural persons resident in Germany who benefit from a distribution of profits. As a result, the recipient – but not the corporation – is burdened. The capital gains tax burdens both the profit income of shareholders of a GmbH and the distribution of dividends to shareholders of a stock corporation.

For the sake of simplicity, 25 percent of the dividend is withheld directly by the AG for share holders, similar to the way regular employers withhold wage tax (LSt) for their taxable employees. Capital gains tax – abbreviated to KESt, KapESt, KapErtSt or KapSt – is a special form of income tax levied here: Once the tax burden has been withheld, the income tax is deemed to have been paid and the income does not have to be declared in more detail – at least insofar as no other type of income applies or the special tax rate applies.

If, on the other hand, the registered office of a shareholder is abroad, the so-called withholding tax comes into effect and the provisions of the double taxation agreement (DTA) of the respective country must be taken into account. The final withholding tax is also levied on shares held as private assets within Germany.

How much is the capital gains tax?

The capital gains tax is also known as the final withholding tax and is levied on generated investment income. Since 2009, this has been levied at a uniform tax rate of 25%. If applicable, church tax is also levied.

Capital gains tax: 25

Source: Lukinski – Taxes in Germany

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Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.

Capital investment real estate – You should note this

FIV: Investing money is complex. Especially when it comes to real estate. Condominium, single-family house, land or an entire apartment building. How would you describe your approach to investments in a few sentences for our readers? What do I need to know if I want to invest money in real estate?

Right from the start I work according to the motto “only those who know their goal can achieve it”! Sounds banal, and actually it is. I must have a clear idea of what I want to achieve when it comes to investment – as I do in life. Once I’ve defined the goal, it’s about the strategy to achieve it.

FIV: Okay! I’d like to be a millionaire. It’s a clear target, isn’t it? With which system can I achieve this in the best and safest way?

Since my business is real estate, I can ultimately only speak for this area. But this much is certain: when it comes to long-term prospects for capital accumulation, these can be very well and reliably planned with real estate. Company investments – whether as funds or investments in a single company – are subject to strong fluctuations in their performance. Although these can also be offset over a longer investment period, there is still a higher residual risk than with real estate. In addition, there is another very important aspect with real estate: Under certain circumstances, I can achieve a significantly higher return with my existing equity capital than with any other investment. This is due to the so-called lever effect. This always occurs when I do not use the purchased property myself – i.e. rent it out. The rent is my income with this form of investment. If I compare this return exclusively to my invested equity capital, then yields in the solid double-digit range are generated.

Should you take risks?

FIV: But these are tricks, aren’t they? I have to borrow money from the bank to buy a property. That also costs money in the form of interest and redemption.

I don’t MUST borrow money, but I should do it. And this has nothing to do with the interest rates, which are still favourable at present.
Assuming I had enough equity to finance the property I wanted without a loan. Then I save the interest and repayment, but have a much worse return, because I use a lot of money to earn the rent. If, on the other hand, I borrow the money from the bank, then I only have to deduct the interest from the rental income – if I am serious about it. The repayment of the credit is my over the repayment years stretched additional own capital funds, which I put into the “piggy bank” real estate. Strictly speaking, it does not depend on the return on equity. On the contrary, if I have made the right choice when choosing a flat or apartment building, the flat will continue to gain in value in the coming years. If the speculation period of ten years and best also the financing period has expired, I can sell the apartment again and collect the increase in value as an additional return on my redemption capital.

What do I have to consider?

FIV: Sounds very simple. But what’s the catch?

Only in two places you have to be careful! I had already mentioned one place with the right location of the property. If you want to invest your money in a rented apartment, you have to pay attention to the location. Even if it should not be the top location at the time of purchase, there must be a noticeable improvement in sight within the planned investment period – i.e. as long as one wants to keep the apartment. Otherwise, the increase in value won’t work.

On the other hand, this leverage effect only works if the financing interest for my borrowed capital is not higher than the total return on capital of the property. With the current interest situation, however, this is not an issue for the purchase of a decent apartment today.

I recommend here to simply visit one or the other bank. There you usually get clear statements as to which financing framework the bank is prepared to cover. Conversely, I then know how much own money I need as an investment or in which league I can afford an investment object.

FIV: What’s better then? To buy an apartment or a house for yourself, or rather to rent it out?

When it comes purely to capital investment and returns, a property for rent is the better choice. If I want to occupy the capital investment for “today” and the property itself for the future, then I should make sure when choosing the property that the furnishings and location of the property meet my own living requirements.

FIV: How do you then confidently walk the capital market, especially if the future always remains uncertain? Are there any concrete recommendations from you as an expert for our readers?

Of course I will only be able and willing to talk about the real estate market. Anyone who has invested in the real estate business for a long time already knows how to present themselves in this market segment. But everyone else can learn that well! For beginners in the investment business, I recommend starting small. A small two-room apartment in a city or region whose population has grown steadily in recent years is a good place to start investing safely in real estate. The certainty as to whether there will also be a move in for the following years or decades and thus a need for living space can be obtained from the respective municipal administrations, for example. Often the homepage of the city or region already has some information about the urban development.

