Letting a Freehold Flat: Becoming a Landlord with a Rented-Out Property
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.
For many investors, building their own wealth becomes a priority early on, which often brings rental income from let properties onto the agenda for the first time. If you let a freehold flat (Eigentumswohnung), you can build wealth in a tax-optimised way and have your property indirectly paid for by the tenant. In this article we explain the benefits of this model and what you should look out for as a prospective owner. We also show you what off-market properties mean when buying a flat.
Neo Capital is your point of contact for future-proof, data-driven wealth building through real estate and equities for retirement provision. We help high-earning employees and entrepreneurs convert their tax burden into private wealth through smart investments. We advise you holistically and draw on a network of experts to design your individual investment strategy. Protect yourself and your family with tax-optimised investments – we will advise you personally and on a tailored basis.
The benefits of letting a freehold flat
For landlords, there are various reasons why letting residential property makes sense as retirement provision. Rents develop in line with inflation, which makes letting freehold flats currently the safest form of investment, even after many years. Together with high demand and tax advantages, you as a landlord can reduce your effective tax burden from your very first property and, through depreciation, offset the acquisition of your property against your rental income. Alongside flexible depreciation and building wealth through your tenant, letting a flat proves particularly crisis-resistant in difficult market conditions. The reasons for this are interest rates on your capital that are fixed with the bank over the long term, predictable incoming payments from your tenants and foreseeable rent and price developments on the property market. Besides the ongoing income, selling the property is also an option once your loan has been repaid: under German tax law, a sale after a holding period of 10 years is tax-free, which also applies to the gains made from the increase in the property's value.
The ideal time, thanks to attractive tax advantages
Anyone looking into real estate is often searching for the right time to invest. Unlike owner-occupation, banks are more than happy to finance the purchase of a property for letting, which gives you the chance to buy with little equity. As a result, planned borrowed capital and foreseeable rental income allow a realistic cash flow to be calculated, which you and the bank can work with in almost any market phase.
The perfect moment for an investment slips away with every second: what sounds cryptic at first glance can be explained by the long-term nature of a property investment and the rent it generates. If you are looking for external reasons in addition to this, the special depreciation under Section 7b of the German Income Tax Act (EStG) from 2024 allows you, subject to the relevant conditions, to write off up to 40% of the purchase price in the first four years. You can find more details in our article on special depreciation under §7 EStG.
Neo Capital: your partner for first-class investment properties to let
As you can see, letting a flat is an ideal opportunity to build wealth. If you want to let out residential property, such as a flat, you open up numerous tax advantages. From the tax treatment of repair and maintenance costs through to the deduction of financing costs, financed property brings various benefits for landlords. If you want to start your journey as a landlord, you can benefit from a flat in Berlin from our off-market pool. Every flat stands out thanks to favourable depreciation, an attractive yield and high demand due to the housing shortage in Berlin.
Are you interested in a flat to let and would like to optimise your tax burden sustainably? Together with our team of investment, financing and tax experts, we advise you holistically on buying your first or next flat. In doing so, we take into account your individual situation, your goals and other assets in your portfolio. In the long term, we thus protect our clients through a range of investments and accompany them on the way to their next flat and further tenants. Discover the benefits of efficient wealth building through real estate with us and become a landlord yourself.