Equity: Use for own benefit and capital investment

To finance a property, the bank requires a certain amount of collateral. The better your credit rating, the less equity you have to put up. When buying the first property, two basic rules apply for personal use and capital investment.

• Self-interest = As much equity as possible
• Capital investment = As little equity as possible

The equity subtracted from the total investment sum results in the loan sum required from the bank. This loan is paid back by a monthly repayment, including interest.

What is important in the repayment?

• Capital investors: Interest can be deducted for tax purposes
• Owner-occupier: interest cannot be deducted for tax purposes
• Repayment: Repayment + interest for loan amount

Owner-occupiers: High equity

With this type of real estate purchase, the interest on the financing cannot be deducted from taxes. To keep the interest as low as possible in the end, it is worthwhile to bring in as much equity as possible. So the bank has a lower risk with your financing and the lower the interest is calculated.

• More equity, the better the conditions
• At least 20% equity for owner-occupiers

Cost per month for own use

In general, for financing a property, the cost of the loan should not exceed 40% of disposable income. In addition, one should keep in mind that the costs and interest rates can change. Just as quickly as the interest rate can change the cost of managing the property, such as water, electricity and gas.

• Self-interest < 40% of income (net, after tax)
• Interest and management costs may change

Capital investment: Lower equity

If you buy a property as an investment, you can fully deduct the interest on the financing from your taxes. If the rental yield is sufficient, even the tenant pays off almost completely on his own. However, surpluses generated from the return must be taxed, which is a major disadvantage.

• Interest is deductible
• Tenant pays interest through sufficient return on investment
• Less than 10 – 15% equity for capital investment

Rolling equity

Simply explained, rolling equity means that you get your investment of equity paid out as soon as the repayment at the bank is paid off. So in short, how do you get your invested equity out of a real estate investment as quickly as possible? To achieve this, there are two ways.

Two options:

• Restricted equity
• Full financing

Restricted equity

With this equity investment option, the equity is tied up until the property is sold, which means that you cannot access the equity during this time.

Sample calculation:

• Investment costs (purchase price plus ancillary costs): 250,000
• Equity after bank (15%): 37,500
  _____________________
• Loan amount: 212,500
• 32,500 euros committed as equity

Full financing

In this case, it is agreed with the bank that the purchase price including ancillary costs will be financed in full. The equity capital is invested in an extra account or securities account as collateral, which is released as soon as the repayment of the loan reaches the level of the equity capital.

Sample calculation:

• Investment costs (purchase price plus ancillary costs): 250,000
  _____________________
• Loan amount: 250.000

Additionally:

• Assigned collateral (account or deposit): 37,500

The next step: commercial examination

You have determined your maximum purchase price and are now faced with the commercial check, so that the previously determined and determined budget is adhered to. This audit is particularly important for the purchase of the first property such as apartment or house, that thus unnecessary costs and mistakes in the purchase of real estate are avoided. This audit includes not only the cost, but also the inspection and defects by year of construction and maintenance of a building. Read everything about the purchase audit here!

Self-disclosure for the bank

Before determining the required equity capital, you should provide the bank with a self-disclosure about your financial situation. You can find out what this means here!

You want to buy your first apartment or house and the bank wants a self-disclosure from you? Learn here what a self-disclosure is, what it says and download a free PDF template that you can use to convince your bank!

• Self-disclosure

Buying real estate: What can I afford?

In order to buy a property of a certain value, it is usually necessary to take out a loan from the bank in addition to the equity capital. The bank determines the amount of credit it will pay out to certain people, which in turn is tied to factors.

Factors to narrow down the amount available:

• Credit rating & self-disclosure
• Mortgage lending value of the property
• Equity in relation to credit rating
• Monthly load

Step 1: Creditworthiness and self-disclosure

In order to finance a property, your creditworthiness should be established for the first time at the bank with the help of a structured self-disclosure.

