FAQ | Property Income

The profit on a rented property is generated continuously on a monthly basis immediately from the date of purchase, and additionally in the medium and long term during the rental phase and upon a later resale.

Let us assume by way of example that buying a flat costs 1,500 EUR per month. The owner-occupier who moves into the property pays this 1,500 EUR themselves. For the landlord, this is completely different. There, every month the tenant pays a considerable proportion through the basic rent. In addition, there are ongoing tax advantages when purchasing a rented property. It is often the case, to stick with the example, that the tenant and the tax office bear ¾ or more of the ongoing expenditure. In this case, therefore, 1,175 EUR every month.

So the profit is generated directly month after month right from the start. Because every month, other people (in this case tenants and the tax office) pay 1,175 EUR towards building your wealth. That means passive income of 13,500 EUR flows in every year. Over 10 years, that already amounts to 135,000 EUR in real additional income.

Because rents are adjusted by the management every few years in line with inflation, the personal contribution generally decreases continuously until, after a certain time, even the tenant and the tax office completely pay the entire savings rate that flows into the acquisition of the property.

In our practice, it is very often the case that over the years the buyer only puts up ¼ or ⅕ of the purchase price of the property themselves. Therefore, they multiply their own money extremely, often quadrupling or quintupling it. And since real estate as a tangible asset generally provides a hedge against inflation, the value of the property increases over the years. This is also very rewarding because when the property is sold later, a higher value flows back. And for private capital investors, this is possible tax-free after a period of 10 years.

Here is an example of this too:
Purchase price of the property EUR 400,000
Own contribution over the total years e.g. 1/5 = 80,000 EUR paid oneself
In that case, tenants and the tax office pay four-fifths of the purchase price over the entire period
Value of the property after 30 years due to inflation adjustment, e.g. 600,000 EUR
Tax-free profit for the landlord: EUR 520,000, which is more than half a million EUR with just 1 flat

Property is a very conservative and therefore comparatively very safe investment. Good tangible assets offset inflation and ensure decent wealth growth in the long term. Moreover, property makes sense as an investment because you buy the property, but the tenant and the tax office pay large parts of it for you. We call this passive income or property income. Furthermore, Germany in particular is a fantastic market for landlords. You can write off the property for tax purposes, meaning large parts of your rental income are tax-free; as a landlord you can also deduct the loan interest and costs associated with the property for tax purposes; and as a non-commercial property buyer, you can sell a property tax-free after 10 years. In other words, you pocket the capital appreciation and property gains completely tax-free.
And given that we have more than 40,000,000 tenants in Germany – meaning that more than 50% of the population are tenants – it is a paradise for landlords. Given the large number of tenants, it has been a problem for years that far too few flats are being built, leading to an ever-increasing housing shortage in sought-after regions and larger cities. That is why landlords are also doing something good for the wider community, because as a landlord you are providing valuable housing and are therefore supported through tax breaks, allowances and subsidies.
Real estate as an investment is very flexible in this respect, because you can sell the property again or later pass it on to children or other heirs.

In principle, you can move into your rented property yourself. If you can imagine doing this, it is initially a good sign, because a property that you would also move into yourself is certainly a good property. However, it is not sensible to move into the rented property yourself. This is because you would then no longer receive tax depreciation, could no longer deduct mortgage interest and would no longer have any monthly passive income. In addition, it should be noted that the management would first have to give the existing tenant notice to quit on the grounds of personal use. Statutory notice periods must be observed in this regard, and for individual properties there may also be protection for the existing tenant against termination for personal use. But in principle, you can of course move into your flat yourself with most properties.

Part of the most important rules of the game in real estate is location, location, location. This means that the property is in the right town, in the right region. If this is the case, then it is a matter of assessing the microlocation. Is the property in the right spot, in the right district or, for example, on the right side of the street?
The next point is the correct floor plan. So, the layout of the apartment. Does the apartment have a size that will be in demand in the future and increase in value? Is there a balcony or a terrace? What is the specification and quality of the property? Are there any obvious or hidden defects? In the case of an existing property, has an independent report on defects or maintenance backlog been carried out? Is there a plan for the energy upgrade of the existing property? What is the existing tenant profile, or the one possible at that location? What is the rental growth potential? Are there subsidized loans available? What are the financing options? What is the quality of the property management? What are the tax framework conditions for the property? In the case of a new build, what is the contractual arrangement regarding a fixed-price guarantee and a fixed completion date? Are there sufficient guarantees for this? What are the developer's references? What are the contractual arrangements and are there any risks or unusual matters that could jeopardise a secure investment? Is there a rental pool or a rental guarantee? If not, can one be included?

Here are some example rules of the game for successfully acquiring real estate. Do you want to know more about the rules of the game, or would you like a deeper insight into selecting top properties? Then simply sign up for one of our upcoming free info seminars and boost your property knowledge there.