Buying a house in Germany – three things you need to know before committing

03 Aug
Buying a house in Germany

Buying a house in Germany – three things you need to know before committing

So you think you’re ready to settle in Germany – at least for a little while.  Buying a house in Germany does make sense. After all, property prices are shooting through the roof: in 2016 home prices increased by 10.2% (or 8.4% when adjusted for inflation).  2017 and 2018 have showed similar trends.

This booming market combined with the knowledge that it’s better to pay a mortgage instead of rent, makes Germany a fantastic market for real estate investment, but…

… it’s complicated and the ROI calculation is not similar to what US investors are used to.

Germany’s real estate market works very different from that in the US. Buying a house in Germany is at least a 2-year or 10-year commitment.

Let’s get into it.  Before we begin, I use the word house and property interchangeably.  The rules are the same whether  you purchase a house, condo, or apartment.

Factors to consider when buying a house in Germany:

  1. Mortgage loans are shorter.
  2. Mortgage loans often come with a prepayment penalty clause.
  3. Tax penalties apply when an investment property is sold less than 10 years past purchase.

1. Mortgage loans are shorter

In the US, mortgage loans are generally 30-year fixed.  In Germany, banks primarily offer 10-year, 15-year or, in rare cases, 20-year loans.  A 30-year fixed loan is unheard of.  What does this mean for you?  At the 10, 15, or 20 year loan expiration you will have to search the market for a new loan to carry the remaining balance.  If interest rates have gone down, great!  If they have gone up, you may be in trouble.

When working with a bank or a mortgage broker, make sure to ask about the interest rate on all available durations.  Research the market to get an idea where interest rates are going in the near and far future.

By the way, your mortgage broker will work with you to determine an appropriate principal rate (called Tilgung) and interest (called Zinsen).  He/she will tell you exactly how much principal balance will be outstanding at expiration of the mortgage contract.

2. Mortgage loans often come with a prepayment penalty clause

This is one of the main reasons why flipping homes in Germany does not lead to a positive ROI. When the bank offers you a 10-year loan, it is full blown commitment.

If you decide to dissolve the loan before the 10-year mark, you will be required (in most cases) to pay a prepayment penalty, called  Vorfälligkeitsentschädigung

That’s a big word, because it comes with big pain.

The penalty is the total amount of interest you still owe the bank on the total balance of the loan. So, if you’ve held the property for a year and still have 9 years of interest (and principal) to pay, the bank will charge you the remaining 9 years of interest due.  That’s your penalty amount.

That’s the worst case scenario.  Different banks will offer different options and it’s good to ask before signing.

Modifications to the Vorfälligkeitsentschädigung

a) Many banks will only charge you the difference between the interest rate on the loan and the market rate at the time of breaking the mortgage contract.  So, if your interest rate is 4% and current market rate is 3% when you sell the home, they may be kind enough to charge the difference (1%) on the balance of the loan.

Essentially, the bank assumes they can offer someone else a mortgage loan at 3% on the same property.

b) If interest rates have gone up above your rate, you may not have to pay a penalty at all.  In that case, the bank assumes that they can make more money, if someone else takes out a loan to purchase your property.

c) If you let one of their partnering realtors sell the property for you, the penalty may be eliminated or reduced.

Real Estate Germany
Light colors and clean lines are very common in German homes.

3. Tax penalties apply when an investment property is sold less than 10 years past purchase.

The tax liability is different between a home you use as a primary residence and one that you used for investment purposes.

Primary residence

If you make a profit on the sale of a home, the gain is tax free if you used the property as a primary home at least 2 years within the last 3 years. 

Repeat the sentence.

The gain generated on a primary residence is ONLY tax free, if used it as a primary residence at least two years within the last three years.

If you lived in it the property the first two years and then rented it out for two years, you will be tax liable.

The tax liability amount depends on your tax bracket that year.

Investment property

If you hold the investment property for ten years, the gain will be tax free.


On the other hand, if you hold the property for less than ten years, it’s going to hurt.

Selling an investment property before the 10-year mark, triggers a special tax called Spekulationssteuer.  

This means that you not only pay a tax liability on the gain, but you also have to add back the depreciation you had deducted from your income statements in prior years.

Best way to explain this scenario is to show an example.

Let’s imagine you purchased a property with the following total acquisition cost, or upfront expenses.

