Real Estate
Real estate investments in Germany require from €20,000 for indirect investments (REITs, ETFs) to €100,000+ for direct purchase with additional costs of 7-15%. The main barrier is the high entry threshold and low liquidity with direct ownership. For most immigrants in the Boat phase, indirect investments through ETFs are more rational than direct purchase.
Ways to Invest in Real Estate
There are four main ways to invest in real estate, differing in entry threshold and level of participation [1].
| Method | Minimum Capital | Liquidity | Management | Suitable For |
|---|---|---|---|---|
| Own home | €80,000-150,000 (20% down + Kaufnebenkosten) | Low (months) | Full | Ladder phase, planning for 10+ years |
| Rental property | €100,000+ | Low (months) | Full | Ladder phase, readiness for operational work |
| REITs/ETF | From €25 | High (1 day) | None | Boat/Ladder phase, passive diversification |
| Crowdfunding | €500-10,000 | Low (years) | None | Ladder phase, high risk |
Buying vs Renting (for Living)
This is a decision with high emotional load for immigrants. After experiencing instability, there's a strong desire to "finally own something." Math is one factor. The psychological need for stability is another, and it's not irrational.
Criteria for Buying
Buying makes financial sense when all conditions are met simultaneously [2]:
- Ownership horizon: 10+ years (due to high Kaufnebenkosten of 7-15%)
- Initial capital: minimum 20% of value + purchase costs
- Income stability: worked in Germany 2+ years, permanent contract
- Price ratio: annual rent is more than 4% of purchase price (1:25 rule)
Criteria for Continuing to Rent
Renting is more rational when at least one factor applies:
- Location uncertainty: not sure you'll stay in the city for 10+ years
- Career mobility: job change may require relocation
- Lack of capital: don't have 20%+ for down payment without depleting emergency fund
- Alternative returns: difference between mortgage and rent can be invested in ETFs with long-term returns of 7% annually [3]
Psychological dimension: If you feel an acute need to buy housing — this is a signal to analyze, not to act immediately. What's behind this desire? Stability? Status? Control? Each of these needs can be satisfied in other ways with less financial risk.
Additional Costs When Buying
Kaufnebenkosten (additional purchase costs) amount to 7-15% of the property price. This money is paid on top of the property value and is not recovered when selling. This is what makes buying unprofitable when owning for less than 10 years [4].
| Cost | Amount | Example for €400,000 |
|---|---|---|
| Grunderwerbsteuer (purchase tax) | 3.5-6.5% (depends on federal state) | €14,000-26,000 |
| Notary (Notar) | 1.0-1.5% | €4,000-6,000 |
| Land registry registration (Grundbuch) | 0.5% | €2,000 |
| Agent (Makler) | 0-7.14% (split with seller) | €0-28,560 |
| Total | 7-15% | €28,000-60,000 |
Important: Grunderwerbsteuer varies by federal state. In Bavaria and Saxony — 3.5%, in Brandenburg and Thuringia — 6.5% [5]. Agent commission has been regulated by law since 2020: buyer and seller split it equally, but seller can refuse the agent (then commission = 0%).
Investment Property (Rental)
Buying property for rental is an operational business, not passive income. It requires tenant management, repairs, legal support. Gross rental yield in major German cities is 3-5% annually [6]. After deducting taxes, maintenance, and vacancies, net yield is often lower than a diversified ETF portfolio.
Factors For Direct Ownership
| Factor | Description |
|---|---|
| Regular income | Monthly rent (when tenant present) |
| Value growth | Long-term real estate price growth (historically 2-3% annually [7]) |
| Tax deductions | Depreciation (2-2.5% per year), repair costs, mortgage interest deductible from taxable income |
| Using borrowed funds | Leverage increases return on own capital |
Factors Against Direct Ownership
| Factor | Description |
|---|---|
| High entry threshold | Minimum €100,000 own capital (20% + Kaufnebenkosten) |
| Operational work | Finding tenants, repairs, accounting, legal issues |
| Vacancy risk | Period without tenants = no income, but expenses continue |
| Problematic tenant risk | Tenant protection in Germany is high, eviction takes months [8] |
| Low liquidity | Sale takes 3-12 months, Kaufnebenkosten eat profit when owning less than 10 years |
| Concentration risk | All capital in one property, one city, one country |
Alternative: REITs and real estate ETFs provide exposure to real estate market without operational work and with full liquidity.
REITs and Real Estate ETFs
REITs (Real Estate Investment Trusts) allow investing in real estate from €25 with full liquidity. The fund owns commercial and residential real estate, collects rent, and distributes income to investors. Real estate ETFs buy shares of many REITs, providing diversification [9].
Examples of ETFs
The examples below illustrate available options but are not purchase recommendations. Evaluate funds by criteria: diversification, costs (TER), liquidity, currency risk.
| ETF | What It Includes | TER | Features |
|---|---|---|---|
| iShares Developed Markets Property Yield UCITS ETF | REITs from developed markets (USA, Europe, Japan) | 0.59% | Wide diversification |
| Xtrackers FTSE EPRA/NAREIT Developed Europe Real Estate UCITS ETF | European real estate | 0.33% | Focus on Europe, reduced currency risk |
Evaluation Criteria
| Criterion | Meaning |
|---|---|
| Diversification | REITs invest in hundreds of properties of different types (offices, shopping centers, warehouses, housing) in different countries |
| Entry threshold | From €25 (cost of one ETF share) |
| Liquidity | Sale within 1 trading day on exchange |
| Management | Passive — fund manages properties, you just own shares |
| Taxation | Dividends taxed as capital income (Kapitalertragsteuer 25% + Soli) [10] |
| Risk | REIT share prices fluctuate with market, may be more volatile than direct ownership |
Psychological factor: REITs don't give the feeling of "owning an apartment." If your need is stability and control, real estate ETFs won't satisfy this need, although mathematically they may be more efficient.
