“Reports of failed real estate investments are a recurring issue. Sometimes it's due to defects in the property or an excessive price, sometimes excessive expectations of potential tenants and returns. These have a lasting impact, as the amounts are often high and loans are also involved. But real estate, whether owner-occupied or rented out, is part of a broadly diversified portfolio. And such horror stories are not the norm. What is striking is that real estate is becoming increasingly popular as an investment, for wealth building or retirement planning.
This is demonstrated, for example, by data from the financial services provider Dr. Klein Privatbank. According to the data, the share of financing for residential property for rental purposes has increased by around two-thirds within ten years (from 16 to 26 percent). Interhyp, a mortgage broker, also confirms the trend. This year, around one in four financing transactions concluded through Interhyp was an investment (26 percent), says Mirjam Mohr, Interhyp's Chief Sales Officer. This share has continued to rise. In 2023, it was 22 percent, and in 2024, 25 percent.
According to a representative survey by the Federal Association of Real Estate Consultants, Brokers, Property Managers, and Experts (IVD), 58 percent of Germans see home ownership as the best way to provide for retirement in addition to their statutory pension. 43 percent want to use their own four walls themselves, and 15 percent are considering renting (FAZ, February 7). Younger people, in particular, are more likely to rent out a property, while older people prefer to live there. A representative survey by the internet portal Immoscout24 shows even higher values when it comes to investing alone. The differences between age groups are also evident here.
"Having a passive income has always been an advantage," says Roland Lenz, a mortgage specialist at Dr. Klein in Stuttgart. Given that rents have risen significantly over the years, investing in a rental property is all the more worthwhile, despite the equally high purchase prices for residential properties.
Due to the far too scarce living space, rents are expected to continue rising in the future.
Mohr advises taking advantage of the currently stable interest rates. Combined with a significantly more attractive real estate supply, the situation for prospective buyers is currently more favorable than it has been for a long time: "The high demand for rental apartments and the associated rising rents make it a very attractive time for investors to enter the market – provided the location and return are right. However, anyone wanting to invest in real estate shouldn't wait too long. We're already seeing that purchase prices are rising again."
Anyone looking for a property to rent out and hearing that the rental income will pay off the entire property should be very cautious, says Max Herbst of FMH Financial Consulting. Why is such a bargain being offered? Many people would like to buy such properties.
It's also important to consider that individual apartments involve a relatively high amount of work, such as management and repairs, and the risk of rent default is very high.
The bank also has to get involved, says Herbst. It's often a mistake to think that the risk lies solely with the institution and the profit later lies solely with the buyer. The bank will always require additional collateral or an extremely good credit rating, such as a high, secure income. Furthermore, the bank always assumes that there will be no or only reduced rental income at times, and that even then, the loan repayment must be secured. Furthermore, repairs must be planned for over the years. He often advises older people, in particular, who want to use their savings to buy an apartment to rent out, arguing that they can't enjoy their retirement if they're worried about whether the tenant will pay, the apartment being vacant, or major repairs needing to be made.
What else should prospective buyers consider? "When it comes to the location of properties, the general rule is: location, location, location," says Herbst. But a property to rent out can also be worthwhile in the suburbs of major cities. Purchase prices are somewhat more moderate, and rent increases are foreseeable because demand continues to grow. Public transportation and bicycle routes are also now an important criterion.
According to a representative survey by Dr. Klein, cities with more than 100,000 inhabitants are the most popular among those who plan to purchase a property as an investment in the next five years (45 percent).
Together with Horizoom, around 1,000 people in Germany who are planning to buy a property during this time were surveyed. For those who have a lot of equity and want to invest it safely, larger cities are attractive because rents and thus returns are good there, says Lenz. However, those who want to build something up first should avoid these "prime locations," as purchase prices are also very high there.
Mohr from Interhyp says: "Our figures show that B and C locations are currently particularly popular with investors, for example, medium-sized student towns or cities away from major metropolises."
A good half of potential investors (55 percent) would like to buy an apartment as an investment property, and just under a fifth would like to buy a single-family or multi-family home, according to Dr. Klein's survey. Smaller apartments of around 40 to 50 square meters are in demand, especially for starters, says Lenz. They are usually easy to finance and rent out. Often, an existing tenancy is taken over and continued. This has the advantage of ensuring rent is paid from the start and the monthly loan payment is secured.
And the best financing? It's optimal if the monthly costs are completely covered by the rental income, says Mohr. That's certainly the ideal for many. A thorough analysis and early, individual planning are "the be-all and end-all for a sustainable investment decision and financing of a capital investment," she says: "Which fixed interest rate, repayment period, and equity ratio fit your personal strategy? What about return potential, rental income, and how can you evaluate the location of the property? This data helps you make informed decisions and act more quickly."
Unlike for properties for personal use, it's advisable not to set too high a repayment for capital investments, says Lenz. This is advantageous from a tax perspective, and it also allows you to build up reserves for things like rent losses. Changing the repayment rate can also be useful. Especially in the case of a prolonged rental default, it is then possible to reduce the monthly loan payment and offset the lost income through lower repayments. Herbst recommends a 15-year fixed interest rate, allowing you to sell at your leisure in ten years (tax-free sale). From the tenth year onwards, you can then repay your loan free of charge with a six-month notice period. To ensure that a property remains a regret-free venture, there are a few things to consider in advance, even for your own home – and even more so if you intend to rent it out. It's not just about a lot of money. You also commit to such an investment for a longer period than with others.” [1]
1. So bleibt die Geldanlage in Immobilien ohne Reue: Kaufen, um zu vermieten, wird immer beliebter. Doch die Risiken sind hoch. Was es zu beachten gilt / Von Kerstin Papon, Frankfurt. Frankfurter Allgemeine Zeitung; Frankfurt. 19 Aug 2025: 23.
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