Hiya, this is a post especially for graduates. I’m writing a series Personal Finance 1.0 on personal finance topics that you should know when starting life on your own. If you’re an older reader: Maybe you know someone who could benefit from this information. So please feel free to share this post.
Right, let’s get going!
This series was triggered by a graduate’s complaint she hadn’t learned anything in school enabling her to deal with the practicalities of life, such as renting her own apartment. That’s why I’ve put together some basics around this topic for you in this post.
Some more years at “Hotel Mama”?
There are some FIRE bloggers who advocate continuing to live with your parents as long as possible (within reason I guess 🙂 ). If that’s fine with everyone concerned, that’s obviously a choice you can make. I’m not a fan of the idea, though. I think it’s important to start building your own life as an adult. Which, for me, includes leaving your childhood home.
If this is about cost or about the fact that you’re not so hot on living by yourself, you don’t necessarily have to rent a whole apartment. You could start off with a flat-share. Especially when you’re moving into a new city for a graduate position, it’s probably not only cheaper, but you can make new friends at the same time.
Flat-shares are an interesting alternative
In cities with sky-rocketing rents like London, it’s quit common for professionals to live in flat-shares. Our son did this for some time. Which left him with a sufficient part of his salary to build up his emergency fund pretty quickly.
You can find flat-shares via the big real estate portals like Immobilienscout24 or Immonet, on specialized sites like wg-gesucht.de, and on platforms like Ebay Kleinanzeigen. Or you just google for flat-shares in whichever city your interested in to check out potential local providers (all links are non-affiliate).
Prepare your documents
Applications for flat-shares will probably look a bit different from your standard application for a rental apartment. If someone rents out rooms in their apartments, it’s often about personal chemistry fit. But it doesn’t hurt to have the documents ready that the average landlord wants to see.
And if you want to rent in a professional flat-share they’ll want these documents anyway. You can read my post Real Estate Investment Risks – Concerning Your Renters to get an idea of the landlord’s point of view. It’s always a good idea to know your business partner’s perspective.
In Germany, your prospective landlord will typically ask for the following documents:
This is a form in which you input some basic information about yourself, and which the landlord will keep for the record. You’ll be asked to provide your name, date of birth, current address, occupation, and the number of people that want to move into the apartment, for example.
Proof of identity
A copy of your identity card or passport as a current proof of identity.
Pay-slips for the past three months/and or your work contract if you just started your job. If you’re still within the trial period (“Probezeit”) the landlord might ask for an additional guarantee. There are some legal strings attached to this which I’ve written about in the post mentioned above.
I’ve come across landlords myself, who also wanted a current letter of proof from your employer you’re not under period of notice.
You’ll probably have to provide a SCHUFA-disclosure (“SCHUFA-Auskunft”). Schufa is a company that collects data of private individuals, and computes credit scores from this. It expresses the probability you will honour your contractual financial obligations – which would extend to rent payments. That’s obviously an important piece of information for the landlord.
To avoid problematic renters, particularly the so called “rent nomads”, a lot of landlords have come to require a proof that you’ve fulfilled your previous rental contract, i.e. that there are no rents or other contractual payments outstanding with your current landlord. If this is the first time you rent, you will naturally not be able to provide this proof.
With most of the large real estate portals, you can “store” your important documents so you have them ready for your applications.
Three-months-rents safety deposit
You will normally be asked to provide three monthly rents as a safety deposit. Important: You only pay this when you’ve actually secured the apartment and after the rental contract is signed. Three months rent is the legal ceiling as well, so don’t agree to deposit more.
There are different forms in which the safety deposit can be made. Apart from actually transferring the amount to the landlord’s bank account, you might be able to choose to provide a safety deposit guarantee by your bank instead, or you’ll be asked to pawn a “Mietkautions-Sparbuch” (a very old-fashioned option which you should try to avoid if possible – it’s a pain in the ass). After leaving the apartment in the agreed condition at the end of your lease, you’ll get the deposit back. The landlord can choose to keep it till after he’s received the last “Betriebskostenabrechnung” (balance of charges for costs related to the apartment such as cleaners, electricity for the common areas, a janitor etc., – not exactly the same as utilities, done once a year) for the period you’ve rented the apartment.
Landlord versus renter
This may all sound quit landlord-friendly at the first glance. And it is currently true – at least for the big cities in Germany – that there is way bigger demand than what’s on offer housing-wise. Which puts landlords in a position to pick and choose.
But as far as the legal situation is concerned, renters are in a very good, I’d even say the better, position. Most people here who are not familiar with the situation in the US or in England for example, don’t realize this. Particularly where termination of contract is concerned, the rights of the landlord are very restricted in Germany. Filing for eviction is a long and costly process. That’s why most landlords will try to make sure to minimize risk when selecting their renters.
Real estate agent
It’s possible that the apartment you’re interested in is advertised by a real estate agent. Legislation was changed some years ago, and as far as rentals are concerned whoever mandates the agent has to pay them. Which will be the landlord in most cases. That’s a change to your advantage because there used to be a commission of up to 2.5 monthly rents plus VAT (in this case “Kaltmieten” = rent without “Betriebskosten”, see above, as opposed to “Warmmieten” = total rent including “Betriebskosten”).
If there is a charge for getting the rental contract, say a signing-fee for example, this is illegal. You can choose to pay the fee nevertheless, of course. But smart landlords will probably include their higher acquisition costs in their rent calculation.
Sometimes it will be the current renter looking for a successor. This might be the case if he or she wants to get out of the contract within the termination period. Or because they’d like to receive a payment for a kitchen they’ve had built into the apartment. In that context you need to know that anything labeled “Abstandszahlung” is illegal, agreements of this type may be called “Ablösevereinbarung”.
Rent and rent control
As housing markets have run pretty hot in many large cities and rents have risen (after years of no or only very moderate rises), some more rent controls have been established during the past years. The “Mietpreisbremse” (“rent brake”) is one of them. The state government in Berlin even voted for a “Mietpreisdeckel” (“rent lid”) which is about completely forbidding any raises of rent for five years. Since things keep changing, just google the current situation for the city where you want to rent.
Apart from those recent changes in law, rents have to be in line with the local “Mietenspiegel” (a compilation of average rents in a given city) and/or comparable apartments. You can find out what’s applicable locally on the internet. Else you can get in touch with special interest groups for renters such as the “Mietervereine”.
Last but not least
Make sure you’re not throwing money at some shady offer. With current demand so high in many local rental markets, you’ll always have people who try to take advantage of the shortage. But in my experience there are a great number of – particularly ‘mom and pop’ – landlords who just want to find a reliable renter who appreciates their property.
If you want to try to keep your housing costs low, you’ll find some additional tips in the following posts:
Spend Less Than You Earn – Housing
Spend Less Than You Earn – Electricity, Heating, Insurance…
Now all the best in finding your first apartment!
If you have further questions just post them in the comments or get in touch with me directly.
Financial Independence Rocks!