How will your investment grow over a 10-year holding period?
The total investment amount consists of the purchase price and relevant closing costs.
Over the lifetime of the investment, its value appreciates.
When the investment is sold after 10 years, no tax is owed on the capital gains.
The first step in investment is to purchase an investment property. Let's say you buy your property for €300,000, with closing costs of around €24,000 (8% of the purchase price). That brings your total investment to €324,000. Let's say that 40% of your investment is your own equity--meaning the cash you have saved as a downpayment is €130,000. That means that your opening loan balance is €194,000--a debt of 60%.
The second phase of investment is the growth of the property's value. If you have purchased an investment property with the intent to buy to let, you will have ongoing cashflows over the holding period. Meaning, you will have rental income, as well as expenses. It is assumed that rental income covers all expenses that are involved with the property's maintenance, while the loan repyaments increase the amount of equity invested into the property. Every year your investment grows, and increases in value (in the current Berlin market, investment properties have a projected annual growth rate of around 5%). This means that your equity will only increase over the 10 year period, and when you sell on the tenth year, your porperty will now be worth €490,000. While you still have outstanding debt of €150,000, your own equity has grown to €340,000.
The third phase of property investment is the sale of the property. When you purchased the property 10 years ago, your opening loan balance was €194,000, and your initial cash investment was €130,000. Now, when it's time to sell, your ending loan balance is €150,000, and the cash you will accrue on the sale is €340,000. The yearly value appreciation of 5% has nearly tripled your equity. Even better, since you waited 10 years to sell, you won't have to pay German capital gains taxes on the property. In this example, your total loan repayment was €44,000, and your total rental surplus was €20,000. Your total capital invested was €142,000, and your total capital gains is €210,000. You multipled your cash by 2.4, giving you a return on equity per annum of 9%.
Now is the time to profit from one of the fastest growing real estate markets: Berlin.