The complete guide to understanding real estate investing terminology in Germany. From tax benefits to financing, learn the terms that matter.
AfA (Absetzung für Abnutzung) is the German term for depreciation on investment properties. It allows you to deduct 2% of the building value from your taxable income each year for 50 years.
Sonder-AfA is an enhanced depreciation benefit for newly built properties. It allows you to deduct 5% annually for the first 4 years, in addition to the standard 2% AfA.
Cashflow is the net amount of money flowing in and out of your property investment. Positive cashflow means rental income exceeds all expenses; negative cashflow means you pay out of pocket monthly.
Appreciation is the increase in property value over time due to market forces, inflation, and improvements. In Germany, real estate has historically appreciated at 3-4% annually.
ROI (Return on Investment) measures how much profit you make relative to your initial investment. In real estate, it accounts for rental income, tax savings, and appreciation.
AfA (Absetzung für Abnutzung) is the German term for depreciation on investment properties. It allows you to deduct 2% of the building value from your taxable income each year for 50 years.
Appreciation is the increase in property value over time due to market forces, inflation, and improvements. In Germany, real estate has historically appreciated at 3-4% annually.
Cashflow is the net amount of money flowing in and out of your property investment. Positive cashflow means rental income exceeds all expenses; negative cashflow means you pay out of pocket monthly.
In Germany, profits from selling investment property are tax-free after 10 years of ownership (Spekulationsfrist). Before 10 years, gains are taxed at 26.375% (without church tax).
An Eigentumswohnung is individually owned apartment unit within a larger building. Owners share common areas and pay monthly fees (Hausgeld) for building maintenance.
Closing costs (Kaufnebenkosten) include property transfer tax, notary fees, and land registry fees. In Germany, expect 10-15% of purchase price in total closing costs.
Werbungskosten are expenses related to earning rental income that you can deduct from your taxable income. This includes mortgage interest, repairs, property management fees, insurance, and more.
Eigenkapital (equity/down payment) is the cash you put down when purchasing property. German banks typically require 10-30% of purchase price plus closing costs (another 10-15%).
An exit strategy is your plan for eventually selling the property. Key considerations include the 10-year capital gains tax exemption, market timing, and mortgage payoff.
Bestandsimmobilie refers to existing, previously owned properties. They typically have lower purchase prices than new construction but may require more maintenance and don't qualify for Sonder-AfA.
Income tax (Einkommensteuer) in Germany is progressive, ranging from 14% to 45%. Rental income is added to your taxable income, but property expenses reduce it, potentially lowering your overall tax burden.
The interest rate (Zinssatz) is the annual percentage charged on your mortgage. In Germany, rates are typically fixed for 10-20 years. As of 2024, rates range from 3.5-5%.
Land value (Bodenwert) is the portion of your purchase price allocated to the land itself. Unlike buildings, land cannot be depreciated with AfA since it doesn't "wear out."
Leverage (Hebelwirkung) means using borrowed money to increase investment returns. With 80% financing, you control a €500k property with just €100k down, amplifying both gains and risks.
Market value is the estimated price a property would sell for in the current market. It fluctuates based on location, condition, interest rates, and economic factors.
Your marginal tax rate is the percentage of tax you pay on your next euro of income. In Germany, it ranges from 14% to 45%. This rate determines your tax savings from property deductions.
A Mehrfamilienhaus is a building with multiple separate residential units. Investors can diversify risk across tenants and often achieve better yields than single-family homes.
A mortgage (Hypothek or Immobiliendarlehen) is a loan secured by property. In Germany, typical terms include 10-30 year fixed interest rates and 1-3% annual repayment rates.
Mortgage interest (Hypothekenzinsen) is the interest portion of your mortgage payment. For investment properties, it's fully tax-deductible as a rental expense.
New construction (Neubau) refers to properties built recently. They qualify for Sonder-AfA tax benefits and typically have lower maintenance costs but higher purchase prices.
Notarkosten are mandatory fees paid to a notary (Notar) for authenticating property purchases in Germany. Typically 1.5-2% of purchase price, covering contract preparation and land registry updates.
Net rental yield is annual rental income minus all expenses, divided by property value. It gives a realistic picture of cash return. Typical German yields: 2-5% net.
Grunderwerbsteuer is a one-time tax paid when purchasing property in Germany. The rate varies by state (Bundesland) from 3.5% to 6.5% of the purchase price.
Grundsteuer is an annual property tax paid to local municipalities. It's typically 0.3-1% of assessed value and is fully tax-deductible as a rental expense.
The purchase price (Kaufpreis) is the agreed price for the property. This amount is split between building value (depreciable) and land value (not depreciable) for tax purposes.
Property management (Hausverwaltung) companies handle tenant relations, rent collection, maintenance, and legal compliance. Fees typically 8-15% of rental income.
ROI (Return on Investment) measures how much profit you make relative to your initial investment. In real estate, it accounts for rental income, tax savings, and appreciation.
Rental yield measures annual rental income as a percentage of property value. Gross yield uses total rent; net yield subtracts operating expenses and taxes.