Self-disclosure: decision support of the bank

The self-disclosure is an overview of your financial situation. It gives the bank an insight into your current financial situation and is therefore an important basis for decision-making. The amount of the loan and the conditions of the financing depend on it.

Creditworthiness: The company’s own assets

Creditworthiness must first be checked by the bank. For this purpose, assets and liabilities are compared. Important: The asset balance must always be positive! If this is the case, one is creditworthy. If this is not the case, it means that the lower the creditworthiness, the more equity capital must be raised.

Creditworthiness therefore means:

• The higher the credit rating, the lower the equity ratio
• The lower the credit rating, the higher the equity ratio

Step 2: The mortgage lending value of the property

There is a market value (market price) and a mortgage lending value (market value less 20%).

Market value

The market value describes the expected achievable sales price of a property, under the current market conditions.

Collateral value

The mortgage lending value is usually about 20% below the assessed market value. Banks value real estate deposited as collateral (financing) lower than the market price. Simply put, this is the amount the bank would get in any case in the event of a sale or even a forced auction.

Step 3: Equity in relation to credit rating

In principle, 20% equity is required when financing a property. The fact that creditworthiness and credit standing play an important role was made known in step 1. However, the 20% does not always apply, because the amount of equity primarily depends on the creditworthiness and the determined mortgage lending value.

• Standard is 20% equity
• Credit rating: reduces equity
• Purchase price: reduces equity (if below market price)

Step 4: Monthly charge

Here the bank is interested in your monthly income and expenses. The available income is crucial for the repayment of interest and principal. If this is too low and the expenses too high, this can lead to a poorer credit rating.

• Monthly income and expenses
• Decisive for repayment of interest and principal

Conclusion: How much real estate is it in the end?

As an employee with regular income and a well-structured self-disclosure, it should be no problem to come to an equity ratio of 10%. The amount of the purchase price then results from the following calculation:

• Equity x 10 = Purchase price of the property

Here you can find out even more about the maximum purchase price of a property/ Immobilien-Erfahrung.de

8 mistakes when buying real estate: location, owner-occupancy &resale value

Mistakes always like to creep into the purchase process of a property. Whether it’s a bad location of the property, reasons against self-interest or a purchase out of emotion – mistakes cost you a lot of money. In order to avoid this, we have put together a guide for you, with which you are guaranteed never to make a mistake again when buying your next property.

• Mistakes when buying real estate

The next step: rental yield and purchase price factor

How do I find good yield real estate? This question is mainly asked by capital investors, as they are mainly looking for positive and fastest possible cash flow. With a sufficient return, you are lucky that the tenant pays off the property you buy. Here you’ll learn all about how to earn the best rental return.

Self-disclosure for the bank: buy house & apartment

You want to buy your first apartment or house and the bank wants a self-disclosure from you? Learn here what a self-disclosure is, what it says and download a free PDF template that you can use to convince your bank!

• Self-disclosure

Self-disclosure for banks: Real Estate Financing

Whether Deutsche Bank, Volksbank or Sparkasse, banks need collateral for real estate financing. The more collateral you can offer, the less risk there is for the bank. So that bankers can assess your financial situation, there is the self-disclosure.

A self-disclosure has no fixed form. That means you will find different templates online.

Source: Real Estate Experience.com

What is the self-disclosure?

Self-disclosure lists your personal data, your monthly income and expenses, as well as your assets and debts. Your net worth (income and assets against expenses and liabilities) should be positive. This surplus is your financial leeway for the condominium or your new house.

In our article Buying an apartment, we have already explained the entire process of buying an apartment. Today we want to look again specifically at what must be in a self-disclosure. Because, importantly, once you submit the documents to your bank, everything should be accurate and complete.

Now let’s look at self-disclosure in detail.

What does the self-disclosure say?

