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How to become a landlord in Germany
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Germany offers many attractive conditions for anyone who is considering investing in a buy-to-let property and becoming a landlord. Nick Mulder from Investfriend by Hypofriend explains more. 


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Become a landlord in Germany with Investfriend
Nick Mulder
Nick Mulder is the Founder and CEO of Hypofriend, he is also a real estate investor and hobby-writer. He covers topics ranging from interest rates, property prices to retirement advice.Read more

How to become a landlord in Germany

Paid partnership
Jun 10, 2024
Paid partnership

Before embarking on the journey of becoming a landlord, it is good to understand why being a landlord in Germany is an attractive prospect. Taking into account recent changes in government programmes, overall annual returns on investment of 20 percent or more are feasible, meaning you can triple or quadruple your money in 10 years. This can help you address a pension deficit, retire early, or realise other financial goals.

Why owning rental properties is attractive in Germany

Here are some other reasons why owning a rental property is an attractive prospect in Germany: 

1. No capital gains tax

In Germany, when you hold an investment property for over 10 years, you pay no capital gains tax when you sell it, which is unique globally. 

2. Depreciation and tax deductions

As a property owner, you can depreciate about 2,5 percent of the built-up value (the building, not the land) and deduct this, along with all interest costs, from your taxable income, saving you money on your taxes.  

3. Favourable financing terms

Financing terms for rental properties in Germany are as favourable as those for personal homes, which is uncommon in many countries.

4. New government funding programmes

Special government programmes for energy-efficient rental properties offer both generous depreciation rules and subsidised funding from the KfW. These benefits make extraordinary returns possible, especially for high-income earners. With the recent changes, you can now deduct up to 40 percent of the property's value from taxes in the first four to six years. 

The four key steps to become a landlord

Interested in becoming a landlord in Germany? Here are the four key steps you need to take: 

1. Understand your long-term goals

Determine if and how being a landlord fits into your long-term financial goals. To take advantage of the most beneficial programmes and maximise tax deductions, you need to stay in Germany for four to six years after the building's completion. After this period, you can move abroad without losing too many benefits, as Germany has tax treaties with nearly all significant countries.

2. Consider your investment goals

An investment property allows you to leverage your savings. For example, with a 20.000 - 25.000-euro initial investment, you could potentially afford a property worth 250.000 euros. After 10 years, such a property could be worth between 320.000 and 360.000 euros. This is the major source of your gain. Ensure that the property investment is safe and fits into your overall strategy or portfolio.

3. Evaluate bank financing and cash flow

Check how much investment banks will allow you to borrow, your cash flow, and the optimal down payment. Use online tools like a mortgage affordability calculator for a quick check. You can use excess value in your own home as collateral for your investment property. You can find other detailed tools online to help you review the cash flow outlook and return potential, considering tax rules, rental returns, costs, down payments, and property price appreciation.

4. Find a specific project or property

Consider how much hassle you are willing to put up with. Many investors prefer buying new properties that come with services for finding renters and handling maintenance, although it’s important to vet builders to ensure high quality and reliability. To limit investment risk, you need to consider locations in or near popular towns with pleasant building styles, proximity to schools, shopping, parks, and manageable commuting distances.

Additional tips for prospective landlords

Your strategy should also be different, depending on your age and financial situation: 

  • Young investors: If you have a high income and modest savings but are not ready to buy your own home, investing in rental property can maximise your savings and exposure to the property market.
  • Own homeowners: If you have your own home and some additional savings, leveraging these assets can boost your long-term savings plans. You can use your home value as collateral for your investment property, thus minimising your down payment.
  • Near-retirement investors: If you have substantial savings but worry about overexposure to the stock market, investing in rental property is better than bonds and stocks, as it diversifies your risk.

Is it all too good to be true?

Germany has always been a country of landlords: no other country offers depreciation of real estate and very few waive capital gains tax. With the new depreciation rules, you can depreciate about 40 percent of the value of a property for up to six years, creating a sizeable tax benefit.

With new housing still in short supply, the German coalition government has created policies that try to make its three constituent parties happy, with proposals that support rental housing, climate-friendly housing, and offer additional income tax breaks.

This has created an unusually attractive proposition for investors, especially in the big cities as depreciation only applies to buildings, and not to land. We expect that attractive locations will be subject to bidding, pushing the value up. 

Given the attractive conditions for becoming a landlord in Germany, including tax benefits and government support for energy-efficient properties, now is a great time to invest. Make the most of these opportunities, and enjoy the benefits of being a landlord with less hassle.

To take advantage of this current climate, Hypofriend has launched a new product, Investfriend, to offer specially vetted projects with tax benefits and turnkey management. They only offer projects that they would invest in themselves. To add to the convenience, they also offer tax filing services. This makes becoming a landlord less guesswork and hard work, and ensures you get high returns for limited extra effort. 
Become a landlord in Germany with Investfriend
By Nick Mulder