What Makes a Good Investment Property in Germany?

Key takeaways

• The location of a house you are planning to buy is of utmost importance. You must check the demographics, employers, and universities in the area.
• Use the Progonos Zukuft atlas to identify areas with good prospects.
• We find investing in smaller properties better than bigger ones as they are cheaper, easier to rent, and maintain.
• Calculate the rental yield to filter properties worth looking into quickly.

This is how you do it

• Use Prognos Zukunftatlas, Immocation Tool, and manual research to identify good areas. Then, visit the areas to further evaluate them.
• Create your tenant’s persona. This will help you determine the property type you must buy in which area.
• Calculate the maximum purchase price using the market rent and mortgage interest rate. This will help you quickly filter the properties worth investigating.
• We have written a book on buying a house in Germany. It explains the complete buying process, how to invest in German real estate, and offers expert tips that’ll save your thousands of euros.

Table of Contents

There are many ways to invest in the real estate market, such as fix and flip, developing land, commercial real estate, etc. Your choice depends on your risk appetite, capital, expertise, and the time you can invest.

We are sharing the fundamentals we found best for people who have a full-time job and want to build assets through rental properties on the side.

Here are the three things you should consider when buying an investment property.

• The area where you are planning to buy a property
• The property you want to buy
• Calculate rental yield

Choose the right location to buy a property

The first step in the real estate investment journey is picking the right location. Here are the key things that an area must satisfy to qualify as good.

#1 Population growth over time

The population of the area should increase and not decrease over time.

A declining population usually indicates that people no longer want to live in the city. This could be because of a lack of job opportunities, universities, or other reasons. 

In short, you don’t want to buy a property in an area where no one wants to live.

You can check a city’s demography here.

Simply enter the city’s name, and the website will show you its population, demographic split, trend over time, and more. You can even check the percentage of your target age group. 

For example, your customer (tenant) is a young adult. You can check whether the percentage of young adults in the area is increasing or decreasing, and whether they are moving in or out of the area.

All this data eliminates guesswork and paints a clear picture of an area.

Conclusion: Pick an area with a growing population of your user group.

#2 Number of employers and universities

People prefer living in an area with good job opportunities. Similarly, an area with a university attracts both students and companies.

There must be several employers in the area. You should avoid places that have only one big employer.

The reason is that if the employer moves its operations to another city or country, the people will also move. So, your success is dependent on one employer. 

On the other hand, if there are several employers in the region, you can diversify your risk. Even if one or two employers move their operations, it won’t impact your rent.

A Google search or asking AI can help you find employers and universities in your shortlisted area.

Conclusion: Choose areas that have multiple employers and university(s).

#3 How do you find a good area?

There are three ways to find good areas.

• Progonos-Zukunftatlas
• Immocation Standort Tool
• Manual research on ImmobilienScout 

#1 Prognos-Zukunftatlas

To find good areas, you can refer to the report from Prognos-Zukunftatlas. You can download it for free here.

Prognos rates German cities based on demographics, employment, and future prospects. The cities are grouped into classes from 1 to 8. Cities in Class-1 have the best future growth prospects, and those in Class-8 have the worst.

• Class-1 cities are Munich, Darmstadt, Stuttgart, etc. Finding a good investment property in these areas is tough, as the property prices are too high. 
• Class-2 and Class-3 cities are Hamburg, Düsseldorf, Bonn, Dresden, etc. You can find something interesting in one of these cities or neighbouring areas.

#2 Immocation Standort Tool

You can also use the city tool from Immocation. It allows you to filter cities by population, rental yield, and more.

The tool presents you with all the information, such as an area’s average purchase price, rent, population, and rental yield. You can also compare cities, giving you a good starting point. 

#3 Manual research

Once you have shortlisted two to three cities, you should dig deeper. 

Go to ImmobilenScout to check the rental properties listed in the area you are interested in. See what rent landlords charge for the type of property you want to buy. 

For example, suppose you want to buy a one-room apartment. In this case, check the one-room apartments listed on ImmobilenScout and the rent the landlords are asking.

Also, follow the rental properties you found good and check how quickly they were unlisted from the portal. The quicker, the better. This means there is more demand than supply.  

You should also evaluate the area online and by visiting it.

Conclusion: Focus on cities in Class-2 and Class-3. Ensure the rental properties in the area are delisted within a month—the sooner, the better. Finally, evaluate the area online and by visiting it.

