What to buy first in Germany: your own home or an investment property?

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We first show you a broad estimate of the maximum amount of an investment home you can afford, as your first property and then as a next step you can make specific choices, such as the actual investment amount you prefer. You can vary these to see how it effects the own home you can afford.

Scenario 1: Investment property before own home

Given your 95 % LTV, your investment property requires 36.400 € upfront.

Current Indicative Interest Rates

• 95% loan-to-value: 3,55 %

• 90% loan-to-value: 3,36 %

Figure 1. Own home affordability before and after buying an investment property

In Figure 1, you can see how much of an own home you can afford after you now buy an investment property of 280.000 €. You can see that this affordability increases over time because your income grows and your savings accumulate. Choosing a high depreciation property accelerates how quickly you can afford an expensive own home as you restock your savings relatively quickly through big tax rebates.

Buying an investment home initially reduces how much of an own home you can afford. This is because the purchase reduces your savings as it requires a substantive down payment.

In addition banks:

1. will typically only count 50-70 % of your rental income from your rental property as income.

2. will not consider the money you get back from the tax office as income.

3. assume you have some repayment risk for your mortgage that reduces the income they consider available for your own home purchase.

However, after the tax rebate is in your bank account banks will consider that the investment property resulted in big savings.

This initially sets back your ability to afford an own home. You currently can afford an own home of 384.615 €, and it takes 1 year(s) to reach that amount.

Do note that you can go back and adjust the value of your investment to the point where you are happy with the own home you can afford at the time horizon you like!

Scenario 2: Own home before Investment property

Now let us turn the sequence around. You first buy your own home before you buy a second home as an investment.

Given your 100 % LTV, your investment property requires 22.400 € upfront.

Figure 2. Investment home affordability before and after buying an own home

In Figure 2, you can see how much of an investment home you can afford after your buy an own home of 280.000 €. You can see that your invest home affordability increases over time because your income grows and your savings accumulate.

Buying an own home initially reduces your savings as it requires a down payment. And your savings don't recover as quickly as you don't get a tax rebate but have to repay a relatively sizable mortgage.

So if you max out in buying your dream home it may be that your savings are tight and it will take 2 years before you can afford an investment home. It takes especially long to buy an investment home if you had to use all your savings when buying your own home.

Of course you can adjust the size of the investment home you want to buy. But consider that banks do not like to finance very small properties, typically under 40m².

What if you just wait and do nothing?

You may indeed be in a situation where you just have to wait, notably till your income is high enough to afford your dream home. But what if you can afford your dream home, but you are not ready to buy your home and you do the usual: put your money in  bank account. What would it cost if you?

It can cost you quite dearly. Not in terms of direct cost, but in terms of forgone earnings.

Investing in an investment property has an unusual high rate of return due to the generous government subsidies. Rates of return of over 20% are possible. Whereas with a good ETF investment you can double your money about every 10 years, with a property investment you can triple your money or even more. Particularly if your income is high and for some reason your savings modest, an investment home is a great way to kick start your savings, and then over time let compounding do its work to create a comfortable future.

General guidance

If your savings are tight you should focus on a double depreciation property: it helps you recover your investment quickly and also set you speedily on the path to asset growth.

If you buy an investment property with a high depreciation rate, then your savings recover very quickly, and after a few years, your savings are back on track and hence don't reduce how much own home you can afford. See investment properties that are optimized for tax refunds.

If, on the other hand, you first buy your own home, you will not be able to recoup your down payment.  So if you do not have a lot of savings, then it will take a relatively long time till you can afford an investment property. So, if you don't have a lot of savings, you are better off buying an investment property first. 

If your income is lower and is your main constraint to afford the house you like, you are better off buying your own home first.  The reason for this is that banks don't count all the rental income or tax credits. This means that if you buy an investment property, you will have less money to spend on your own home.

Of course, it all depends on your precise situation.  If you live comfortably in a low-rent apartment, then you can easily wait to buy your own home, and you should definitely consider buying an investment property first.  If you live in an area with quickly rising home prices, you may need to buy your own home property there first. You can always find a property to invest elsewhere within your price range.