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Property as an investment in Germany: yield, AfA, tenancy law, exit

Updated: 2026-07-12 · Reading time: 16 min · ImmoLens editorial team

Property as a capital investment has been popular in Germany for decades, and for good reason. Protection of real assets against inflation, predictable rental income and tax advantages make rented-out property a cornerstone of many wealth strategies. But not every property is automatically a good investment. This guide shows what really matters.

1. Why property as a capital investment?

Compared with shares, bonds or gold, rental property offers several unique advantages:

• Regular income – monthly rent as a predictable cash flow
• Inflation protection – historically, rents and property values rise with inflation
• Leverage-Effekt (leverage effect) – debt financing lets you leverage the return on equity
• Tax advantages – depreciation (AfA), income-related expenses and interest deduction reduce your tax burden
• Value appreciation – in good locations, property values rise significantly over the long term
• Real asset – physical ownership, not dependent on individual companies

2. The most important yield metrics

To be able to compare different properties, you need three metrics:

3. The Leverage-Effekt: leverage for your return

The Leverage-Effekt is the biggest advantage of property over other forms of investment: as long as the net Mietrendite is above the loan interest rate, borrowed capital increases your personal return on equity.

4. Tax advantages for landlords

Rental properties offer considerable tax advantages that noticeably improve the after-tax return:

• Depreciation (AfA, Absetzung für Abnutzung) – the largest item, covered in detail in the next section. Note upfront: the AfA amount is not the tax saving. What you save is your personal tax rate applied to that amount, so at 42 % that is 4,200 € on 10,000 € of AfA
• Loan interest – fully deductible as income-related expenses (Werbungskosten), the repayment portion is not
• Maintenance costs – repairs and renovations are immediately deductible (up to 4,000 € net per individual measure)
• Travel costs – trips to the property, administration, visits by tradespeople
• Tax adviser & administration – deductible on a pro-rata basis
• Spekulationsfrist (speculation period) – after a holding period of ten years the profit on sale is tax free (§ 23 EStG, see section 11)

5. AfA in detail: linear, degressive, Sonder-AfA

Depreciation is the only tax advantage that flows to you without a counter-performance: you deduct a loss of value that costs you no cash. Which rate applies depends on the year of completion and on when construction started. § 7 Abs. 4 EStG knows three linear rates:

Degressive AfA for residential buildings (§ 7 Abs. 5a EStG)

For residential buildings whose construction began after 30 September 2023 and before 1 October 2029, § 7 Abs. 5a EStG allows degressive depreciation: 5 percent of the remaining book value, recalculated every year. Switching back to linear depreciation is permitted, and at some point it pays off.

Over the first four years the degressive method therefore yields 55,648 € instead of 36,000 €, so 19,648 € more depreciation volume. At a 42 percent marginal tax rate that is roughly 8,252 € of liquidity that reaches you four years earlier. From year eleven onwards the degressive rate falls below the linear one (8,981 € against 9,000 €), and that is the point to switch at the latest. In sum this is an interest and liquidity advantage, not a gift: the same building is written off either way.

Sonder-AfA for new rental housing (§ 7b EStG)

§ 7b EStG allows an additional special depreciation of up to 5 percent per year, in the year of acquisition or construction and in the three following years. The hurdles are high, and sales brochures like to skip over them:

• Building application after 31 December 2022 and before 1 October 2029 (the earlier window ran from 31 August 2018 to the start of 2022).
• Construction cost ceiling of 5,200 € per m² of living space. If it is exceeded, the benefit falls away entirely, not pro rata.
• The depreciation basis is capped at 4,000 € per m². Building more expensively does not mean depreciating more.
• Effizienzhaus 40 with the sustainability class, evidenced by the Qualitätssiegel Nachhaltiges Gebäude (QNG).
• Ten years of letting. Selling earlier or moving in yourself forfeits the Sonder-AfA retroactively.

6. Location: macro, micro and what is actually measurable

"Location, location, location" is the most useless sentence in the industry, because it never says what to measure. Separate the two levels cleanly. The macro location is the city or the district and decides demand ten years from now. The micro location is the radius of roughly 500 metres around the front door and decides how quickly you find a new tenant in November.

Property

• 2 to 3-room flats are the easiest to let, because the target group is the broadest
• Year of construction 1960 to 1990: often a favourable purchase price, but check the renovation needs and the GEG obligations
• Ground floor and top floor without a lift are harder to let and harder to sell on
• Grundbuch: encumbrances in section II, rights of way, rights of residence, Erbbaurecht (leasehold)

7. Tenancy law as a yield risk

The rent stated in the Exposé is not the rent you are allowed to charge. German tenancy law caps it in three places, and each of those caps can topple a calculation that worked on paper.

