Property loan for investors: Optimise returns with precise calculation
7 Jun 2025
4
Minutes
Katrin Straub
CEO at nextsure
An investment property is more than just rental income. The wrong property loan can significantly reduce your returns and jeopardise wealth accumulation. We'll show you how a detailed comparison and an accurate return calculation can help you find the optimal financing for your investment.
The topic in brief and concise terms
The return on equity is the key metric for investors, as it takes the financial leverage into account.
A low repayment (e.g. two percent) increases the monthly cash flow, while a long fixed interest rate period protects against interest rate risks.
Tax benefits such as depreciation (AfA) and the deduction of loan interest significantly increase the net yield.
Laying the foundations: Gross and net rental yield as initial indicators
The gross rental yield is a quick but superficial metric. It simply puts the annual net cold rent in relation to the purchase price. An apartment for 300,000 euros with an annual rent of 12,000 euros achieves a gross yield of four percent.
More meaningful is the net rental yield, as it takes into account purchase ancillary costs and non-recoverable management costs. With 10.2 percent ancillary costs (30,600 euros) and 2,500 euros in annual costs, the yield already drops to 2.87 percent.
However, both metrics ignore the largest cost block: financing. Only the consideration of interest and repayment services shows the true profitability. This initial analysis helps to quickly sort out unprofitable offers with a simple household calculator. However, the actual basis for decision-making is only provided by the calculation of the return on equity.
Maximising Returns: The Return on Equity as a Key Metric
The return on equity shows how your invested capital is actually yielding interest. It relates the net annual income (rent minus all costs, interest, and taxes) to the equity you have invested. The lower the equity investment, the higher the leverage effect can be.
An example calculation illustrates this:
Purchase price including incidental costs: 330,000 Euros
Equity: 66,000 Euros (20 percent)
Loan: 264,000 Euros at 3.5 percent interest p.a.
Net annual income before interest: 9,500 Euros
The interest costs in the first year amount to 9,240 Euros, so the profit is only 260 Euros. The initial return on equity is therefore only 0.4 percent. An annuity loan changes this ratio over time. Without considering tax advantages and repayment, it becomes clear how crucial low interest rates are.
Uncover hidden costs: Plan additional and ongoing expenses realistically
Incidental purchase costs are a significant factor that is often underestimated. They generally need to be paid from equity and amount to between eight and 15 percent of the purchase price, depending on the federal state. For a purchase price of 350,000 euros, this can quickly amount to over 35,000 euros.
The most important incidental costs include:
Property transfer tax (3.5 to 6.5 percent)
Notary and land registry costs (approximately two percent)
Broker's commission (often between 3.57 and 7.14 percent)
Ongoing, non-recoverable costs such as the maintenance reserve (often one to two euros per square meter and month) and costs for property management further reduce the yield. An exact calculation, for example, for a garage as an investment, is essential. These expenses determine the long-term success of your investment.
Leveraging financing: Selecting the right property loan for investors
Choosing the right loan is the strongest lever for increasing returns. The conditions important for investors differ from those for owner-occupiers. A lower initial repayment rate, for instance, of just one or two percent, increases the monthly cash flow.
A long fixed interest period of 15 or 20 years secures today's conditions and protects against rising interest rates. As of July 2025, current mortgage interest rates are around 3.4 percent for ten-year terms. Comparing different providers is crucial to finding the best construction financing.
Our expert tip: Pay attention to the possibility of special repayments. Even if you choose a low ongoing repayment rate, a special repayment option of five percent per year gives you the flexibility to become debt-free faster if needed.
Tax advantages as yield boosters: Understanding depreciation and interest deductions
As a capital investor, you can deduct significant expenses from your taxes, thereby increasing your return. The two most important items are the interest on your property loan and depreciation. The loan interest is fully deductible as advertising costs.
Depreciation allows you to write off the acquisition or construction costs of the building (excluding the land portion) over 50 years at a rate of two percent per year. With a building portion worth 250,000 euros, you can claim 5,000 euros annually for tax purposes.
These tax deductions reduce your taxable income and result in noticeable tax savings. Costs for necessary landlord insurance can also be claimed as advertising costs. This way, the government indirectly becomes involved in the costs of your capital investment.
Securing the Future: Strategies for Follow-up Financing and Interest Rate Protection
The initial fixed interest rate period will eventually end, often after ten or fifteen years. It's not uncommon to have an outstanding debt of over 75 percent after ten years with a repayment rate of two percent. If interest rates rise during this time, your new monthly payment could significantly exceed your budget.
To minimize this risk, you can use a forward loan. This allows you to lock in current interest rates for your future refinancing up to five years in advance. A small interest premium is required, which can be worthwhile if a rise in interest rates is expected.
Proactive monitoring of the market is essential to ensure you don't miss the right moment to secure the terms. With a forward loan, you create planning security for decades. This way, your investment remains a profitable venture in the future.
Request a personalized risk analysis now: Have your insurance situation examined free of charge and receive specific optimization suggestions.
More useful links
The Deutsche Bundesbank offers a comprehensive indicator system for the German residential property market.
The Federal Statistical Office (Destatis) provides detailed tables and data on house and land prices.
Current interest rates and yields for residential construction loans to private households can be found at the Deutsche Bundesbank.
The KfW provides information on its home ownership program (124) to support the acquisition of home ownership.
A detailed study on property taxation is available from the ifo Institute.
Information on the long-term success of real estate investments can be found at Wüest Partner.
FAQ
How do I calculate the return on my investment property?
The simplest method is the gross rental yield (annual cold rent / purchase price * 100). More meaningful is the net rental yield, which includes additional costs and non-recoverable expenses. For a final assessment, you should calculate the equity yield, which also takes financing costs and tax benefits into account.
What role do the ancillary purchase costs play in the calculation of returns?
The additional purchase costs (land transfer tax, notary, agent) often amount to over ten percent of the purchase price and usually have to be paid from equity capital. They increase the total investment and thus reduce the initial return.
Why is a low repayment often better for investors?
A low repayment rate (e.g., 1-2%) results in a lower monthly installment. Consequently, more of the rental income remains as surplus (cash flow), which enhances liquidity and can be used for further investments or savings.
What is depreciation (AfA)?
The AfA is a tax deduction on the value of the building (not the land). For buildings constructed after 1924, you can claim two percent of the acquisition and construction costs as tax deductible each year for 50 years.
How can I protect myself from rising interest rates when refinancing?
With a forward loan, you can lock in today’s interest rates for refinancing in the future, often up to 66 months in advance. This offers planning security but incurs a small interest surcharge.
Are the consultancy services from nextsure free of charge?
Yes, our mission is to offer you tailored and easily understandable insurance solutions. An initial risk analysis and specific optimization proposals are free of charge for you.
