Real estate as a capital investment
Buying a property as an investment
Real estate is considered a solid investment – but is it really worth investing in apartments and the like, and what should you bear in mind? In this version, we take a holistic view of real estate as a capital investment: from classic rental apartments to special properties such as care properties and the valuation standards used to assess profitability. This gives you a comprehensive overview of whether a real estate investment is worthwhile for you.
Why invest in real estate?
In view of low interest rates on savings accounts (often close to 0% in recent years) and fluctuating stock markets, many Germans have rediscovered real estate as a form of investment. A condominium or house promises tangible value, regular income from rent and usually an increase in value in the long term.
Real estate can also serve as a retirement provision – you can either live in your own property rent-free in old age or sell it for a profit. Unlike purely financial investments, real estate also offers a certain degree of protection against inflation, as both rental prices and material assets tend to rise in line with inflation. However, real estate investment usually requires higher entry sums and is less liquid – you cannot sell an apartment as quickly as a share.
Apartment as an investment – advantages and pitfalls
A particularly popular option is to buy a condominium to rent out. The advantages are obvious: monthly rental income increases your income and can even cover part or all of your living expenses if you have several apartments. In sought-after cities such as Berlin, basic rents of several hundred to over a thousand euros per month are possible, depending on the location and facilities. In addition, many investors speculate on value appreciation: in urban centers, apartment prices have risen sharply in recent years. Those who bought early have been able to multiply their invested capital. However, there are also risks and obligations associated with an apartment.
Running costs include, for example, property tax and insurance for landlords (liability, homeowners’ insurance). Maintenance also costs money: Reserves for renovations are essential. Do not underestimate these costs – renovations in particular (such as a new roof, new pipes or windows) can be very expensive and reduce the return considerably if you do not make provisions for them in good time. There is also the risk of
Market developments and political intervention are another imponderable: In some major cities, rent levels appear to have reached a plateau – at the same time, there are political instruments such as the rent brake that limit your scope for rent increases. Increased new residential construction in the neighborhood can also depress rent levels. This means that residential investments generally only yield a profit in the long term and require active management (letting, maintenance, organizing tenant changes if necessary).
If you are aware of this and calculate carefully, apartments can still be a sensible investment. Rule of thumb for valuation: Pay attention to the
In such cases, you are speculating heavily on capital appreciation, which can be uncertain. Experts therefore advise: If the purchase price is more than 25-30 annual rents, caution is advised if you are looking for a return.
Care properties and special properties
In addition to traditional rental apartments, care properties can also be an interesting capital investment. Here you invest in a care apartment and benefit from long-term rental contracts with the operator as well as state-guaranteed rental income. Yields are often in a similar range (approx. 4-6%) or higher. The advantage is the fixed rents paid by the operator and the relief in terms of administration and maintenance (this is usually done by the operator).
However, investors have less influence and are heavily dependent on the chosen operator.
Most newcomers therefore focus on residential properties – these are considered particularly secure because housing is a basic need.
Financing and leverage effect
A major attraction of real estate investments is the leverage effect of debt financing. Thanks to currently moderate interest rates (around 3.5% for 10-year loans in May 2025), you can finance part of the purchase with loans and thus control a large investment with relatively little equity. The rental income is then used to service the loan. It is crucial to calculate ancillary costs and the equity ratio correctly.
The ancillary purchase costs (land transfer tax, notary, land register, possibly estate agent) add up to approx. 10-15% of the purchase price, depending on the federal state. Banks generally require that at least these ancillary costs are paid from
Private owner-occupiers without savings should be particularly careful: The monthly installments for 100% financing are high and must not place an excessive burden on your income. Banks generally check your creditworthiness very carefully, especially if there is no buffer in the form of equity. Therefore, make sure you have a clear financial plan: list all current income and expenses, plan reserves for vacancies or repairs and convince the bank with a coherent concept.
Obtain several financing offers and, if necessary, seek support from an independent financial advisor. With good preparation, you can negotiate better conditions. Also think strategically: it may make sense to save up equity first in order to achieve better interest conditions and lower installments – because the more equity you have, the lower the borrowing rate and installment will usually be.
Recoverability and valuation (income capitalization approach)
To decide whether it makes sense to buy a property as an investment, you need to compare the value and the income. This is where the income capitalization approach comes into play – a common valuation method for rented properties. The first step is to calculate the
Put simply, the method answers the question of what purchase price a rational investor would pay in order to achieve a normal market return (the property yield) for a given rent. For you as an investor, the following is important: Do the purchase price and income value match? If the asking price is significantly higher than the capitalized earnings value (e.g. because the property is being traded at a high price in speculative expectation of an increase in value), then the current yield is low. In such cases, buyers speculate on future rent increases or value growth – a project with uncertainty.
Conversely, a purchase price below the capitalized earnings value can signal a bargain (perhaps also due to risks associated with the property). This is where the expertise of aSoll real estate valuer or estate agent who is familiar with the capitalized earnings value method can help. Especially in the case of apartment buildings or complex investment properties, you should not hesitate to have a professional valuation carried out.
For example, ADEN Immobilien offers well-founded valuations and calculates what rental yield can be expected and how certain factors (renovation backlog, rental development, location quality) affect the value.
Diversification and alternatives
Bear in mind that a property as an investment often ties up a lot of capital – don’t put “all your eggs in one basket”. Many experts advise viewing real estate as part of a mixed investment portfolio. If you don’t have enough capital or risk appetite to buy a home outright, real estate investment trusts or REITs (publicly traded real estate investment trusts) could be alternatives for investing small amounts in real estate markets. However, these do not offer such tangible benefits as direct rental income or owner-occupation prospects.
Conclusion: A property can be a worthwhile capital investment – provided you choose objectively and plan for the long term. Residential property for rent provides ongoing income and potential capital appreciation, but also requires commitment as a landlord and financial reserves. Care properties and other special segments offer attractive, often more comfortable income, but are an investment niche with special conditions. It is crucial to calculate profitability realistically and not be blinded by real estate hype.
Calculate all the costs, run through various scenarios (e.g. “What if the property is empty for a few months?”) and put your financing through its paces. If the figures are right and you can get the property in a good location at a reasonable price, the chances of a successful investment are good.
Frequently asked questions (FAQ)
Depending on the location and condition of the property, between 2 % and 5 % gross yield.
A method for valuing rented properties based on annual net income and land value.
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