Mietpreisbremse (§ 556d BGB)

In areas with a strained housing market, the rent on a new letting may exceed the ortsübliche Vergleichsmiete (customary local comparative rent) by at most 10 percent. Which areas those are is set by the Land governments in a statutory instrument. Any such instrument must expire by 31 December 2029 at the latest. Before you buy, check whether your municipality appears in your Land's ordinance, because the "achievable rent" quoted in an Exposé routinely ignores it.

Kappungsgrenze (§ 558 BGB)

In an ongoing tenancy you may raise the rent by at most 20 percent within three years, and in areas with a strained housing market only by 15 percent. On top of that come waiting periods: the rent must have been unchanged for 15 months, and a year must have passed since the last increase. Anyone buying a flat with a markedly below-market sitting rent and planning to "simply raise it" will need years.

Modernisation levy (§ 559 BGB)

After a modernisation you may raise the annual rent by 8 percent of the costs attributable to the flat. Two brakes apply: the maintenance share has to be stripped out (whatever would have been due anyway does not count), and the monthly rent may not rise by more than 3 € per m² within six years, or only 2 € per m² if the starting rent is below 7 € per m².

And the tenant stays

When you buy a let flat you step into the existing tenancy, sale does not break the lease (§ 566 BGB). Evicting the tenant for personal use is not the point of a capital investment anyway, but even if it were: if the flat was converted into Wohnungseigentum only after it was let, the blocking period of § 577a BGB applies, three years, which Land governments in strained areas may extend by statutory instrument to up to ten years. Several Länder have done so. Check your Land's ordinance, and check the purchase contract for the date of the conversion.

8. WEG risks: maintenance reserve and Sonderumlage

With a condominium you are not just buying a flat, you are buying a share of a building whose renovation other people vote on. The Wohnungseigentumsgesetz names the "accumulation of an appropriate Erhaltungsrücklage (maintenance reserve)" in § 19 Abs. 2 Nr. 4 as part of proper administration. What counts as appropriate is not defined in the statute. A defensible benchmark comes from § 28 Abs. 2 of the Zweite Berechnungsverordnung with its maintenance allowances:

Practice almost always falls short. Work the real case through: a building from 1985 with twelve flats and 900 m² of living space sets aside 0.40 € per m² and month. After 15 years the reserve holds 64,800 €. Then the roof needs replacing, at 180,000 €. That leaves 115,200 € missing, and the association raises it through a Sonderumlage: a resolution on additional advance payments under § 28 WEG, allocated by co-ownership shares. On your 70 m² that is 7.78 percent, so roughly 8,960 €, due within a few instalments.

9. Typical mistakes with capital investments

10. Sample calculation: a flat as a capital investment

11. The exit: the ten-year rule and the three-object limit

The sale decides the total return, and it is the point where most calculations collide with the tax office for the first time. Two rules have to be understood before you buy, not before you sell.

The ten-year period (§ 23 EStG)

The gain from selling a let property is a private disposal transaction if no more than ten years lie between acquisition and disposal. In that case it is taxed at your personal rate. Once the ten years have passed, it is tax free. What counts are the dates of the notarised contracts, not the handover and not the entry in the land register. If you bought on 3 February, the earliest tax-free sale is on 4 February ten years later.

Owner-occupied property is exempt if it was used for your own residential purposes in the year of sale and in the two preceding years. For a capital investment that only matters if you move in before selling. There is also an exemption threshold across the board: if the total gain from private disposal transactions in a calendar year stays below 1,000 €, it is tax free.

Commercial property trading and the three-object limit

Anyone buying and reselling several properties in quick succession will at some point stop being treated as a private investor and start being treated as a trader. The threshold appears in no statute, it is judge-made law: the Grand Senate of the Bundesfinanzhof confirmed it in its decision of 10 December 2001 (GrS 1/98). Rule of thumb: selling more than three objects within roughly five years of acquiring or building them is, as a rule, commercial property trading.

The consequences are unpleasant and hit every object retroactively: the ten-year rule of § 23 EStG no longer protects you, every gain is taxable. Gewerbesteuer (trade tax) is added. The properties become current assets, which removes the AfA. And the five-year period is not a hard edge: in individual cases the Bundesfinanzhof also pulls in sales up to ten years after acquisition, particularly for people working in the property industry.

12. Checklist: assessing a property as a capital investment