Why the Right Investment Property Matters – Case Study from Dresden

Case Study: 61 sqm unit in Dresden

Implication: Most banks will only finance up to 4.378 €/sqm, leaving a financing gap of ~1.300 €/sqm.  Even with a generous 90 % LTV, you’d need a minimum equity contribution of 62.975 €, leading to lower returns over time (IRR, details see below).

Property Details

• Size: 61,72 sqm

• Purchase Price: 354.430 € (5.740 €/sqm)

• Location: Central Dresden with excellent access to amenities

Why This Project Needs a Closer Look

1. Purchase Price vs. Market Value

Starting with the right purchase price is crucial. It defines your long-term capital growth and financing ability.

We use multiple valuation systems to understand the actual value of a property. We used Pricehubble, Germany's No. 1 database for market valuations, for a first indication of the pricing:

• Media market price for newbuilds in Dresden (EH 40 QNG+): 4.378 €/sqm

Asking price for this unit: 5.740 €/sqm

2. What drives the appreciation potential?

Appreciation is the key factor in long-term real estate success.

Since property prices have stagnated or declined in recent years, it is crucial to identify areas with strong potential for future appreciation.

To support our investment decisions, we conduct in-depth internal location and trend analyses across all our properties. One of our tools leverages open-source municipal data to track population growth—an important indicator of demand and a driver of rental prices. Over the past five years, Dresden’s population has grown by only 2,2 %, compared to 3,9 % in Berlin, 13,3 % in Zossen, and 7,5 % in Teltow.

This population data is just one part of our broader analysis, which also includes tenant market trends, rent development, infrastructure projects, and economic growth potential.

Given the moderate population growth, we estimate a moderate long-term growth rate of 2,5 %, e.g., inflation (2 %) + population growth (0,5 %).

Properties that are sold at above-average prices compared to other new builds are also likely to be affected by below-average appreciation in the mid-term.

3. How to gauge rental income development? 

The median price in this area in Dresden is 10 €/sqm. As it is a new building with the highest energy efficiency and finished in 2027, we will calculate with 13 €/sqm.

• Average rent in the area: 10 €/sqm (source pricehubble)

• Expected rent (new-build, energy efficient): 13 €/sqm

• Expected rental increase forecast: +2,5 % annually

4. How to calculate the Tax Benefits via Depreciation? 

Tax advantages in property investment primarily come from building depreciation. To determine the amount eligible for depreciation, you subtract the land value from the total purchase price.

• Land value (Bodenwert): 720 € per sqm in central Dresden

• Compared to Berlin's 1.346 € per sqm average, that is cheap. 

• Compared to Brandenburg’s 330 € per sqm average, it is rather expensive.

For simplicity, we calculate the land value by multiplying the property's living space (without factoring in common areas like staircases or gardens) by the land value per sqm.

For a 61 sqm apartment, this results in a land value of 44.000 €. 

You can apply both the declining-balance depreciation of 5 % and the special depreciation of 5 % for the first four years. This results in total tax benefits of 68.995 € over 10 years.

Result:

Try the Full Calculation Yourself:

Real Estate Investment Calculator (Pre-filled)

While this project offers many qualities that investors typically look for, such as an excellent location, good transport connections, appealing design, and the advantages of KFW funding and double depreciation standards, a closer look at the financial details—which should be the primary consideration for property investors—reveals some key drawbacks. The above-market sales price, coupled with a higher plot value, results in a higher equity requirement and reduced tax benefits, ultimately leading to significantly lower returns.

At Investfriend, we perform all these calculations upfront to ensure optimal results. You can compare this with the performance of our projects here:

• Teltow 64 sqm unit: IRR 16,56 % with an upfront investment of 55.625 €

Due to the lower prices, especially in Zossen, we can offer 100 % financing for suitable investor profiles, leading to even less equity and a higher return.

• Zossen 63 sqm unit: IRR 26,53 % with an upfront investment of 26.450 €

What We Look for in the Right Investment

We focus on projects that generate a projected IRR of more than 15 %. Our selection criteria include:

• Fair purchase prices → better financing solutions (up to 95 %) and higher growth potential

• EH 40 QNG+ certification → eligible for KfW funding and double depreciation

• Low land values → maximize tax benefits

• Strong appreciation outlook → driven by demand and undersupply of newbuilds

We're here to help you identify the best opportunities for building long-term wealth through property investments in Germany.