Criteria to consider when searching for an investment property

#1 Size of the property

The type of tenant you are looking for determines the size of the property.

Students prefer cheap one-room apartments, young couples prefer two-room apartments, and families prefer three- or four-room apartments.

We prefer small apartments (1 to 2-room apartments) over bigger properties for the following reasons.

• They are cheaper than bigger apartments.
• Easier to rent.
• You can get better per sqm rent from smaller properties than from the bigger ones.

Students as tenants

• A one-room apartment in a city with a university costs between 70,000€ and 150,000€. So, it’s cheaper to buy than a three-room apartment that may cost at least 300,000€.
• Students are good tenants, assuming their parents guarantee the rent payments.
• Students leave the property after 3 to 4 years. Therefore, you can rent it again at the market price.

Young working couples as tenants

• A two-room apartment costs between 150,000€ and 300,000€.
• Young working couples are the best tenants as they are both earning. Thus, you don’t have to worry about timely rent payments.
• Couples usually keep the place tidy.
• Young couples eventually move to a bigger place as their income or family grows, or to a new city due to their jobs. Thus, you can rent the apartment again after 3 to 5 years at the current market rate.

We prefer young working couples as tenants. 

We have experienced tenants with limited or no income, usually complaining more than tenants with good income.

For example, high-income tenants typically fix things themselves if they break them by mistake. On the other hand, tenants with limited income prefer that the landlord fix it. This leads to complaints and tension between the landlord and tenant. 

Conclusion: Buy a smaller property (up to 55 sqm or 1 / 2-room apartments). Consider the needs of your customer (tenants) when buying the property.

#2 Property age

Germany takes pride in its construction quality. So, you don’t have to worry about buying an apartment in a well-maintained building constructed in the 1960s.

Buildings older than the 1960s must be inspected more carefully, and help from an expert (Bausachverständiger) is recommended.

Moreover, tenants don’t care when the property was constructed. They are happy as long as it is well-maintained and meets their requirements.

However, you should consider the following before buying a property.

• When was the last renovation of the building and the apartment? Even if the apartment is in poor condition, the building should be in good condition. Don’t buy an apartment in a poorly maintained building. The reason is that you can renovate your apartment anytime you wish. However, to renovate the building, you need approval from all other owners. Moreover, if the building had not been maintained before, there is a high chance it will not be in the future.
• Check the heating system and energy efficiency of the old buildings. The laws regarding energy efficiency are changing, and old buildings with gas or oil boilers need to be modernized in the next 10 to 20 years to comply with the laws. 
• Newly built homes are more expensive than the old ones. Buying a newly constructed apartment usually doesn’t make sense from an investment perspective due to the low rental yield.
• Check when the high-expense items were renovated. If they are due for renovation, ask the Hausverwaltung the following questions.
  • When is the renovation planned?
  • Do they have enough financial reserves to cover the costs?
• Stay away from buildings that show signs of water damage. Always check the basements and walls of the building for water damage. 

You can learn things you must check before buying a property in Germany here.

Conclusion: A building’s age doesn’t matter if it’s well-maintained and offers a good rental yield. Don’t confuse building upkeep with apartment upkeep. Stay away from buildings in poor condition. 

#3 Rented vs vacant property

Rented properties are usually cheaper than vacant properties. However, you must check the rental yield before making a decision.

We prefer vacant properties over the rented ones.

If you buy a rented property, you will become the new landlord. Here are some restrictions when buying a rented property.

• You cannot replace the old tenant with a new one, unless you decide to move in yourself.
• You can’t increase the rent to match the market price. 
• You can increase the rent to a maximum of 20% only if no rent increase has occurred in the past three years. 
• You must comply with the old rental contract. You can only make changes to it if the tenant agrees.

Thus, it’s vital that you check the rental contract and interview the tenant before buying the property. You must also calculate the rental yield to ensure the property price matches the rent.

Lastly, ask the previous owner to transfer the tenant’s rental security deposit to you. As a new landlord, you must repay the security deposit when the tenant leaves. 

Calculate the rental yield

You selected the area, determined your customer (tenant) persona, and the property type. The last puzzle piece is determining if the rent and the purchase price match. 

What is rental yield?

The rental yield expresses the relationship between the property rent and price. It evaluates a rental property’s profitability. 

You can use the rental yield to quickly identify whether you should invest time in researching a particular property. 

