Buy-to-let German Mortgage

Taking on a buy-to-let mortgage in Germany? What you should know about taxation and leasing

Because of sinking interest rates and a volatile stock market, buy-to-let properties in Germany have become exciting investment objects. Renting out properties has also become a great source of income due to the growing demand for rental properties in Germany.

In this article, we will explain the basic concept of a buy-to-let mortgage in Germany, as well as the following topics:

  • What is a buy-to-let property in Germany?
  • Which taxes apply for buy-to-let mortgages or investors?
  • What are some tips and tricks for buy-to-let investors?

Man signing contract for a buy-to-let mortgage in Germany.

Buy-to-let property in Germany: what is it?

Simply put, whenever you buy property as an investment (instead of making it your permanent home), you are part of a buy-to-let. When you plan to rent out your property, you can get a buy-to-let mortgage: a loan explicitly made to investors who plan to rent their property. This usually means that your maximum loan available is calculated based on the expected monthly rental income. Use our mortgage calculator to calculate your total purchase costs and our Borrowing Power Calculator, to find out your borrowing power.

As an investor would expect, acquiring a buy-to-let property in Germany means that you are subject to some taxation. Which taxes apply to buy-to-let mortgages for investors in Germany? As soon as you want to rent an apartment or a house you own to third parties, you will have to pay taxes on the rental income.

That’s because German law requires every person to tax their income, no matter the type. In most cases, the interest on mortgages for owner-occupied properties isn’t tax-deductible.  Read here how landlords who rent out a property can save money by declaring their mortgage interest as a business expense.

The rental interest is subject to the following standard progressive income tax rates:

Taxable Income Tax Rate
Less than 9.744 euros 0%
9.744 – 57.918 euros 14% to 42%
57.919 – 274.612 euros 42%
More than 274.613 euros 45%

After calculating the rental income tax, a solidarity surcharge of 5.5% is added.

Improvement costs

If you have properties to rent out or if you invest in a buy-to-let property in Germany, you can offset any expenses resulting from generating rental income.You can offset it against your taxable income from rentals and leases. This usually includes mortgage expenses as well as costs for maintenance, improvements, and repairs.

However, one particular clause regarding costs for improvements states, that if the improvement costs are bigger than 15% of the property’s value, they have to be added to the allowable depreciation. The tax office grants the so-called “Absetzung für Abnutzung” or “AfA” as a building depreciation. Owners can claim the acquisition and production costs of their property against tax.

The annual depreciation rate of 2 percent is the standard. As an exception, you are allowed to depreciate the property at a faster rate. The rates are

If you are interested in renovating or buying an older building, read our articles on Property Modernization in Germany and property valuation.

Buy-to-let in Germany: Capital gains tax

Foreign property owners that sell their property in Germany within 10 years are subject to capital gains tax. These capital gains are included in the annual income of the property owner in the same year the property was sold. So as an example, if a property owner sells their property after nine years for a profit of  200,000 Euro, this amount will be subject to a tax rate of at least 25%.

If the same owner held their property for at least 10 years, this profit would not be taxable. That’s why it can be a good idea to hold a buy-to-let property in Germany for a longer period of time in order to save costs.

Regarding rental property, any profits over 801 euros are subject to a tax plus a solidarity surcharge. Once again, any gains from a property sale are only taxed if you sell it within 10 years of purchase.

What are some tips and tricks for a buy-to-let mortgage in Germany?

Turning a buy-to-let mortgage in Germany into a profitable investment means it is crucial to rent it out appropriately. As the property owner, the design of the rental agreement is your responsibility. Inform yourself comprehensively about your rights and obligations as a landlord/lady. Through previously negotiated contract clauses, you can make individual agreements with your tenant. For example, a graduated rent or whether you want to allow pets in the apartment.

In Germany, the minimum tenancies can be very long: it’s not unusual that a landlord/lady requests a lease period of at least two years for new tenants. When creating the lease agreement, ensure that it contains all the relevant details.

Likewise, make sure you’re aware of the conditions that must be in place to end the deal before the end of the contract period. In most cases, tenancies don’t have a specified duration. That means that as soon as the tenancy starts, the landlord/lady can end it through eviction of the tenant. It must be done by a court decision or with a notice period of at least 3 months. The tenant can dispute this. Also, if the landlord/lady has a valid reason, he can terminate the lease under certain conditions.

Reasons can be, for example:

  • The property is to be sold
  • There is a fixed-term contract
  • There are problems with rent payments (at least two months’ rent in arrears)
  • The apartment is to be used by the landlord/lady

Please always take into account the protection against termination that the tenants have.

Draw up a handover protocol

Buy-to-let in Germany means to give your property to other people in exchange for money. This can lead to unpleasant cases, for example, if the tenant damages the property. Before signing the contract, make an inspection of the property with your prospective tenant. Make a note of any damage that is present before signing the contract. This way, you are on the safe side in case of any undocumented damages. On the page of the German Tenant Association, you will find a template for a handover protocol.

Amount of rent

The amount of rent is specified in the rental contract. In the case of a new contract, it can be negotiated freely (except for rent-controlled apartments) and can be above the customary comparative rent. However, according to §5 of the German criminal law, the rent shouldn’t be more than 20 percent above the average rent.

Increases later on, in the case of existing tenancies, are tied to strict legal regulations (§ 557 ff BGB). The local comparative rent serves as an upper limit. Important: In 2015, updates on the possible rent amounts were realized in some German cities through the so-called rent break or “Mietpreisbremse”.

It is planned that additional cities will follow. If you’re planning on buying a buy-to-let property in Germany or calculating rent income for financing the property, you will have to recalculate in the concerned cities. In the future, a maximum of 10% above the local comparative rent will be permitted for new leases in housing markets with tight competition. The new provision came into operation in June 2015 and now applies to over 370 German cities.

With buy-to-let in Germany and the amount of rent, you should also take into account the cost of repairs. Make sure you have a buffer for such costs. You can read more about this in our article on maintenance costs.

Rental contract

Rights and obligations, caution, and rent amount – the written rental contract contains all significant points. At a minimum, it has to include the following information: the names of the contract parties, the description of the house or apartment (address, floor, location), the amount of the rent, and the start of the tenancy. The rental contract has to be signed by both parties.

In most cases, preformulated contracts are used for the letting of apartments (usually by associations). The advantage is that they factor in current legal changes. Depending on the duration and the amount of rent, there are different forms of rental contracts.

Our LoanLink24 mortgage advisors are happy to answer any questions. Our goal is to help you find the best loan. You may email us at or call us at 0800 05 28000. You can also start with the LoanLink24 mortgage illustrator and check your mortgage optionsLoanLink24 specializes in finding the most suitable property loan for non-German residents. Our algorithm screens more than 400 banks to find the best deal. Our financial advisors are experienced and will guide you through every step. 

You can also start with the LoanLink24 mortgage illustrator here:

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