Anschaffungskosten Acquisition Cost

  • Investment Property: Albert Einsteinstr. 3 in Berlin
  • Purchase Price: €410,000
  • Real estate transfer tax (Grunderwerbsteuer):  €26,650 (about 7%, paid upfront)
  • Realtor fee (Maklerprovision): €14,600 (about 3.57% – that’s currently the max fee they can charge – the realtor decides the fee.  The buyer pays the fee, not the seller.)
  • Notary expenses: €2,050 (about 0.05%)
  • Court fee (Gerichtskasse): €1,000 (about 0.025%).
  • Total fees paid upfront:  €454,300

Why is this important?  This is used to determine how much you can depreciate each year.


With the total acquisition cost, your accountant will determine how much of it to attribute to land (which is not depreciable) and how much to the building (which is depreciable).

If you’re buying a house/condo, you can check the land value directly on Boris (see link below).  If you’re buying an apartment, the calculation is more challenging.

Let’s assume that 50% of the acquisition cost above is attributable to the building and 50% to land, or €227,150.

Old buildings are depreciated at a rate of 2% each year.  New buildings may be depreciated 3% each year.  In our case, assume 2%. So the total depreciable amount each year, on a straight line basis, is €4,543 (or €13,629 over three years).

Let’s say, you decide to sell the property three years later at a price of €480,000.  Let’s also imagine you have a bank penalty of €18,000, which is tax deductible.  Your taxable gain is as follows: 480,000 – 454,300 + 13,629 – 18,000 = €21,329.

What this means: you are reversing the depreciation deductibles you used in prior years.  If you enjoyed a low tax bracket in those years, this may be a double hit for you.  Your tax bracket in the year of selling the property is likely higher than the years prior, so you’re giving back more than you took out.

As an investor, you are able to deduct the prepayment penalty fee charged by the bank.


There you go! Now you understand what upfront costs to consider when buying a house in Germany and expenses factor into your ROI calculations when selling the property.  Below you can find a FREE printable file with a checklist and key German terms related to purchasing property.  Print it out and take it with you when visiting a mortgage broker or accountant.

What this article helpful to you? Let us know by commenting below!

Key German terms related to purchasing property

Grunderwerbsteuer – real estate transfer tax

A required payment to the city for purchasing the property.  This used to be around 5%, but has been raised to 6.5% of the property value.

 Grundbucheintrag – legal registry entry 

When you become the property owner, your name will be entered into a registry.  This costs 0.5% of the property value.

 Kaufnebenkosten – cost of purchasing

This encompasses all fees incurred by the property buyer including real estate transfer tax, realtor commission fee, legal registry entry and notary fees.  These generally sums to 12% of the property value. In case you purchase a home from the owner directly, you save realtor commission fees of 3.57%.

Maklerprovision – realtor commission fee

If you’re purchasing a property from a realtor, you will be required to pay this fee. The seller does not pay this fee. It is capped at 3.57%.

Notarkosten – notary fees

A notary is required to be present when a contract between a buyer and seller is signed. This fee is generally 1.5%.

Tilgung – principal rate

The principal rate you choose to pay towards the property.  This typically ranges between 0.25% to 3%.

Zinsen – interest

The interest (rate) paid for a loan.

Key German terms related to selling property

Spekulationssteuer – speculation tax

If you sell an investment property before a 10-year mark, you will be tax liable on the gain on the property.  Plus, you will be required to pay back benefits from deducting depreciation expenses in prior years.  If you sell a property you lived in for at least 2 years within the last 3 years, your gain is not tax deductible.

 Vorfälligkeitsentschädigung – prepayment penalty

Banks will require a penalty payment when breaking a mortgage contract.  This is generally understood as the interest payments on the remainder of the balance.  There are deviations.  See the checklist below for deviations.

Free Checklist and Key German Terms

Checklist before buying property in Germany

  • Verify the duration of the loan and ask how much principal will be outstanding at expiration.
  • Check how the bank handles “Vorfälligkeitsentschädigung” (prepayment penalty), in case you break the mortgage contract before expiration (before 10 years).
  • Ask how the penalty will change by the following factors:
    – interest rates go down,
    – interest rates go up,
    – you use one of their realtors to sell the property, or
    – someone else accepts to take over your loan and home.
  • Verify the total value of the property lot size.  Use Boris to determine market value of the location.
  • With your accountant, determine what percentage of the property value is attributable to land and what percentage to building.
  • Identify the appropriate depreciation percentage for the building, in case it is an investment property.
  • Enjoy living in your new home!

Relevant Links




Buying property in Germany

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