How Investors Can Finance Their Property Affordably (2024)
This guide refers to German law and the German tax system. It is a translation of our German original and does not replace individual tax or legal advice.
With interest rates rising in 2023, property investors in particular have had to engage with the opportunities on the property market. Real estate financing is one of the most important building blocks on the way to a high-yield investment, which is especially noticeable with new loans for flats and houses. Since financing is decisive for the monthly instalment and therefore for the return on your investment, in this article we share some industry-leading tips and explain how you can finance your property on favourable terms. We also explain why the property loan from your house bank is only rarely the optimal decision.
Neo Capital supports high-net-worth individuals and entrepreneurs in correctly structuring long-term investments and converting tax liabilities into private wealth. In doing so, we design established tax and investment optimisation models for our clients to ensure optimal provision, from the portfolio to the property. Rely on our network of real estate and financial experts as well as tax advisers and notaries.
Real estate financing explained simply: process and components
Financing begins with detailed planning of the property purchase. A frequently underestimated question concerns your personal situation: how much property can I afford? Besides income, ongoing expenses are particularly decisive here. A household budget can help and provide an initial overview. How large the instalment for repaying the construction financing, home financing or loan for your flat may be results from part of the difference between your income and your expenses. The next step in financing is essentially about basic financeability. Here, banks are particularly interested in two factors: is it an investment property that continuously generates income, or is it your own home, which is attributable to private consumption? The decision on the amount of equity required also arises between investment and consumption. This is the capital you contribute yourself when buying. While banks may agree to 0% of the purchase price for a property loan for an investment, experience shows that the requirement for an owner-occupied home is higher. The exact capital requirement should ideally be determined in parallel with selecting the right property in order to avoid a subsequent wave of rejections for the real estate financing.
Investment properties at favourable interest rates
For all parties involved, the let property is the best deal in terms of financing. Banks enjoy the security that a tenant repays the majority of the loan, while the buyer has to raise considerably less capital. In addition, there are offers from the Kreditanstalt für Wiederaufbau (KfW, the German state-owned development bank) that finance the construction or purchase of a property on attractive terms. While many providers and banks rely on in-house financial products when advising on financing, an independent comparison by an external adviser is worthwhile. The opportunities offered by the KfW in particular are first-class options, for example for renovating existing properties or obtaining construction financing at low cost. The largest building block in the active financing phase is the term and the interest rate of the loan. While a long fixed-interest period on favourable terms is the dream of many investors, reality often looks different. In principle, investors buying a property must pay attention to the effective annual interest rate, which covers all costs of the financing. In contrast, there is the nominal interest rate: a difference that can have a strong impact on the monthly instalment of your real estate financing during planning. If the property is fundamentally financeable, investors often have two terms available: put simply, a long term with low instalments and a shorter term with higher instalments. How interest rates affect this decision should definitely be calculated and taken into account by an expert.
Neo Capital: advice on buying property at low interest rates
As you can see, real estate financing involves numerous pitfalls and is therefore not a task for inexperienced investors. Rather, investors should turn to experienced intermediaries in order to benefit from large networks, offers and expertise. In most cases, it is also hardly possible on your own to obtain attractive offers, objective comparisons and advice for your individual situation. Financial advisers are able to compare construction financing or real estate financing across numerous providers. Your individual situation is taken into account, while at the same time expensive mistakes in calculating loans and returns are avoided. This is because experienced advisers always plan an individual strategy for real estate financing on the way to their clients' own property and pursue it together with them. If you are about to buy a property or would like to expand your portfolio, we offer you comprehensive access to our network of banks and years of practical experience. Alongside the classic platform business, our experts in real estate financing, construction financing and loan brokerage also realise exclusive off-market deals with attractive returns. In this way, we give you access to properties and loans with first-class return opportunities even in times of rising interest rates. Take advantage of our advice and experience tailor-made approaches for your real estate financing, follow-up financing or construction financing.