The property is still one of the most popular investments in Germany. No wonder, because many saver worried and wonders about the stability of the euro or possible inflation in the euro area. As a capital investment, a rented property seems to be the ideal solution. It stands for a real asset that promises security and constant rental income. Depending on the region and property attract attractive returns.
However, real estate investments are rarely realized with full equity equity. Almost always there is a mortgage loan. Previously, many real estate investors are wondering how much equity they should use in the context of real estate acquisition and financing. We provide information and give tips from practice.
Use of equity is good
In general, it is advisable to use equity – the more, the better. But some investors doubt this advice, because then their rental income taxed higher. At first glance, this is correct. The more interest paid to the bank, the higher the deduction on revenue and the lower the tax burden. On the other hand, taxes are saved, but money flows to the bank. If you can deduct less from rental income (interest), you have to pay more taxes, but the bottom line is a higher profit.
To pay property completely with equity?
There are real estate investors who theoretically do not have to borrow. Whether this is recommended for equity equity is a question of the investment strategy. Likewise, it would be possible to use only half of the capital and to finance the remainder. In return, there would be an option to purchase two properties or residential units.
As a rule, financing is easy, ie the monthly rental income covers the loan installments. At the same time a sufficient repayment is guaranteed, so that the property pays off over time by itself.
Finally, with sufficient equity, the question arises how many properties one would like to own as a real estate investor. For example, there are also people who would like to own several residential units in multiple dwellings in order to have more voting weight at owner meetings.
Do not invest all the savings in the property
Another issue is an existing financial buffer to hedge against future costs. If payment default by the tenant or modernization: Without financial reserve may threaten serious financial difficulties. Assuming that the rental payments stay off, then it still applies to continue to pay house fees, property tax etc.
The book should be at least large enough to bridge a period of at least half a year. It is better, however, to cover a whole year in order to be fully protected.
Advice on financing
Are you thinking of buying a property as an investment or have you made your decision? We are happy to assist you in designing your financing. Our independent finance specialists help you to optimally match the real estate loan to your situation. In addition, we examine the market and compare conditions of more than 400 different financing partners to give you access to a particularly favorable financing.