Real Estate to rent in Germany your thoughts

Hello everyone,

I am thinking to buy a property in Germany with the following parameters:

  • House 139m2 → EUR 630k
  • Rent EUR 2500 per month
  • Property agency → approx 4k for every new tenant every 2-3yrs
  • 150k own capital remaining bank loan
  • bank loan 5yrs 3.1% interest thereafter I hope to secure a cheaper loan
    Or I can delay a bit the purchase in the hope the interests go lower

Thanks for your thoughts

Two thoughts: German real estate laws are very renter-friendly, and you will have to find a family that has upper-quartile earnings for them to even be able to afford this house.

Would rent it to us army. Payed by the army directly

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What share of demand are they in the area? This could drop below zero hard and fast if someone in the White House has brilliant ideas about redeploying troops.


I would not be very excited about this as a property to take leverage on, unless you have confidence that rents will increase sharply in the next few years. The yield you describe before any financial engineering is only 4.4%

You have to budget maintenance, and lost rent during change over periods. Don’t you need an agency to manage the tenant and repairs ? You easily risk to get to the yield before financing down to 3.1% or lower meaning that if you borrow you have negative leverage effect. You also have risk of interest rates going up: Rates in the past 25 years have been exceptionally low.


True what you write but also the value of the property market in Germany had a set back and a price appreciation should be calculated in as well. 4.4% is without leverage… as the building is new the repairs the first 5yrs will be taken by the building company. In respect to the US Army yes it is a bet but no indications that they will leave anytime soon Germany…

Income is fully taxable as well.

If all is set and done, I would expect a net income of ~2.5%, which is not that great.

Germany also has a very old population, which might be bad for the future price of the house, if all the current retirees die and the houses come to the market.
I‘m not that informed on thatvprospect though, just a gut feeling.

  • What is your expected return from this investment over a 10 yr period (capital gains + rental yield)?
  • And what is the main reason for this move? (asset allocation diversification, simply financial love for real estate, retirement home)

No it’s not, as it’s a building you can depreciate it over 50 years (regularly, at least). In recent years the govt has created some measures for additional depreciation beyond that for new builds, etc.

And depreciation will act as a tax shield.

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Well due to the leverage approx 9% on the capital I put in. Plus the appreciation of 2-3% per annum which will be in total 11-12% of yield relatively safe with a bit of work from time to time… I see it to be honest also as passive income with lower volatility than the equity market.

3-5% depreciation per annum and you can deduct interest as well so basically no tax on the income

Whatever the Current Government decides, try to underwrite with 2%. That’s the regular AfA-Satz for rental real estate, and it will sooner or later be returned to (always does)

It seems like you have a good plan.

As far as you have included all possible costs and these numbers are correct, I don’t see any problems. Please ensure you include - maintenance, upkeep, vacancy rates, taxation etc. Sometimes we tend to do high level calculations but details always help to have accuracy.

And you should always calculate the return expectations without leverage as well. That would define the real return from the asset. When you add leverage, it is not the same thing anymore, you also have a liability to take care of long term. It’s okay to do that calculation too, but first we need to know the actual return without leverage.

In my opinion, the land is actually an appreciating asset. The brick and mortar is a depreciating asset and needs further investment to keep the value.

Based on your numbers, I see following

Annual return

  • actual rental yield minus agency costs -: 4.4%
  • let’s assume maintenance costs of 1%, so it drops to 3.4%
  • if you account for vacancy , it would drop down to 3% perhaps
  • your expectations for mortgage is 3.1%

So without leverage , the yield is close to 3% and post tax, it would be maybe 1.8-2%. That’s the real return of the actual asset on annual basis.

Capital appreciation of 2-3% would mean the Total return from the asset without leverage is around 4-5%. If you account for capital gains tax on RE, this number would go down and I think it would be 3.5-4.5%

Also think about possible scenarios and how will that affect your investment

  • changes in interest rates (that would impact the mortgage costs and hence effective yield)
  • overall occupancy rates in the area (that would drive vacancy rates)
  • the value of real estate in this area vs typical income (if this ratio is too high then capital appreciation could be limited)
  • your liquidity requirements (this will impact if you can really let the investment in this house stay for a long period of time)

Obviously stocks are easier and liquid but Real estate is a different asset class and serves a different purpose. The only suggestion I would have is to understand your overall asset allocation and think about how much exposure you have to real estate.

Last point -: also think about, if you were not working in CH, would you see yourself staying in this house ever ? If this house could ever be your home, then it’s a very long term investment. Otherwise you need to have an exit strategy in mind.

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That’s good. I would still budget for a value maintenance budget, which should cover the replacement of appliances and various repairs on the house itself as things depreciate from day one but the reinvestment required to deal with it may (is likely to) come after 5 years (and may then represent a consequential amount).

You can use the standard 1% (meaning you’d evaluate that the house, as a whole, has a 100 years lifespan) or evaluate it with subcategories (electricals may have a 15-30 years lifespan while concrete would have an 80-100 years one).

For a starting point in French or German: Durée de vie des éléments de construction - infomaison

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