Direct investment

Direct Investment - A direct investment in real estate refers to an investor’s direct purchase of a property - as opposed to indirect investment through funds, REITs, or shares in real estate companies. The investor becomes the owner of the specific property, bears all the opportunities and risks themselves, and has full control over leasing, maintenance, and sale. Direct investment is the most common form of real estate investment among private investors in Germany.

Direct Investment vs. Indirect Real Estate Investment

Feature	Direct Investment	Indirect Investment (Funds/REITs)
Ownership	Full ownership of the property	Share in a company/fund
Minimum capital	High (equity + financing)	Low (starting at a few hundred euros)
Control	Full decision-making authority	No operational control
Liquidity	Low (sale takes months)	High (fund shares/stocks tradable)
Diversification	One to a few properties	Broad portfolio possible
Tax Planning	Extensive (depreciation, business expenses)	Limited
Administrative burden	High (or third-party management)	None

Opportunities and Risks of Direct Investment

Opportunities:

• Tax advantages: Depreciation (AfA), deduction of financing interest, maintenance costs, and administrative costs as income-related expenses when renting
• Leverage effect: Through debt financing, the return on equity can be significantly higher than the property’s yield
• Inflation protection: Rental income and property values tend to rise with inflation over the long term
• Tax-free sale: After a 10-year holding period, the capital gain is exempt from income tax (Section 23 EStG)

Risks:

• Concentration risk: A large portion of the assets is tied up in a single property
• Vacancy risk: Loss of rent due to vacancies, rent defaulters, or insolvency
• Maintenance risk: Unexpected costs for renovations or repairs
• Interest rate risk: Rising interest rates during refinancing

Direct investment in practice: Selection and analysis

The quality of a direct investment stands or falls with the property selection. Three factors are decisive: location, property condition, and rental potential. When it comes to location, investors distinguish between micro-location (street, transportation links, local amenities) and macro-location (city, region, population trends). Property condition refers to the year of construction, energy efficiency standards, and the state of the building. Rental potential is determined by comparing the current rent with the market rent as indicated by the rent index.

Before making a purchase decision, a complete profitability analysis should always be prepared: purchase price, closing costs, recurring income, management costs, financing costs, and tax implications together determine the net return and cash flow. Cash flow in particular-that is, the monthly surplus after all expenses-is crucial for the viability of the investment.

Practical Tip for Property Owners in Nuremberg and Franconia

The Nuremberg metropolitan region offers direct investors an attractive risk-reward profile: Purchase prices are significantly lower than in Munich or Frankfurt, while rental yields of 3.5-5.5% gross (depending on the neighborhood and property type) are above average. Compact apartments (1-3 rooms) in locations near universities (Erlangen, Nuremberg-Südstadt) and well-connected neighborhoods such as Maxfeld, Gostenhof, and Schwabach are particularly in demand among investors. In the surrounding communities along the S-Bahn lines-such as Feucht, Schwaig, or Zirndorf-entry-level prices are more affordable, with stable demand from commuters. We recommend that first-time investors fully factor in the total cost calculation for direct investments, including real estate transfer tax (3.5% in Bavaria), notary and land registry fees, as well as maintenance reserves.

Frequently Asked Questions

How much equity do I need for a direct investment in Nuremberg?

As a rule of thumb, you should cover at least the additional purchase costs (approx. 7-9% of the purchase price: real estate transfer tax, notary, land registry, and possibly real estate agent fees) plus a safety reserve for vacancies and maintenance from your own equity. For an apartment costing €200,000, this means at least €15,000-€20,000 in equity for the incidental costs, plus a liquidity reserve of €5,000-€10,000 for unforeseen expenses. A higher equity ratio (20-30% of the purchase price) significantly improves financing terms, lowers the loan-to-value ratio, and thus also reduces the interest rate risk for follow-up financing.

Is a direct investment worthwhile from a tax perspective?

Yes-if you rent out the property, you can deduct building depreciation (2% per year for buildings constructed in 1925 or later, 2.5% for earlier, 3% for new construction starting in 2023), financing interest, maintenance costs, and administrative expenses as business expenses. Initial losses from renting reduce your other income. After a 10-year holding period, the capital gain is tax-free. The tax impact depends on your personal tax rate-at a marginal tax rate of 42%, every euro of income-related expenses is worth 42 cents. An individual calculation by a tax advisor is nevertheless essential, as factors such as acquisition-related construction costs (15% limit) or the three-property limit for commercial real estate transactions influence tax planning.

Should I manage the property myself or hire a property management company?

For a single property in the Nuremberg area, self-management often makes sense-you save on management costs (approx. €20-35 per unit/month) and retain direct control over all decisions. For 3-5 units or if the property is located at a greater distance, professional property management is recommended. Important: Even with self-management, administrative tasks are involved-rent collection, utility billing, coordinating contractors, and rent increase procedures. Experience shows that the time required for a single rented property is 5-10 hours per month, and significantly more in problematic cases.

How does the three-property limit affect direct investment?

According to established case law of the Federal Fiscal Court, commercial real estate trading begins when an investor buys and sells more than three properties within five years. If this limit is exceeded, all profits from the sale are subject to income tax-even after the 10-year speculation period has expired. For private investors in Nuremberg who are gradually building a portfolio, this is an important planning consideration: Anyone who intends to hold more than three properties long-term and eventually sell them should carefully plan holding periods and sale timings. If in doubt, we recommend discussing the strategy early on with a tax advisor specializing in real estate to avoid unexpected tax assessments.

Direct Investment as Retirement Planning: The Nuremberg Context

In the Nuremberg metropolitan region, many private investors use direct investment to supplement their statutory pension. The idea: By retirement age, the loans are largely paid off, and the rental income serves as additional monthly income. This makes economic sense-if the math adds up. We recommend that investors take a realistic approach to this concept: The net rental yield after taxes and costs in Nuremberg in 2025/2026 ranges from 2.5% to 4.5%, depending on the neighborhood and the condition of the property. Someone who buys an apartment for 350,000 euros can, in the best-case scenario, expect monthly net income of around 700 to 1,300 euros after the loan is fully repaid-a useful supplement, but not a substitute for a comprehensive retirement planning strategy. The key factor is that the loan is actually paid off by the time you retire, or at least reduced to a manageable remaining balance.

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