A guide on how to invest your taxes
How to buy real estate properties,
using your taxes?
How to buy
real estate properties, using your taxes?
Understanding how your taxes work is the start: the government uses your taxes as an investment to develop the educational system, the health system, the roads and everything outside your private life. But what you probably don’t know is that you can decide how to invest your taxes, we like to call it personal tax investment.
Once you change your view and see depreciation (AfA) as a personal tax investment you can fully understand how to use your taxes.
For this guide we will be using the area of real estate as the personal tax investment and explore what is possible, how to do it in the best way and how to choose the best advisors along the way.
Step 1
The foundation?
How does personal tax investment work, in real estate?
For every euro we make, the government will require a percentage so it can secure our lives collectively, that is called taxation. The more money you make, from society, the more you must contribute to society, in the form of taxes. These can be from 0% to 47%, but the government says you can also decide how to use your taxes and benefit the society collectively. Therefore, one of the main tax investments you can make is in Historical Monuments properties, detailed completely in this law: Einkommensteuergesetz (EStG).
Taxes Before Your Tax Investment
| Annual income: | €100,000 (brutto) |
| Annual tax rate: | 37% → €37,000/year |
Your Tax Investment
You invest €7,000/year from your taxes into a Historical Monument property worth €200,000.
| Property breakdown: | |
| Unrenovated portion (20%) | €40,000 |
| Renovation cost (80%) | €160,000 |
Depreciation (AfA) Calculation
| €40,000 × 2.5% | = €1,000/year |
| €160,000 × 9% | = €14,400/year |
| Total depreciation (AfA) | = €15,400/year |
Taxes After Investment
| New taxable income: | €100,000 – €15,400 = €84,600 |
| New annual tax: | 35.2% → €29,800/year |
Result
| You save: | €7,200/year → €600/month |
Note: This is an example. For a precise calculation, use our Denkmal AfA Calculator.
Step 2
I don’t have 200.000 euro to buy the property!
Financing – what is the right bank?
You don’t need to have 200 000 euro to buy a property. Historical Monuments real estate benefit from 2 sources of good financing:
KfW (Kreditanstalt für Wiederaufbau) loan, offers financing programs to promote energy-efficient construction and renovation in Germany. As an example: achieving an Efficiency House 40 standard signifies that a building consumes only 40% of the primary energy permitted by the Energy Conservation Ordinance (EnEV), indicating high energy efficiency and very good loan conditions. This offers benefits both for you and for the society by reducing costs and polution.
Example of KfW loan:
Out of the 200 000 euro value of the property, KfW will offer a loan of 100 000 euro with a significantly reduced interest rate (around 2% per year) and a repayment of maximum 80%. This means your KfW loan is 100.000 euro and you pay back 80.000 euro.
Your Bank: the best way to receive the best conditions, is to work with your own bank. They will offer a good financing deal, knowing your history and relationship. They will also arrange for a KfW loan, together with the property developer. You can also work with a financing agent, to check for better offers.
Example of Bank Loan:
Your bank will finance the difference of 100.000 euro at a normal market rate.
+ Buying from a property developer who implements the KfW standards, will allow you to access this type of loan.
+ The average interest rate will be lower than the market rate if you use a KfW loan combined with a normal one.
Financing is the most important part of buying a property and will determine how much taxes you can save. Check our online Loan Calculator to find out how much you can potentially loan. This final evaluation can only be done by a bank. This serves only as a guideline.
This final evaluation can only be done by a bank. This serves only as a guideline.
Step 3
Let’s find the right property!
A beautiful historical monument building – the search begins!
Finding the right property starts with finding out how much you can loan from your bank, if you do not want to use your money for the investment – Loan Calculator.
Once you confirm your available budget, finding a good Denkmal property that fits your budget is not that easy and you need help from:
This type of real estate agent is not a regular one. They need to support you in more ways than in a normal transaction:
| F – Financial Incentives advisory |
| L – Legal and Regulatory Frameworks knowledge |
| E – Expertise in Historic Properties renovations |
| D – Developer knowledge for this type of properties |
Green Flags
- Access to properties with a 70–80% renovations ratio
- Encourages financing through your own bank, but can offer other options
- Represents properties that qualify for a KfW loan
- Knows about subsidies provided by local authorities
- Provides a realistic overview of rental income (very important)
- Explains how off-the-plan properties are paid (based on legal payment plans)
- Understands legal details of the transaction process
- Offers historic background when presenting his portfolio
- Organizes visits to available properties
- Sends property proposals along with tax yield, rental yield, and appreciation potential
- Presents the property developers (very important)
- Clearly explains their fee, including what the developer is charged
- Works with a good notary
- Accompanies you through the whole process until renovation is completed
Red Flags
- Does not disclose fees and claims they’re only paid by the developer (Note: this fee can be tax deductible in the first year)
- Insists on using a financing broker and avoids using your bank
- Cannot explain who the developer is or their track record
- Commission is between 10%–20% of property value
- Fails to provide rental income projections or market comparisons
- Proposes a “rental guarantee” agreement with inflated rent for the first 2 years, which drops afterward
- Does not offer a contract that supports you until the end of the renovation process
Why Work With a Property Developer?