• Summary of the financing request in short form
• Personal data of you as applicant, if necessary also of the co-applicant (e.g. your partner)
• Monthly balance sheet: income and expenditure
• Balance sheet: assets and liabilities (liabilities)
• Financing requirements in detail (property, financing structure, loan amount)
• Consent Schufa information
• Consent Data protection

Free Download: PDF and Word Template

Self-disclosure as PDF and Word template:

• Self Disclosure PDF Template
• Self Disclosure Word Template

Self-disclosure: simply explained

How does the self-disclosure, simply explained? Here are the answers!

Summary of the financing request in short form

Step number one is a brief summary of your financing requirements. In the self-disclosure form, you provide the following information:

Personal data of you as applicant, if necessary also with applicant (e.g. your partner)

After the short overview in the first step, the second step is the specification of personal data. Very basic information, name, address, date of birth, marital status, etc. Either by yourself as the applicant or together with a second person, e.g. a partner or a family member, the so-called co-applicant.

Monthly balance sheet: income and expenditure

Step number 3 deals with your monthly income and your monthly expenses. When you compare your monthly income and expenses, there should be a surplus. Or simply put, you earn more than you spend.

This surplus is the margin for your real estate financing, or the later monthly repayment.

This monthly overview is supplemented by your assets.

Income includes:

• Wage / salary (net)
• Recurring monthly variable income
• Income from self-employment
• Pensions and annuities
• Rental income (cold)
• Child benefit
• Maintenance
• Other income

Your expenses include:

• Housing costs; rent or loan and question: Will be eliminated in the future yes / no?
• Health insurance
• Other insurance (pension, building society, life insurance, etc.)
• Cost of living
• Loans
• Leasing
• Liabilities
• Child support obligations
• Other expenditure

Balance sheet: assets and liabilities (liabilities)

In the fourth step you compare your assets and your debts. Your assets include any simple savings account, but also securities and real estate, if you already own any.

Your credits include:

• Bank and savings accounts
• Securities (market value)
• Insurance policies (surrender value)
• Real estate assets
• Building savings balance
• Other assets

Your liabilities (debts) include:

• Bank, instalment and leasing loans
• Guarantees
• Other liabilities

Financing requirements in detail (property, financing structure, loan amount)

Step number 5 in the self-disclosure is a detailed description of your financing requirements. In detail, it is about the property that is to be financed, the financing structure and the amount of the loan.

Read more about it here (external):

• Self-disclosure: Financing

Consent Schufa information

In step number six, you give your consent for Schufa to obtain information about you. If you haven’t heard of Schufa yet, here’s a brief explanation!

What is Schufa? Schufa is a big card, so to speak, that collects information about consumers. This includes personal data, current loans, leasing contracts, as well as the general payment morale and creditworthiness of individual consumers.

Contractual partners can access the databases at any time and thus carry out rapid creditworthiness checks.

So when banks obtain a Schufa report, this is a completely normal process. That’s why you already give your consent in the self-disclosure.

Tip. Once a year you get this self-disclosure free of charge:

• Schufa (external)

Proof of income

In the last step of the self-disclosure, you collect evidence of your income. If you are an employee, you need to provide proof of income, if you are self-employed, you need to provide your tax returns.

Documents for employees:

• Last 3 pay slips
• Wage statement from December, previous year
• Last tax assessment
• If real estate assets, also income tax return
• Copy of identity card
• Schufa self-disclosure

Documents for the self-employed:

• Last 3 tax assessment notices
• Last 3 tax returns / balance sheets
• Ongoing BWA (business management analysis)
• Copy of identity card
• Schufa self-disclosure

Done! Self-disclosure ready for the bank

That’s it. With that you have your self-disclosure for the bank, with your financing request, complete.

Here again the free download of the templates

• Self Disclosure PDF Template
• Self Disclosure Word Template

Buying your first apartment: Here’s how

Buying your own apartment – As soon as you move into your first own apartment, for most people it’s rent, rent, rent. Every month you go to work many hours to spend the largest part ultimately for the next rent due at the beginning of the month. It’s no wonder that many young people are considering buying a condominium as soon as possible.