Catch up with expert advice

With regard to the property itself, the overall state of construction and equipment is of course important. In case of doubt one can consult an architect, a friendly craftsman or other people with appropriate real estate expertise. What renovations have been made? What’s on the agenda? What is the overall ownership structure of the house like? How high is the fluctuation among the tenants of the other apartments? Is there any information about the apartment I’m about to buy? Of course, this is only possible with existing properties. In the case of new buildings, one takes a look at the houses that the developer has already built elsewhere and, if necessary, talks to the residents who have already bought from this developer.

The “right” purchase price still remains…. The Bank is in demand here, as I explained earlier with regard to the leverage effect. Be sure to have several banks calculate for you how rental income, running costs (reserves, etc.) will relate to the loan conditions and the equity capital for you. In plain language: You will also receive different offers from different banks. This may be worth it for you.

FIV: And now the question of how self-confident should I appear in the conversation:

Self-confidence doesn’t mean I’m performing with the proverbial big arms. On the contrary: the real estate seller and the banker will quickly notice how experienced you are in matters of capital investment. It’s better to be a beginner! After all, bankers are now also strongly liable if they give the wrong advice.

Is the investment worth it?

FIV: We currently hear a lot about real estate returns of 4.5 percent, sometimes 6 percent. In the context of the current development of interest rates on savings balances, this sounds like a sensible investment. Would you agree with me? How much do real estate currently pay off as a capital investment?

These yield data are really serious and covered by my experiences. As far as the pure return on equity is concerned, it often even looks much better, as we have heard above. I can only repeat here that real estate is a good and safe investment in terms of yield as a capital investment – the so-called “concrete gold”. Prerequisite: the location of the property is such that it generates continuous rental income at the normal market level. If longer periods of loss of rent are to be feared, for example because the residential area or the house has a high tenant fluctuation, then the investment does not pay off.

Various types of real estate – Investment opportunities

FIV: Which type of property would therefore pay off for me? Better the small single apartment, the large condominium for families or better a detached house?

If you are a beginner in the real estate business, then start with the small single apartment. The single-family house is rather a problematic thing as a capital investment for letting. If you are then times correctly in it and also have the necessary capital, it is with real estates like with shares: the mixture macht´s! Single-apartments in corresponding regions (e.g. student cities) combined with large housing units makes sense. In concrete terms, houses with apartments between 50 sqm and 110 sqm are ideal, as apartments over 110 sqm are usually more difficult to let.

FIV: Many questions, when is it worth investing? 10,000 euros, 20,000 euros. Are the investment opportunities just discussed suitable only after a certain financial framework or are there perhaps also new alternatives and possibilities, for example in the form of regular instalments?

Here, too, we would like to point out once again that good real estate can be financed even with small investment amounts. The prerequisite is that the bank also recognises that the property is a secure investment. Condition of construction, location, amount of rent, etc. – all this must be right so that you get the credit for the purchase price demanded. Ultimately, the annual net cold rent is the proverbial crux of the matter. Of course, everything also depends on my having a regular income.

FIV: For all those who are thinking about selling or buying. Which region and location do you consider to have the greatest potential in Germany?

Oh, dear… There are so many regions. I myself live in the Rhine-Main area. This is in any case a good region to buy. And I’m not just talking about the big cities of Frankfurt, Wiesbaden and Mainz. The small towns in this region are also doing well in real estate. Hamburg, the Bonn-Cologne-Düsseldorf line, the Munich area, Berlin and Stuttgart are further examples.

Investments in nursing homes or homes for the elderly

FIV: Finally, the question: What do you think of investments in old people’s homes or nursing homes?

Very little! – is my short answer. This is related to the very high risk that this form of housing has as an investment. We’re talking about so-called social real estate here. In view of the aging population and the resulting increase in demand for senior citizens’ and nursing homes, it is suggested that this is a safe investment. However, these properties as management properties – like hotels, for example – have a serious disadvantage: if the operating company works poorly, such a property quickly becomes a bottomless pit. In the meantime, there are numerous examples of nursing homes that were either not used to capacity or lacked the necessary investments to guarantee a high standard of care. Then again the residents are absent, which in turn leads to a lack of investment by the operators. A vicious circle! Not only is there no rental income, you usually also have to inject a lot of capital in order to get the house in shape or to keep it that way.

Private customers are already being taken advantage of when it comes to the purchase prices of nursing home properties! Usually nursing homes are acquired by so-called institutional buyers. Like a hospital company or something. However, they are only prepared to invest a maximum of 14 times the expected net annual rents. This is why the developers of these facilities have in the past switched to approaching private customers – with the corresponding return promises. Often 20 times the net annual rent is charged as the purchase price, because it is supposed to be a great and safe investment. I’m not saying “hands off”, but it takes a lot of experience and advice to get into this business.

Thank you very much for the interview!

Interview with real estate expert Jan Rickel from IHV – Die Immobilien Makler.

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