Investment Property Schillerstrasse Erfurt

Berlin

A great opportunity was offered to us through our lawyer to buy the “turnkey operation” in Schillerstrasse.

We had been looking for a building in the city for some time as we were finding it difficult to source sensible deals in Berlin as the yields had compressed as prices have risen. Erfurt was mentioned as a likely investment proposition by our lawyers, bankers and surveyors. It seemed that all of these people were buying properties for their own account in the city. Erfurt is the capital of the state of Thuringia in the old DDR (Democratic Deutschland Republic) and is an important rail nexus. The city has benefitted greatly from the federal government’s decision to revitalise the cities in the old East Germany and the population is expanding after some years of contraction thanks to the plethora of good jobs and opportunities that have arisen from this political initiative.

Executive Summary

What is it: 9 x 2 bedroom apartments
What it cost: €2,200,000
What we spent on it: €2,200,000
What it's worth: Current value estimated around £2.8 million based on a yield of 3.5% of projected income
Rental income: €9-11 per square metre depending on which apartment (around £88,000-£100,000 a year)
Profit: No plans to sell currently

What we did

The building, which was derelict when we first saw it, is a handsome,  late 19th/ early 20thcentury property in a prominent position in Erfurt very close to the Old Town and the main railway station.

Through the lawyer we met the vendor, a builder and his agent, and agreed a price of €2,200,000 and a detailed schedule of works that were to be carried out by the vendors. The building would convert into 9 flats on four floors. We were impressed with the proportions of the rooms and saw immediately that the building would convert into very good 2 bedroom flats. Our research showed us that this size unit, in this area would be very popular and would attract a rental level of €9 per metre per month. This would give a gross yield of just over 4% per annum. The contracts were signed and the work commenced.

How we did it

July 2017

Our clients, in this case a consortium of investors based in Luxembourg, put up €500,000 to help fund the works. We arranged a facility with a local bank who agreed to lend 60% of the purchase price at an interest rate of 1.75% per annum with a capital repayment of 2% of the loan per annum. The security for the loan was based on a first charge over the building but with no recourse to the borrowers. The loan was to be drawn down on completion of the works to the satisfaction of the bank’s surveyor.
We then employed an architect/surveyor from Berlin who had acted successfully for several different clients of ours to monitor the building works and to ensure that all the relevant permissions were granted and that the work conformed to these consents. We visited the site once a month and met with the vendor and his agent and separately with our surveyor to ensure the works were progressing and that the standard was acceptable.

December 2019

The works, which were scheduled to last 14 months eventually were completed after 2 years. Although slightly longer than we expected, delays such as this are very common with this kind of contract. We invoked the penalty clause in the purchase contract and reduced the price by €45,000.

Results

2017
Investment: €2,200,000
€2.2m
Total Investment
2019
Apartment Worth: €2,800,000
€600k
Profit

The building was completed to a very high standard and the agents are now letting the flats at an average of €10-11 per metre per month which of course is a 20% increase in the rental income, which improved both the initial yield and the ultimate value of the investment.

To find out more about our investment opportunities please call 020 7731 9820 or email [email protected].

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