How do you calculate rental yield?

The technical way to calculate the rental yield is by dividing the annual rent by the property’s purchase price. This will give you a percentage.

But what does this percentage mean? To understand it, you must understand the concept behind it. 

There are five variables in calculating the rental yield.

• Property rent – You can check similar properties on ImmobilenScout to find the average rent in an area.
• Mortgage interest rate –  Varies based on your profile and current ECB (European Central Bank) rates. The interest rate is around 4% (as of 2025).
• Mortgage repayment rate—This is the percentage of the purchase price you will repay in a year. You can get a repayment rate of between 1.5% and 2.5%. We prefer a 2% repayment rate. 
• Maintenance costs – We assume it to be 1% of the purchase price.
• Purchase price of the property

The idea is that if your rent can cover your mortgage installment and maintenance costs, the property is a good investment from a mathematical point of view. 

Let’s understand it with an example. We’ll assume the following.

• Interest rate: 4%
• Repayment rate: 2% 
• Maintenance costs: 1%
• Purchase price: 200,000€

In this case, the total amount you must bring to the table every year is 7% (interest + repayment + maintenance) of the purchase price or 14,000€.

If your annual rent is 14,000€, you can say that the property pays for itself. In this example, 7% is the property’s gross rental yield. This is the property you want to look further into.

On the other hand, if the annual rent is 10,000€ or 5% of the purchase price, you must pay the difference out of your pocket. This reduces the attractiveness of an investment property. In this example, the gross rental yield is 5%. 

So, in this example, properties with 7% or more rental yield are worth investigating.

As you can see, with rental yield, you can quickly filter good investment properties.

Minimum rental yield

There is no maximum rental yield. The higher the better. However, you must know the minimum rental yield you must aim for. 

Continuing with the above example. Suppose you cannot find a property that pays for itself. In other words, the annual rent is lower than 7% of the property price. In this case, you have three options.

• Negotiate a better purchase price with the seller. 
• Negotiate a better mortgage interest with the bank.
• Contribute the difference from your pocket.

Assuming you negotiated the best purchase price and interest rate, but the rent still falls short. The question you must ask next is, what is the maximum amount you should contribute from your pocket? 

Let’s answer it.

The total costs include the repayment of the principal (2% in this example). Principal repayment is your savings or assets.

So, if you contribute part of the principal from your pocket, you still benefit as the tenant pays the other part. On the other hand, if you contribute the whole principal from your pocket, there is no longer a leverage advantage.

The core idea of our real estate investment is that the rent will pay off our property. This doesn’t happen if you pay the entire principal from your pocket.

Thus, it’s vital that your rent covers at least half of the principal amount (2%/2 = 1%) on top of maintenance costs (1%) and interest rate (4%). In this example, your annual rent should be at least 6% of the property purchase price or 12,000€. 

In other words, the minimum rental yield you should aim for is 6%.

You can also look at it the other way around.

Identify the rent you can get in an area and the mortgage interest rate. Based on this information, calculate the maximum purchase price you must pay.

Maximum purchase price

The maximum purchase price you should pay is your annual rent divided by the minimum rental yield. 

Continuing the previous example.

• Suppose you can get 800€ rent per month. This is 9600€ per annum.
•  Assuming a 4% interest rate, a 2% repayment rate, and 1% maintenance costs, the total amount you must bring to the table each year is 7% of the purchase price. Or the rental yield should be 7%.
• Suppose you pay half the repayment rate (2% / 2 = 1%) from your pocket. This reduces your rental yield to 6% (7% – 1%).

In this situation, the maximum purchase price you should pay is your annual rent (9600€) divided by the minimum rental yield (6%). This gives a purchase price of 160,000€. Any property that costs 160k or less is worth looking into.

Conclusion

Always ask yourself: Does the property pay for itself, or do you have to contribute from your pocket? Higher rental yield means nothing if the property doesn’t pay for itself. 

Suppose the rental yield is 9%. However, your property doesn’t pay for itself. In this case, 9% rental yield is not high enough. 

On the other hand, the rental yield is 5%, but the property pays for itself. In this case, it’s worth investing. 

Lower rental yields start making sense as soon as the interest rates drop. 

Buying a home in Germany is time-consuming and involves a lot of money. There are a lot of things you must know before buying a property.

Thus, we wrote a book on buying a house in Germany to make it simple for you. Read it to learn everything there is about buying a property in Germany.