Finance
Eigenkapital
Equity - own capital invested in a property purchase
- Last updated:
- Editorially reviewed
Eigenkapital, or equity capital, is the foundation of every real estate investment in Germany. The amount of equity you bring to a transaction affects whether you qualify for financing, the interest rate you receive, your monthly cashflow, and the overall risk profile of your investment. Strategic equity planning is essential for building a sustainable property portfolio.
Eigenkapital Requirements for German Investment Properties
German banks set their own equity requirements, and they vary by bank and borrower. The Verbraucherzentrale names 20 percent of the total costs from own funds as a common bank requirement. Total costs include the Nebenkosten: Grunderwerbsteuer (3.5 to 6.5% depending on the state), notary and land registry (together about 1 to 1.5%) and, if a broker is involved, the buyer's share of the commission. For apartments and single-family houses the buyer pays at most half (§ 656c BGB) of a total commission that is usually 5.95 to 7.14% including VAT.
- Nebenkosten: about 4.5 to 11.6% of the purchase price, depending on the state and whether a broker is involved
- Common bank requirement (Verbraucherzentrale): 20% of total costs from own funds
- Example: €300,000 price + €34,710 Nebenkosten = €334,710 total cost; 20% = €66,942
- Little or no equity: higher interest rates and a longer path to being debt-free (Verbraucherzentrale)
Sources of Eigenkapital for Property Investment
Building sufficient Eigenkapital is often the biggest hurdle for aspiring real estate investors in Germany. Several sources of equity can shorten the timeline to your first (or next) property purchase, and each has implications for your investment structure.
- Personal savings: The most straightforward source
- Existing property equity: Banks may accept equity in other properties as additional collateral (Zusatzsicherheit)
- Bausparvertrag (building savings contract): Savings contract that leads to a building loan once allocated
- Retirement savings contracts: According to the Verbraucherzentrale, these also count as equity
- Family loans or gifts: Common in Germany, but banks may require documentation of the source
The Eigenkapital-Return Trade-Off
One of the most important strategic decisions for real estate investors is how much Eigenkapital to deploy per property. More equity means lower risk, better financing terms, and stronger cashflow, but it also means fewer properties per unit of capital and lower return on equity through reduced leverage. Understanding this trade-off is critical for optimizing your portfolio strategy.
- More equity = better interest rate, lower monthly payment, higher cashflow, and lower risk
- Less equity = higher leverage, potentially higher ROI on equity, but higher risk and payments
- With €200,000 in savings: one property with 40% down OR two properties with 20% down (different risk/return profiles)
- The optimal equity level depends on your risk tolerance, income stability, and investment timeline
Frequently Asked Questions
Can I use a family gift as Eigenkapital for a property purchase?
Yes, family gifts are a common and accepted source of Eigenkapital in Germany. Banks will require documentation proving the source of funds, typically a gift letter (Schenkungserklärung) and bank statements showing the transfer. Be aware that gifts above certain thresholds are subject to German gift tax (Schenkungsteuer): the tax-free allowance is €500,000 between spouses, €400,000 from parents to children, and €200,000 from grandparents to grandchildren (§ 16 ErbStG). Gifts from the same person within 10 years are added together (§ 14 ErbStG). Gifts that remain below these thresholds are tax-free.
Is it possible to buy an investment property with no Eigenkapital in Germany?
Banks decide this case by case. The Verbraucherzentrale names 20% of total costs from own funds as a common bank requirement and notes that borrowers with no or little equity pay higher interest rates and need longer to become debt-free. Even if a bank finances the full purchase price, the Nebenkosten (about 4.5 to 11.6% of the price) still have to be paid, so plan for them from your own funds.
How does Eigenkapital affect my mortgage interest rate in Germany?
Eigenkapital has a direct impact on your mortgage interest rate: according to the Verbraucherzentrale, borrowers with little equity pay higher rates. Banks price by the loan-to-value ratio (LTV), but where each bank sets its tiers and how large the steps are differs from bank to bank. You can measure the effect yourself: if a bank offers 3.5% at a lower equity level and 3.1% at a higher one, the 0.4 point difference on a €200,000 loan is €800 in interest in the first year. The optimal strategy balances the improved rate against the opportunity cost of deploying more capital.