The property developer is the person with the most interest in the project and usually knows every detail about it. In the next step, you can explore the full scope of the development project.
Finding a reliable developer for Denkmal properties can be challenging, but it's 100% worth it. Here's why:
Green Flags
- The developer is fully liable for the information they present to you
- They can explain their projects clearly and present the final result accurately
- They understand the legal framework — a must in this field
- They can show active renovation projects
- They offer a steady flow of properties if you want to invest more than once
- They work closely with local authorities
- You can better judge the project timeline and avoid sales pressure
- Custom modifications are possible before renovation starts
- Issues are handled transparently and promptly
- They understand how banks finance such properties and can assist
- They provide material details to ensure long-term value
- They support you long-term until renovation is complete
- They know how to rent out the properties after completion
- No 10%–20% extra commission added to inflate the price
- They have a reliable notary they work with regularly
Red Flags
- No previous experience in construction
- Lack of legal knowledge about Denkmal regulations
- Avoids discussing relationships with authorities
- Does not offer financing options
- No dedicated sales team
- Lacks understanding of building materials or quality standards
Step 4
Work with the developer!
What is a property developer?
The work of a property developer is very complex. To be able to become a property developer you need to learn and understand multiple layers of business:
Acquisition
Identifying and purchasing properties with development potential.
Conducting feasibility studies to assess the value and potential returns of the project.
Project Planning
Creating development plans in collaboration with architects, designers, and urban planners.
Ensuring compliance with zoning laws, building codes, and environmental regulations.
Financing
Securing funding through investors, loans, or partnerships.
Managing budgets and ensuring financial feasibility throughout the development process.
Construction Management
Overseeing the construction or renovation process, including hiring contractors and subcontractors.
Ensuring projects are completed on time and within budget.
Marketing and Sales
Promoting the property to potential buyers, investors, or tenants.
Collaborating with real estate agents or using in-house marketing teams.
Risk Management
Identifying and mitigating risks, such as market fluctuations, construction delays, or regulatory issues.
Adapting to changes in market demand or unforeseen challenges.
Denkmal Immobilien (heritage property) buyers often face unique challenges and opportunities compared to conventional property purchases. Working with a property developer instead of just a real estate agent can offer distinct advantages, particularly when dealing with historic, listed properties. Here’s why:
Property Developers: Developers specializing in Denkmalimmobilien understand the intricacies of restoring and adapting historic buildings while adhering to strict preservation laws. They ensure the property is legally compliant and structurally sound after restoration.
Real Estate Agents: While agents can connect buyers to listed properties, they typically lack the technical expertise to guide buyers through the challenges of ownership, renovation, or legal requirements.
Property Developers: Developers often offer complete solutions, where the building is already prepared to meet preservation standards. Buyers can navigate the restoration process with clear informations without worrying about costly and time-consuming discussions.
Real Estate Agents: Agents primarily broker sales, leaving buyers to navigate the restoration process on their own, which can be daunting for those unfamiliar with historic properties.
Property Developers: Developers can provide detailed information about tax advantages, such as depreciation benefits (e.g., AfA - Abschreibung für Abnutzung) and subsidies for Denkmalimmobilien. They can also structure the development to maximize these benefits for buyers.
Real Estate Agents: Agents may not have the expertise to advise buyers on the financial incentives tied to heritage properties, potentially leaving buyers unaware of significant savings.
Property Developers: Developers often allow buyers to customize interiors, balancing modern needs with historic preservation, during the renovation process.
Real Estate Agents: Agents typically sell existing properties where customization options may be limited without significant extra effort and expense.
Property Developers: Developers manage the entire process, from design and restoration to obtaining permits and approvals, ensuring a hassle-free experience for buyers.