• Buy first apartment

Tips for landlords: This is what you should know in advance!

How do you avoid vacancies, rent arrears and non-payers? What should be in a lease agreement and which service charges can you pass on to the tenant? You can find out all this and more here in our guide!

Finding the right property: Location, location, location

So if you are planning to rent out a property, the location of your property is crucial. Especially for yield properties you should look for very good B- and C-locations. In other words: Invest primarily in properties in popular major cities with good infrastructure and positive development. Properties in the suburbs, a little outside the hustle and bustle of the big cities, are also very suitable as yield properties. Living space here is often a bit cheaper than in the city and the workplace can still be reached quickly via the highway. So you can count on high demand here.

Tip: Make sure your property is in a good location to avoid vacancies

Find solvent tenants: Credit check & income certificate

To avoid future problems and stress, you must also check all prospective tenants in advance. If you select your tenants only by gut feeling and sympathy, it can come later finally so to a bad awakening – always late rent payments, in the worst case even Mietnormaden! This is why a credit check of prospective tenants is so important. Also income certificates or the Schufa self-disclosure should be obtained in advance.

So you should get these documents from the prospective tenants in advance:

• Schufa self-disclosure
• Creditworthiness check
• Income statements

Calculate ancillary costs before drawing up the rental agreement

The viewing was successful and the right tenant has been found? Great! Then all that remains is to draw up and sign the rental agreement. A typical beginner’s mistake is to underestimate the additional costs. Our tip: Think about your future service charge bill before you draw up the lease. What ancillary costs are and what they are not is defined in the Betriebskostenordnung (§ 2 BetrKV). Among other things, the following costs can be passed on to the tenant:

• Property tax
• Wastewater fee
• Elevator
• Garbage collection
• Chimney sweep
• Lighting costs

Thinking about making some repairs to your house at the end of the year? This is also part of the apportionable service charges:

Draw up a rental agreement: Individual agreements

Theoretically, verbally agreed contracts are also legally valid. However, a written rental agreement should never be waived. You can find plenty of templates for this on the Internet. Note, however, that these are only standard contracts. Individual details must be added separately. You should also pay attention to permissible formulations. Otherwise, the contract may later be deemed inadmissible and invalid. To be on the safe side, have the rental agreement checked by an expert – such as a lawyer – after it has been drawn up.

The following items (as required) should definitely be in the lease:

• Service charge settlement
• Animal husbandry
• Sublease
• Time limit of the contract
• Cleaning duties
• Cost absorption for minor repairs

Apartment handover: handover protocol

The rental contract is signed and the handover of the apartment can take place? To avoid any misunderstanding, a handover protocol should be prepared. Here the number of house or apartment keys are noted, as well as meter readings, condition of the property & Co. Also about the house rules and rent deposit can be discussed at the apartment handover.

Reduce tax burden: tax allowance & tax-reducing factors

Rental income must also be taxed, unless the rental income is below the annual tax allowance. The net cold rent is taken as the basis for this. While ancillary costs are not taken into account, the following factors can certainly have a tax-reducing effect on the tax burden:

• Interest charge of the real estate loan
• Loss of rental income insurance
• Repairs
• Advertising costs

Conclusion: This is how you rent out your property! – Checklist

So with our tips, you’ll be well prepared for renting out your property. Here again a short summary:

1. Find the right property: Invest in properties in B and C locations to avoid vacancies
2. Find solvent tenants: Check the creditworthiness of prospective tenants, for example, by means of a self-disclosure and income statements.
3. Include utility costs before drafting the lease: Think about future operating costs and set up in the lease on
4. Draw up a rental agreement: Record individual agreements & have them checked by a lawyer
5. Apartment handover: prepare handover protocol to prevent misunderstandings
6. Reduce tax burden: deduct repairs, advertising costs, etc. from taxes