What is an appropriate maintenance fee for a condominium?

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When investing in real estate, the maintenance fee (“Instandhaltungsrücklage”) is an important matter when it comes to the maintenance and upkeep of your real estate assets. But how high should it be, what exactly is this maintenance fee, and which part of the maintenance costs is already covered by the common charge for the condo?

In today's article, we want to approach exactly these questions and clarify essential aspects around the topic of a maintenance fee for real estate. We will also take a look at why it is crucial for you as an investor to properly account for the maintenance fee in your yield calculations when checking a buy-to-let property.

What is the maintenance fee?

The maintenance fee is money that you, as the owner of a condo, pay and set aside to cover the maintenance costs of the property. In Germany, the maintenance cost for a condominium consists of two parts: The maintenance fee for the common property and the maintenance cost for your own apartment.

Every now and then something needs to be repaired in a property. Sometimes it is the roof that leaks, sometimes it is the facade that needs to be insulated, and sometimes it is the bathroom that needs to be redone.

If property owners did not build up a maintenance fee, these costs, when they arise, would probably overwhelm many. The renovation of an apartment can quickly cost tens of thousands of euros. In the same way, renovating a facade or a balcony can quickly cost several thousand euros.

For your own apartment, you can determine the needed maintenance fee for yourself. If the apartment has just been renovated, then probably nothing will be needed to be fixed in the next few years. If the apartment has been rented out for 20 years and there are signs of a change of tenants, you will probably have to spend several thousand euros to rent out the apartment again.

But I am already saving something through the Homeowner association, right?

But I already pay a maintenance fee via the condo fee, don't I? Isn't that enough.

Yes, when you invest into real estate in Germany, you already pay a compulsory maintenance fee via the homeowner association. However, this maintenance fee is only for keeping up the common property. It is not for maintaining your individual property. Repairs to the roof or the facade are paid from this pot. Renovations within your apartment are not.

You must therefore form a separate pot for the maintenance costs for everything related to your apartment!

But also pay attention to the amount of the reserve that the homeowner association saves up. Many homeowner associations put too little money aside here and then demand the money for necessary renovations through a special payment request ("Sonderumlage") from the owners. So, whenever you buy a property, take a look at the minutes of the last few years to see whether such special payment requests for major renovations were regularly decided.

How can I calculate the correct amount of the maintenance fee?

Unfortunately, the question of the correct amount of the maintenance fee cannot be answered in such a general way, since it depends on what exactly the maintenance costs of the property are.

In the case of a new building, no major things will break in the next few years, which is why a low maintenance fee is completely sufficient here.

The situation is different for a house that has not been renovated for 40 years. Here, from the roof to the basement, all the major parts are probably due for renovation soon.

Nevertheless, there are historical average values that can be used for a first rough estimate. This “average value” can be calculated with something called the Peterssche Formel (“Peters' formula”).

This formula calculates the expected maintenance costs depending on the production costs of the property. It says that in 80 years you have to invest another 1.5 times of the production costs in a property to keep it in good condition.

More precise, this means that if you have a production cost of €2000 per square meter for a property, you can assume that you will have to invest another €3000 per square meter in the maintenance of the property over the next 80 years. Per year, this corresponds to €37,5 per square meter and year.

So for a 70 sqm apartment, you can expect maintenance costs of about €2625 per year or €218 per month.

What percentage of the maintenance costs are for the common property and what percentage for my individual property?

Of course, here as well, the values vary from property to property, but generally about 70% of the maintenance costs are for the common property and only 30% of the costs are for the condominium itself.

If we stay with the example of the 70 sqm apartment, you should therefore assume that in 80 years you will have to invest about €63,000 in the apartment to keep it in good condition.

Conclusion

A property has maintenance costs that you must be aware of. Even if there are no current repairs outstanding, you should not neglect the maintenance fee and calculate a property too optimistic.

If you ignore the maintenance costs or set them too low, a positive yield calculation for a property can quickly turn negative.

Maybe you don't have to pay for repairs in the next 5 years, but once repairs are needed, you have to have the money, otherwise you won't be able to repair your property and thus won't be able to rent it out.