Everyone looking for properties in the Berlin property market will sooner or later come across information about property auctions, private voluntary property auctions or forced court auctions / foreclosures. I will focus on the latter because this is where the real opportunities lie. There are various lists available and some agents are instructed by the banks involved to find sufficient bidders for the auction. This article will provide a step by step check list to pilot an investor through the thicket.
Every foreclosure requires an independent valuation with a description of the technical state and a tenant list and information on the deeds register. This will naturally be in German. Another issue is the fact that by the time the auction date is set this valuation will be easily one year. During this time property is under forced administration with hardly any money spent on the smallest of repairs. Further information gathering and updating is required and obviously a viewing of the property.
As a private investor or a property fund manager you are hardly in the situation to achieve all these tasks without travel and a considerable commitment of time. This will easily lead to discarding of what could be a lucrative investment.
The service required will have to cover these 5 steps to avoid and manage risk:
- Review of the valuation and documentation and English summary of the information contained, highlighting of risks and restrictions.
- Viewing of the property with photo documentation, highlighting any possible deterioration compared to the valuation.
- Clarify the development of the rental situation since the valuation.
- Discuss any opportunities for pre-auction purchase with the foreclosing bank.
- Produce a “Business Plan” to calculate the maximum bid. This item is especially important for the investor to protect him from himself in the heat of the bidding process. I have seen many cases where bidders walked away spending 10 % more than they intended with detrimental result for the yield.
These are five key items other may evolve in the process.
To cover these items you need local knowledge, bits of time here and there. Unfortunately it will be almost impossible to co-ordinate all these items to be taken care of in a short visit so local support is inevitable for a foreign investor. Some of the work will be offered by the agents who in the case of a foreclosure are paid by the bank --- only if sold though. The motivation is clear so independent advice is highly recommended.
Uwe Falkenberg, the author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor.
He offers a "Property Health Check" and problem solving for non or not as good performing properties as promised at the outset. This includes "forensic" review of the information provided at the purchase and review of the performance of the property management - all in English!
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