The rented property as an investment

As a result of the European Central Bank's low-interest-rate policy, mortgage loans are cheaper than ever. Considering the uncertainty of retirement income, the idea of ​​building long-term wealth and securing one's standard of living by buying and renting out a property is an attractive one.

Furthermore, real estate, as a tangible asset investment, does not lose value due to inflation, stock market fluctuations, or economic cycles – unlike other capital investments. However, to ensure that the calculations truly work out, several factors must be considered.

This primarily concerns financing. To be able to anticipate the monthly payments, you should plan as far ahead as possible, but not too ambitiously. This also includes room for unforeseen expenses. As a rule of thumb, interest, principal repayment, and any additional costs (if the property isn't rented out immediately) should not exceed 45 percent of net income for an average earner.
Those who want to benefit from the historically low interest rates in the long term should lock in the loan term for as long as possible. (Currently, interest rates for a ten-year loan are below three percent, and for a 25-year loan, below four percent.)
To keep the remaining debt manageable, the repayment rate should be at least two percent. Using equity accelerates wealth accumulation and is therefore advisable – provided the property purchase isn't primarily intended to save taxes through high borrowing costs (the monthly interest payments are tax-deductible).

To compare financing offers and weigh up potential risks, it is best to consult an independent expert.

The second crucial aspect concerns property valuation: To find a house or apartment that appreciates in value and generates returns – at a reasonable price – one should possess excellent market knowledge.
Since a property's value depends on many different criteria, it is advisable to consult a local real estate agent who is familiar with land and property prices in the area and can assess whether the asking price is realistic or excessive.
To ensure this investment provides a solid foundation for retirement, future prospects must also be considered: How are purchase prices and rents expected to develop, depending on supply and demand? Will the purchase be profitable?
Any long-term forecast is pure speculation. However, real estate researchers see clear trends, at least for the next few years: According to them, rents and prices for existing properties will continue to rise, particularly in medium-sized cities with over half a million inhabitants, where there are "catch-up effects."

Sources: Rating agency Standard & Poor's,
German Institute for Economic Research (DIW),
Berlin Institute for Population and Development.