Goldmine Renting of Old People’s Homes in Germany
By Dr Reinhard Nacke, FPS
Due to demographic change, there will be an ever-increasing number of old people’s homes in Germany. The federal states are legally obliged to create a suffcient number of such facilities. It could, therefore, be lucrative for investors to build an old people’s home and rent it out to a home operator. It should be noted, however, that the investor’s negotiations with the home operator will be different from those for ordinary commercial properties. For the latter, a rent is usually negotiated freely. It is also agreed that the rent will change similarly to the cost of living.
This model is acceptable for the tenant of a commercial unit because he will calculate the prices for his services or goods, taking into account the amount of the rent. This is not possible for the operator of an old people’s home in Germany. It is true that, in addition to a remuneration for its services in favour of those in need of care, it can also pass on the investment costs to the residents in the form of a rent. However, only construction and financing costs that have been approved by the competent authority can be passed on. The rent to be charged to the residents is therefore only partially free to negotiate with them. The yardstick is the costs incurred for the construction by the old people’s home operator. If he leases the property, it depends on the costs incurred by the investor. The investor must prove his costs to the authorities. The higher the proven costs of the operator or of the investor, the higher the rent to be charged by the operator. Since the future income of the operator is therefore largely fixed, he will want to exclude later rent increases by the investor contractually.
Despite these legal requirements, the initial yield for pure nursing homes rented out for a longer period, according to the Pflegeheim Atlas Deutschland 2018, is generally between 5% and 7%. The report also shows that the demand for additional nursing home places by 2030 will be highest in the most populous federal states of North Rhine-Westphalia and Bavaria.
Dr Reinhard NackeGGI member firm
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FPS is one of the largest fully independent German law firms, with four offices in Germany. FPS currently has more than 100 professionals, mostly lawyers, but also notaries and accountants. One of the firm’s core areas of expertise is real estate law.
Dr Reinhard Nacke is counsel at FPS in Dusseldorf. His areas of expertise cover real estate and company and tax law. He is founder of the GGI Real Estate Practice Group and co-founder of the GGI FYI Newsletter format.
Published: Real Estate Newsletter, No. 10, Autumn 2019 l Photo: ArTo - stock.adobe.com