Buying a Rented Property in Germany: Investment Calculator & Guide

The return and appreciation of your investment property

Your results in 6 years:

The effect of buying a rental property at a discount on your net wealth:

You can see from the figure above that the occupied property jumps in value after the tenant leaves. The increase in value at that time is due to the possibility of selling the property at a market price of 477.621 €, and you no longer have to pay capital gains tax if you sell your house after 10 years.

A breakdown of the detailed results and the critical assumptions in 6 years:

¹ We assume that the land is ⅓ the value of the property, that the property was built after 1925 but before 2023, and has a 2 % depreciation allowance, and that you face a marginal tax rate of 33 % –corresponding to a medium income of about 4.200 € per month.

² We assume an interest rate of 3,50 %.

Is the return on your calculations promising? Use our German Mortgage Calculator to determine the optimal financing for your investment property.

Interested in the alternative of a new property with special tax benefits recently introduced then use our New German Real Esate Investment Calculator, or sign up with Investfriend and see an advisor.

Practical tips on how to find the right rented investment property

When searching for a rented investment property, you should be on the lookout for certain keywords in German real estate listings, as it is often not at all obvious that properties are rented or vacant: 

• “vermietet” (which means rented)

• “Kapitalanlage” or “Wertanlage” (which means investment)

On the other hand, “Bezugsfrei” or “Mieterfrei” means that it is not rented.

For an overview and wide selection of properties, browse through our Hypofriend Property Radar, where we compile offers from Germany's largest real estate platforms. You can check if you want to see only rented properties!

Be sure to ask for the rent of the offered properties. It is often not mentioned in the expose, and If the rental yield is low, real estate agents tend not to keep it to themselves.

Also, be sure to ask how long tenants have lived in the property. The notice period for own use depends on how long the tenants have occupied; it can normally be up to nine months. However, in some cases where tenants have lived in an apartment building before it was legally partitioned into individual apartments, they have extraordinary cancellation protection of at least three years and, in some cases, 10 years. In addition, in cases of hardship, such as old age, pregnancy, or illness, tenants may stay. Looking to buy a rented apartment for your own use? We explain to you what you need to bear in mind.

If you are interested in an apartment in a multifamily house or a larger complex, if you should also ask to see the minutes of the most recent owners' meetings (called “Protokolle der Eigentümerversammlung” in German) to find out what is currently planned and what additional costs will be incurred by you as the new owner. Also, ask about the amount of the maintenance reserve fund (“Instandhaltungsrücklage”) so that you do not have a rude awakening.

Alert: new tax benefits for new properties

In 2024 new tax benefits were introduced for newly built rental properties in the form of quicker depreciation. This results in tax benefits of up to about 25% of the purchase price in the first 10 years.

In combination with special KFW funding this can result in Internal Rate of Return of over 20%.

• New buildings — completed from October 1, 2023, and September 30, 2029 — can choose accelerated depreciation (§ 7 5(a) EStG): 5 % of the residual value can be depreciated using the degressive method.

• Special depreciation or Sonder AfA (§ 7b EStG) for newly created rental properties that meet the energy efficiency standard EH40/QNG and have an upper construction cost limit of 5.200 € per m². Of this, 4.000 € per m² can be depreciated. You can linearly depreciate 5 % over 4 years.

Of course these rules reduce the eligibility of projects considerably and require a different approach to investing with less upfront investment. We find these rules so attractive that we have started a special subdivision called Investfriend.

While the benefit of buying an existing property with below market rent is that a renter leaves and you have. a considerable capital gain, the benefit of a new property are the considerable tax benefits, much more certainty regarding return, reduced up front investment--easier bank financing--and a lower time devotion of the investor.

For high income, busy or low savings investors a new property can make a lot of sense. For others an existing rented property could work better. Either way. We are here to help both with finding properties and providing you with financing advice.

The benefit of buying a rented investment property in Germany

As we have detailed elsewhere, there are many benefits you gain when buying an investment property in Germany and becoming a landlord, such as no capital gains tax after 10 years, a depreciation allowance of 2-2,5% that eliminates tax on rental income in most cases, and standard mortgage conditions, which is quite exceptional in the world.

When buying a property that is rented, the main potential advantage is:

• Lower price
  The most appealing advantage of buying an occupied property is that you will pay a lower purchase price than if the property were vacant. This may be because the property is rented at a low price, the landlord has no scope to use it him/herself. It does pay to check the numbers (notably current rental yield and consider how long tenants may stay) and use the calculator above if the low price compensates adequately for the low rental yield.

Potential disadvantages and pitfalls when buying a rented property in Germany

While there are certainly benefits to buying an already rented investment property in Germany, it's important to consider the potential disadvantages and pitfalls as well carefully:

• While there is a possibility to have the existing tenant vacate the property as you claim it for your own use, you have to consider the social aspects of this and your own conscience. A win-win situation often involves offering tenants compensation to move out. This may allow them to buy a property themselves or move to a place they like better.

• Lower cash flow: If the current tenants are paying well below market rent due to an old lease, this can negatively impact your cash flow. This also may reduce the scope for a mortgage: you will have to show that your income can cover any negative cash flow. Some banks will only consider the Mietspiegel--see below--as rental income.

• As a new owner, you do not have an automatic right to raise the rent. You must follow the existing rules. For example, you can't raise the rent until at least 15 months after the tenants moved in (or after the last rent increase) and only up to the local comparable rent, called “ortsübliche Vergleichsmiete” in German. You can find the appropriate value for your property in your city's so-called rent index (“Mietspiegel”), which is usually available on municipal websites, for example, here is the rent index for Berlin). The rent increase may not exceed 20 % within three years; in many cities, the limit is 15 %.

In summary, buying a rented property as an investment can be a smart decision. The low vacancy risk, and, above all, the potential for a notable price discount are all strategies to consider. Germany offers great benefits, like normal mortgage conditions, no capital gains tax, and very little tax on rental income.

That said, it's important to find out the key information regarding the rent and the tenants and then create some scenarios using our calculator. Do weigh the potential pros and cons and take steps to minimize any potential risks. With the right approach, buying an occupied property can be a worthwhile investment opportunity.