Renting out an apartment or flat

Something I was discussing with a friend recently, about the pros/cons of buying to let here in Munich...

Hypothetically, if I were a flat owner, and I wanted to rent out a flat, how would the finances work out, regarding tax offsetting etc...

An example scenario...

Rental income: €1000
Wohngeld: €200
Mortgage/Finanzierung: €600 (of which €350 say was interest, €250 payment/tilgung)

My calculations are:

(1000 - 350) = 650 : Income after offseting interest.
650 will be taxed, resulting in say €400 remaining.

The €400 (net income) - €250 (Payment) - € 200(Wohngeld) = - €50 overall income.

Does anyone know how this works exactly?

Actually I wouldn't recommend renting a place out, coz you really have to be lucky regarding your tenants. As "Vermieter" you don't have really many rights and it's pretty risky, left alone the financing.

Any more details on this pls ? I'm about to buy a place and would be curious to know the situation.

Buying to let is mainly the domain of high earners (tax payers) trying to reduce their tax liability, or for people looking for a (relatively) safe place to dock their money. If you have to borrow to finance the purchase then it's probably not for you, unless you are buying in the developing (eastern) states and may be eligible for grants and/or can expect an increase on your investment value.

Bear in mind that 5-8% of the purchase price is an irrecoverable loss (Immobilien charges, notary fees, Grundsteuer, etc) On top of the cost of money you also need to bear in mind that you will be liable for ongoing repairs inside or out, includung things like new carpets and so on every now and then. Notwithstanding all this, a bad choice of tenant can lead to irrecoverable loss, or additional costs in attempts at recovery. Also take into account the cost of managing the property and the finances arising, including the cost of a more complicated tax return at the end of the year (higher Steuerberatungskosten)

If you are a high earner paying tax in one of the higher brackets then making a loss on the business of rental can actually save tax, while you hope your money is safe, or may even be appreciating. Housing values are not really rising much around here at the moment anyway, and you may well have to pay capital appreciation tax if you do ultimately make a profit when you sell.

Buy-to-let is definately a long term investment model (10-50 years) for the higher earners...

YL6

I would like to know what tax I would pay on rental income if I were to let my flat out ? I have only been living in it 3 years since I bought it and may have to move due to my job I understand that CGT does not apply here in the same way that it does in UK and Ireland (that if you rent it out in the period that you have it then you are liable for CGT). I really know nothing about the rental market here (rented for a short time when I first came but that was it),

Can anyone offer any advice ?

Thanks

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I too have my own flat, in which I've been living for a few years, but now I'm thinking of moving. As I'd like to keep the flat, I'm looking at renting it out, but obviously I need to do my sums first.

The rent I'd receive is going to be lower than my total monthly mortgage payments (most of which are interest at this early stage), but since I'd be moving to a bigger place, the rent I'd be paying there would be also higher than received, although that's probably not relevant from a tax point of view.

Has anybody any experience of doing this?

No direct experience but a useful tip to share. Everyone in Germany knows that the laws are stacked heavily in favour of tenants, and if your tenant loses his job, or just decides one day to stop paying the rent, there's precious little you can do to get them out. It's even worse if they pay once in a while, or they have children, or have been tenants for a while. A way around this is to offer the flat on a six or twelve month fixed contract, saying you may need to move back in. State the contract can be renewed. Naturally this reduces your choice as many people just won't take a flat under these conditions but some will and it reduces your exposure to a bad tenant as when the contract expires you can boot them out without much fuss.

Thanks. I'd definitely do it through a Makler, letting them vet prospective tenants and hopefully reducing the risk. That even though I'm idealogically opposed to their 'jobs'. But as I'd make a loss on selling, renting out seems the only affordable way to enable me to move, carrying tax breaks as it does. If the tax breaks were to get abolished, then selling probably still wouldn't be an option, as there would likely be a flood of properties hitting the market, pushing the prices down further.