Many landlords are worried about making a mistake when setting rents due to rent control regulations. Indeed, the rules vary considerably from region to region. However, if you approach it systematically and with some know-how, finding the optimal rent isn't that difficult. We've summarized the most important aspects for you here.
- Does the rent control law even apply to me?
Many landlords are unsure how much rent they can still charge. The so-called rent control law has further tightened existing regulations. However, it currently only applies in around 300 of Germany's more than 11,000 municipalities. This is primarily in metropolitan areas and their surrounding suburbs, i.e., the densely populated cities. Therefore, before renting out your property, you must find out whether it is located in a municipality with rent control. You can check online whether rent control applies in your municipality. If you prefer to be absolutely certain, contact an experienced real estate agent or the relevant authority directly.
- Local comparative rent and rent index
What hardly anyone knows: The still-valid Economic Crimes Act of 1954 stipulates that the local comparative rent may not be exceeded by more than 20 percent when a property is re-let. This threshold remains unchanged today. Therefore, to stay within these limits, you must use the local comparative rent as a guide. The problem: What exactly is the local comparative rent? Simply put, it's the rent typically paid for properties with comparable criteria such as type, size, condition, location, and amenities within the municipality. The local comparative rent is indicated by the rent index. However, there are a few catches: First, you need to research whether a rent index even exists for your municipality. You can find this out from your local council or city administration, or from a real estate expert in the region. Often, only larger cities have a rent index. Additionally, the local comparative rent is not always in line with the actual market rent. The figures can be outdated. Since rent indices are usually only compiled regularly and at short intervals by larger cities, if no rent index exists, you can also use the market rent as a guide. This is determined by the principle of supply and demand.
- Who pays your rent?
Assuming you push your legal options to the limit, this isn't necessarily the optimal rental price. A high rent significantly extends the time it takes to find a tenant. For the months the apartment is vacant, you not only lose the rental income but also have to cover the utility costs. If you're unlucky, a tenant might only move into your apartment to continue their search for something cheaper. This will soon put you back in the same boat, requiring you to remarket the apartment – you might even have to paint it – not to mention the additional utility costs. The key is to determine a realistic market price. Without years of market experience, this is something you can rarely figure out on your own. This is where professional real estate agents can help.
- Optimizations
Rent increases are still possible despite rent control regulations if the apartment's standard is improved. Check whether your property is subject to any social preservation regulations. These regulations define the permissible level of improvement. Generally speaking, if, for example, a state-of-the-art heating system, underfloor heating, or high-quality parquet flooring is installed, a portion of the cost can be passed on to the tenant. If a modernization project costs at least one-third of the value of a comparable new apartment, you are even exempt from rent control. In any case, it's advisable to identify improvements that also benefit the tenant. For example, additional parking spaces could be created, or alcoves in the apartment building could be converted into extra storage space.
To determine the optimal rental price, it's helpful to seek expert advice. Accurate assessment requires a great deal of background knowledge, market awareness, and extensive experience.
Are you unsure about determining your optimal rental price? Contact us! We'd be happy to advise you.