Real Estate Agents: Agents focus on the sale itself, offering limited post-purchase support for issues such as restoration approvals, contractor selection, or ongoing property management.
Property Developers: Developers take responsibility for the risks associated with the structural and regulatory aspects of a Denkmal property. They ensure compliance with preservation laws and handle complex restoration challenges.
Real Estate Agents: Agents may not be equipped to address or mitigate risks related to property restoration, leaving buyers to face potential delays, penalties, or unexpected costs.
Property Developers: Developers design projects to enhance the long-term value and appeal of Denkmal properties, making them more attractive for resale or rental.
Real Estate Agents: While agents may facilitate the sale of a heritage property, they may not provide insights into long-term investment strategies and will also charge a comission on top of the selling price.
When Should a Buyer Work with a Real Estate Agent?
Real estate agents can be useful if a buyer is:
- Searching for unrenovated heritage properties to handle restoration themselves.
- Looking for off-market or privately owned Denkmalimmobilien.
- Familiar with the restoration process and confident in managing the required steps.
Conclusion:
Working with a Denkmal property developer is ideal for buyers seeking a streamlined, professionally managed process with added benefits such as complete solutions, financial guidance, and long-term value creation. While real estate agents excel at brokering property deals, developers provide the specialized services and expertise needed to navigate the complexities of heritage property ownership.
Step 5
What is the profit?
Yield is the key word for this. In order to calculate the yield for our investment we need to get all the data discussed before into one place.
Example:
The property is worth 200 000 euro.
Annual income: 100.000 euro brutto – 15.400 euro (AfA) = 84.600 euro new taxable brutto income.
New annual tax rate: 35.2%, with taxes of 29.800 euro per year.
This results in a 7.200 euro per year (600 euro per month) personal tax investment.
Investment Calculator
Step 6
You did it! You have a new property.
By staying involved and maintaining clear communication, you can ensure that your Denkmal property meets your expectations and fulfills its historical and financial potential.
Understand Your Contract
- Review the Purchase Agreement: Ensure all terms regarding the renovation, timelines, and financial obligations are clearly outlined.
- Check Developer Responsibilities: Confirm what aspects of the renovation are covered by the developer, including compliance with preservation laws, permits, and structural work.
- Clarify Your Input: Identify areas where you can influence decisions, such as interior design, materials, or layout changes.
Build a Communication Plan
- Establish Points of Contact: Determine who in the developer’s team is your primary contact (e.g., project manager or customer liaison).
- Set Regular Updates: Request periodic updates on the progress of the renovation, such as monthly reports, photos, or walkthroughs.
- Schedule Site Visits: Arrange for site visits at key stages of the project to ensure work aligns with your expectations.
Prepare for Tax Benefits
- Document Costs: Keep detailed records of renovation costs, as these may be eligible for tax deductions under German tax laws (e.g., Abschreibung für Abnutzung or AfA).
- Consult a Tax Advisor: Work with a tax professional to understand how to maximize your deductions for restoration expenses.
Plan for Future Maintenance
- Get Maintenance Guidelines: Ask the developer for a maintenance plan to preserve the property after renovations are complete.
- Secure Warranties: Ensure warranties are in place for the work done, covering structural and restoration elements.
Verify Completion
- Conduct a Final Walkthrough: Inspect the property once renovations are completed to ensure all agreed-upon work is done to the expected standard.
- Request Documentation: Obtain documentation from the developer, such as warranties, permits, and compliance certificates.
Market or Move In
For Investment Purposes:
- Work with the developer or an agent to market the property for rental or resale.
- Highlight the tax benefits, historical value, and modern features in marketing materials.
For Personal Use:
- Arrange moving logistics and ensure all utilities are functioning.
Build a Long-Term Relationship
Developers often have ongoing services for maintenance or additional projects. Maintaining a good relationship with the developer can be valuable for future needs, such as repairs or expansions.
Pro Tips
- Be Proactive: Engage actively in the renovation process to ensure your preferences are incorporated.
- Stay Organized: Keep all correspondence, contracts, and updates documented for future reference.
- Work Collaboratively: Trust the developer’s expertise but don’t hesitate to raise concerns or seek clarification when needed.
Step 7
Now you know!
All the information provided should be checked with your tax advisor or accountant for a more comprehensive analysis, before you make any decisions.
All the calculations provided are estimates and serve for your personal information.
You can now forward this to your advisor and get a personalized, in depth analysis.
Disclaimer This article is not a substitute for professional legal and financial advice. Please forward the information to your tax advisor or accountant for verification and personalized advice.