Real Estate Taxation
Tax on Sale
Profit from property sale is not taxed if you owned the property for more than 10 years. This period is called Spekulationsfrist (speculative period) [11]. If selling earlier, profit is taxed at your income tax rate (up to 45% + Soli).
| Ownership Period | Profit Tax |
|---|---|
| 10+ years | 0% (exemption) |
| Less than 10 years | Up to 45% (part of income tax) |
Exception: If the property was your primary residence for 2 of the last 3 years before sale, no tax regardless of ownership period [12].
Calculation example: Bought apartment for €300,000, sold for €400,000 after 7 years. Profit = €100,000. At 35% tax rate, pay €35,000 tax. If had waited until 10 years of ownership — tax 0.
Tax on Rental
Rental income is taxed as regular income (up to 45% + Soli). But you can deduct expenses [13]:
| Deductible Expenses | Examples |
|---|---|
| Depreciation (AfA — Absetzung für Abnutzung) | 2-2.5% of building value annually (land not depreciated) |
| Mortgage interest | Fully deductible |
| Repair and maintenance | Instandhaltung (current repairs), Hausgeld (building maintenance fees) |
| Management company | If hiring Hausverwaltung |
| Insurance | Gebäudeversicherung (building insurance) |
| Utilities | If not passed to tenant |
Net taxable income = rental income − all expenses.
Typical situation: In the first years, expenses (interest + depreciation) may exceed income, creating a tax loss that reduces your overall income tax.
Property Tax (Grundsteuer)
Annual tax on property ownership. Calculated by municipality based on assessed value. On average €200-600 per year for an apartment [14]. When renting, can be passed to tenant through Nebenkostenabrechnung.
Sources
- Immobilienverband Deutschland (IVD), "Investieren in Immobilien: Formen und Strategien", IVD Research, https://ivd.net/immobilieninvestments/ (as of 2024)
- Stiftung Warentest, "Kaufen oder Mieten: Was sich wann lohnt", Finanztest 10/2024, https://www.test.de/Mieten-oder-kaufen-Wann-sich-der-Immobilienkauf-lohnt-5906192-0/
- Deutsches Aktieninstitut, "Renditedreieck DAX 1948-2024", https://www.dai.de/renditedreieck/ (historical stock market returns)
- Notarkammer, "Kaufnebenkosten beim Immobilienerwerb", Bundesnotarkammer, https://www.notar.de/themen/immobilien/kaufnebenkosten (current as of 2024)
- Bundesministerium der Finanzen, "Grunderwerbsteuer nach Bundesländern", Stand 2024, https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Steuerarten/Grunderwerbsteuer/grunderwerbsteuer.html
- Verband deutscher Pfandbriefbanken (vdp), "Immobilienpreisindex und Mietrenditen Deutschland 2024", vdp Research, https://www.pfandbrief.de/site/de/vdp/research.html
- Bundesbank, "Immobilienmarkt Deutschland – Preisentwicklung 2000-2024", Monatsbericht Januar 2024, https://www.bundesbank.de/de/publikationen/berichte/monatsberichte
- Deutscher Mieterbund, "Mietrecht: Kündigungsschutz und Räumungsverfahren", https://www.mieterbund.de/mietrecht/kuendigungsschutz.html (as of 2024)
- BaFin, "REITs: Grundlagen und Regulierung", Bundesanstalt für Finanzdienstleistungsaufsicht, https://www.bafin.de/DE/Verbraucher/GeldanlageWertpapiere/Anlageformen/REIT/reit_node.html
- Bundesministerium der Finanzen, "Abgeltungsteuer und Besteuerung von Kapitalerträgen", Stand 2024, https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Steuern/Weitere_Steuerthemen/Abgeltungsteuer/abgeltungsteuer.html
- § 23 Einkommensteuergesetz (EStG), "Private Veräußerungsgeschäfte — Spekulationsfrist", current version, https://www.gesetze-im-internet.de/estg/__23.html
- § 23 Abs. 1 Satz 1 Nr. 1 EStG, "Steuerbefreiung bei Eigennutzung", https://www.gesetze-im-internet.de/estg/__23.html
- Bundesministerium der Finanzen, "Einkünfte aus Vermietung und Verpachtung — Werbungskosten", BMF-Schreiben, https://www.bundesfinanzministerium.de/Content/DE/Downloads/BMF_Schreiben/Steuerarten/Einkommensteuer/2021-10-28-werbungskosten-vermietung-verpachtung.html
- Statistisches Bundesamt, "Realsteuervergleich: Grundsteuer 2024", Destatis Fachserie 14 Reihe 10.1, https://www.destatis.de/DE/Themen/Staat/Steuern/Realsteuern/_inhalt.html