Financing for Your Smart Home: How to Cleverly Enhance Comfort, Security, and Property Value
29 Apr 2025
4
Minutes
Katrin Straub
CEO at nextsure
A smart home promises improved quality of life and reduced energy costs. However, the initial investment can be significant. We show you how to strategically plan the financing for a smart home system in your house and benefit from government grants.
The topic in brief and concise terms
The financing of a smart home can be achieved through modernization loans, installment loans, or as part of construction financing.
State subsidies from KfW and BAFA can reduce investment costs by several thousand euros, especially when focusing on energy efficiency and accessibility.
A smart home can increase property values by up to five percent and reduce energy costs by up to 30 percent.
Realistically assess costs and value increase
The costs for a smart home vary significantly depending on the requirements and extent of networking. Simple starter packages with a few radio-based components are available for less than 300 euros. For a comprehensive full installation of a 150 square metre new build, costs can rise to over 40,000 euros. In contrast, there is a potential reduction in energy costs by up to 30 percent through intelligent heating and lighting control. Experts confirm that a well-thought-out smart home installation can increase the property value by up to five percent. This increase in value makes the investment attractive not only for personal use but also for a potential resale. Once the costs and benefits are clear, the choice of the suitable financing method comes into focus.
Choose the right type of financing for your project
The Modernisation Loan as a Targeted Solution
For retrofitting a smart home system in an existing property, a modernisation loan is often suitable. Many banks offer these purpose-bound loans with more favourable interest rates than unrestricted loans, often starting from a sum of €5,000. A key advantage is that for loan amounts up to around €50,000, an entry in the land register is often not required. Such financing can often be applied for entirely digitally. If you would like to learn more about this option, you can find details in our guide on modernisation loans without land registry entry.
The Instalment Loan for Maximum Flexibility
A classic instalment loan offers you complete flexibility, as the use of the loan amount is not tied to a specific purpose. You can use it to both purchase hardware for €10,000 and cover installation costs for €3,000. This flexibility is ideal if you want to combine various components from different providers. You can use such a loan with unrestricted purpose to realise your project without limitations. The term lengths typically range from 24 to 84 months.
Integration into Construction Financing for New Builds or Major Renovations
If you are planning a new build or carrying out a comprehensive renovation, integrating the smart home costs into the construction financing is the most sensible approach. The additional €15,000 to €25,000 is less significant in the total volume of the loan and benefits from low mortgage interest rates. Plan these costs into your overall calculation from the start to avoid the need for additional financing. Beyond taking out a loan, you can significantly reduce the financial burden with government subsidies.
Take advantage of government subsidies to reduce the investment
KfW Programmes for Enhanced Security and Efficiency
The Kreditanstalt für Wiederaufbau (KfW) supports you with low-interest loans if your smart home project meets certain criteria. The programme "Age-appropriate Conversion – Loan (159)" promotes measures that reduce barriers and enhance living comfort. This includes, for example, automated shutters, intelligent lighting, or video intercom systems. You can receive a loan of up to 50,000 euros per residential unit to finance such comfort and security features. For energy measures, the loan "Residential Building – Loan (261)" is relevant, which also supports the installation of digital systems for consumption optimisation.
BAFA Grants for Targeted Energy Saving Measures
The Federal Office for Economic Affairs and Export Control (BAFA) provides direct grants for individual measures that improve energy efficiency. This includes the installation of intelligent measurement, control, and regulation technology, such as smart radiator thermostats. The following points should be noted:
The grant covers 15 per cent of eligible costs.
The maximum eligible costs are 30,000 euros per residential unit per year.
With an individual renovation roadmap (iSFP), eligible costs increase to 60,000 euros.
The application must be submitted before the start of the measure.
By combining KfW loans and BAFA grants, the total investment can be significantly reduced. Once the system is financed and installed, the newly created value must also be adequately protected.
Optimise insurance coverage for your smart home
A smart home increases the value of your property, which requires an adjustment to your insurance coverage. You are legally obliged to report such an increase in value to your insurer (§ 23 VVG) to avoid underinsurance. Standard home contents and building insurance policies often only cover basic risks such as fire or water damage. Specific risks associated with a smart home, such as damage caused by user error, overvoltage, or cyber attacks, are often not included. A specialised smart home insurance provides the necessary protection here. These policies often also cover damage caused by a hacker attack on your connected devices. Expert advice as part of your home and housing insurance helps you find the right policy for your individual needs. To successfully combine all these aspects, some tried and tested practical tips can help you.
Expert tips for successful implementation
Proper preparation is key to successfully financing and implementing your smart home system. The following list summarizes the most important recommendations for action:
Conduct a needs analysis: Clearly define in advance the goals you are pursuing – increased security, energy savings of 20 percent, or pure comfort.
Compare systems: Decide between a manufacturer's closed system or an open, expandable standard like KNX.
Combine financing and funding: Apply for any available grants from BAFA or KfW before finalizing a loan agreement.
Hire professional operators: A professional installation by certified tradesmen ensures proper functionality and is often a requirement for funding.
Secure documentation: Carefully store all invoices and planning documents; they are important for insurance claims and resale.
Request an individual risk analysis now: Have your insurance situation checked for free and receive concrete optimisation suggestions.
More useful links
Statista provides a detailed outlook on the smart home market in Germany.
Another page from Statista shows forecasts on the development of smart home households in Germany.
The Federal Statistical Office provides a table on the equipment of German households with smart devices and systems.
Bitkom informs in a press release about the spread of smart home applications in German households.
On Wikipedia you can find a comprehensive article on home automation (in English).
The Bitkom Smart Home Chart Report 2022 offers detailed insights and data on the smart home market (PDF document).
The Öko-Institut explores the potential of smart homes for energy savings in an article.
FAQ
Which loan is best suited for retrofitting a smart home?
For retrofitting, a modernization loan is often suitable, as it is earmarked and usually offers lower interest rates than an unsecured personal loan. Additionally, for amounts up to approximately 50,000 euros, a land register entry is often not required, simplifying and speeding up the process.
Does my regular home insurance cover smart home devices?
A standard home contents insurance policy often only covers smart home devices against basic risks such as fire or burglary. Specific risks like damage due to operating errors, power surges, or cyber attacks are usually not covered. Therefore, it is highly recommended to have a dedicated smart home additional insurance.
Do I have to repay funding like that from KfW?
That depends on the programme. The KfW usually offers low-interest loans (e.g. Programme 159) that must be fully repaid. Sometimes, these loans include repayment subsidies that reduce the loan amount. The BAFA, on the other hand, provides pure grants that you do not have to repay.
Can I deduct the costs for a smart home from my taxes?
Tradesman services for the installation of a smart home system can be tax-deductible under certain conditions. You can deduct 20 percent of the labor costs (up to a maximum of 1,200 euros per year) from your tax liability. Material costs are not deductible.
What is more important: a wired or a wireless system?
Wired systems (e.g. KNX) are considered more stable, secure, and are a future-proof investment, but are mainly suitable for new builds or major renovations. Wireless systems (Wi-Fi, Zigbee) are more flexible, cost-effective, and ideal for retrofitting existing properties, but they can be more susceptible to interference.
