FAQ | Real Estate Income

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

Let's assume in an example that the purchase of a condominium costs EUR 1,500 per month. Then the owner-occupant who moves into the property himself pays this 1,500 EUR himself. With the landlord this is completely different. There the tenant pays every month with the cold rent a considerable portion. Additionally there are current tax advantages with the acquisition of a rented real estate. It is often the case, to stay with the example, that tenant and tax office bear ¾ or more of the ongoing expense. In this case, therefore, EUR 1,175 every month.

The profit arises directly month by month from the beginning. Because every month others (here tenants and tax office) pay 1,175 EUR for your asset accumulation. So every year a passive income of 13.500 EUR flows. Over 10 years this is already 135,000 EUR real additional income.

Since with inflation the rents are adjusted every few years by the administration, the own contribution sinks as a rule ever further, until even the tenant and the tax office pay after some time the complete savings rate, which flows into the acquisition of the real estate, completely.

In our practice, it is very often the case that the buyer only pays ¼ or 1/5 of the purchase price of the property himself over the years. This means that he has already increased his own money extremely, often by four or five times. And since real estate as a tangible asset usually represents a compensation for inflation, the value of the property increases over the years. This is also very rewarding because when the property is sold at a later date, a higher value flows back. And this is possible for private capital investors tax-free from a period of 10 years.

Here is an example as well:
Purchase price of the property 400.000 EUR
Own expenditure over the entire years e.g. 1/5 = EUR 80,000 paid by the company itself
Tenant and tax office pay over the entire years in the case 4/5 of the purchase price
Value of the property after 30 years due to inflation adjustment e.g. 600,000 EUR
Tax-free profit for the landlord: 520,000 EUR, i.e. more than ½ million EUR with only 1 condo

Real estate is a very conservative and therefore comparatively very safe investment. Good tangible assets compensate for inflation and ensure a tidy increase in assets in the long term. In addition, real estate makes sense as an investment, because you buy the property, but the tenant and the tax office pay large parts for you. This is what we call passive income or real estate income. Germany is a fantastic market for landlords. You can deduct the property from your taxes, have a large part of the rental income tax-free, as a landlord you can also deduct the interest on the loan and the costs around the property from your taxes and as a non-commercial property buyer you can also sell a property tax-free after 10 years. In other words, you can collect the net appreciation and real estate gains tax-free.
And since we have more than 40,000,000 tenants in Germany and thus more than 50% of the population are tenants, it is a paradise for landlords. Against the backdrop of so many tenants, it has been problematic for years that far too few apartments are being built, resulting in an ever-increasing housing shortage in regions and larger cities that are in high demand. That's why landlords also do something good for the community, because you as a landlord create valuable living space and are therefore supported by tax benefits, allowances and subsidies.
Real estate as an investment is very flexible, because you can sell the property again or pass it on later to children or other heirs.

In principle, you can move into your rented property yourself. If you can imagine doing so, it is a good sign, because a property that you would move into yourself is certainly a good property. However, it does not make sense to move into the rented property yourself. Because then you won't get the tax depreciation, you can't deduct the interest on the loan and you won't have any passive income any more. In addition, it should be noted that the administration would then first have to give notice to the existing tenant for personal use. In this case, the legal deadlines must be observed, and in the case of individual properties, there may also be protection against termination of the existing tenant before terminating the tenant's own need. But in principle, you can of course move into your apartment yourself in most properties.

One of the most important rules of the game in real estate is location, location, location. This means that the property is in the right city, in the right region. If this is the case, then it is important to assess the micro-location. Is the property in the right place, in the right part of town or on the right side of the street, for example?
The next point is the right floor plan. In other words, the layout of the apartment. Does the apartment have the size that will be in demand and increase in value in the future? Does it have a balcony or terrace? What are the fixtures and fittings and quality of the property? Are there any obvious or hidden defects? In the case of an existing property, has an independent survey been carried out on defects or maintenance backlogs? Is there a plan for upgrading the energy efficiency of the existing property? What is the existing or possible tenant structure at the location? What is the potential for rent increases? Are promotional loans available for the loan? What are the financing options? What is the quality of the management? What are the tax parameters of the property? In the case of a new build, what is the contractual arrangement regarding fixed price guarantee and fixed completion date? Are there sufficient guarantees? What are the developer's references? What are the contractual arrangements and are there any risks or unusual things that could jeopardize a secure investment? Is there a rental pool or a rental guarantee? If not, can this be built in?

These are some exemplary rules for the successful acquisition of real estate. Would you like to know more about the rules of the game and gain a deeper insight into the selection of top properties? Then simply register for one of our upcoming free information seminars and improve your real estate knowledge.