New-build or existing apartment: which rental investment fits your budget?

Neither category is automatically the better rental investment. An existing apartment usually costs less per square metre, earns rent from the day you take possession and can be judged on a real lease and years of building records. A new build usually costs more per square metre, depreciates faster for tax and should need little work in its early years. But its rent is a forecast, and if you buy before completion you pay instalments and interest for a year or more before the first tenant moves in.

The better choice depends on your budget, your reserves and how much uncertainty you can carry. This guide compares the two on the same total budget.

A note on terms. Neubau means new construction. Any existing property is a Bestandsimmobilie. Altbau usually means an older, often pre-war building, so a 1990s apartment is existing but not Altbau.

Price per square metre misleads across categories. Compare the total acquisition cost instead: price, purchase costs and any money needed before the apartment earns its rent. Then ask how much rent each euro buys.

Separate two kinds of rent figure:

• Verified rent comes from a signed lease and evidence that it has been paid. Only a tenanted apartment has one.
• Expected rent is an assumption: a developer's projection, an agent's "market rent" or your own estimate for a vacant flat. Test it against the local rent index (Mietspiegel) and actual lettings of comparable apartments, and run your numbers at a lower figure too.

Illustrative example. Fictional apartments; figures are assumptions, not market data or offers.

On these assumptions, B costs slightly less each month, but only if its expected rent is achieved. At €750, it costs more than A. A's figure rests on a lease; B's rests on a projection and nearly two years of construction. Cash-flow lines follow the method in our rental property cash-flow guide.

In the example, B's lower purchase costs are almost entirely absorbed before the first rent.

A developer (Bauträger) may not accept any payment until the contract is effective, a priority notice protecting your claim to ownership (Vormerkung) is registered, release from prior-ranking charges is secured and building permission is in place (§ 3(1) MaBV). After that, the price is paid in up to seven instalments as construction progresses: 30 per cent after earthworks start, then fixed shares of the remainder for stages such as the shell, roof, windows and handover (§ 3(2) MaBV).

Illustrative example, apartment B. Stages grouped into six instalments; months are assumptions.

Commitment interest (Bereitstellungszinsen) is charged on loan amounts you have not yet drawn once the free period ends. Interhyp gives about 0.25 per cent a month as usual and reports free periods from two or three months up to 24 (Interhyp). Negotiate the free period to match the construction schedule, and check when the fixed-rate period starts. If it runs from the loan agreement, part of it passes before any rent arrives.

Existing apartment A needs €50,568 of own funds and purchase costs at completion, plus the €8,000 levy shortly after. Its rent starts with possession.

Alpha Minoris's Buyer's Agent service starts at this stage, before any search: a discussion of your budget, borrowing capacity and readiness, including whether your savings can carry a period of payments with no rent coming in. That is often what decides the category.

Staged payments stop you paying ahead of the work. They do not prevent delay or remove the risk of a developer's insolvency. Before signing, check:

• The completion date. A building contract must state a binding completion date or construction period (§ 650k(3) BGB). Ask what happens if it slips, and whether the developer then bears your commitment interest.
• The building description. The developer must describe the apartment and its fit-out before you sign (§ 650j BGB). Anything missing, such as the kitchen in our example, is your cost.
• Security. A consumer is generally entitled to security of 5 per cent of the price for timely completion without significant defects, with the first instalment (§ 650m(2) BGB, applied through § 650u BGB).
• The draft contract. Because the seller is a business, the notary should normally give you the intended text two weeks before the appointment (§ 17(2a) BeurkG).
• Acceptance and defects. Take a building surveyor to the handover. Claims for building defects generally expire after five years (§ 634a(1) no. 2 BGB).

When you buy a tenanted apartment, the lease continues and you step into the seller's position (§ 566 BGB). You gain a verified rent but not the freedom to change it. Increases to the local comparative rent are capped at 15 per cent in three years in Leipzig and Dresden until 30 June 2027 and in Berlin until 10 May 2028. A new letting is generally limited by the rent brake (Mietpreisbremse). See the checks to make before buying.

The rent brake does not apply to an apartment first used and let after 1 October 2014 (§ 556f BGB). That lets you set B's first rent without the cap, but demand still sets the limit. Once a tenant moves in, later increases follow the ordinary rules (§ 558 BGB).

Existing apartments carry their history. The energy certificate (Energieausweis) must be shown at the viewing at the latest (§ 80(4) GModG), but it does not tell you what works are coming. The owners' meeting minutes, the reserve and the age of the heating system do. A's window levy came from exactly that kind of record. See energy certificates and renovation costs. If you plan to renovate an existing flat within three years of buying, costs above 15 per cent of the building's acquisition cost are depreciated rather than deducted at once (§ 6(1) no. 1a EStG).

New builds are built to current standards and should need few repairs early on. But a newly formed owners' association starts with no maintenance reserve, and defects found after the first years may no longer be claimable. Budget a smaller unit repair allowance, not none.

For residential buildings held privately, straight-line depreciation (AfA) depends on the completion date (§ 7(4) EStG):

Only the building depreciates, not the land. In the example, A's building share is assumed at 75 per cent of price and purchase costs, and B's at 85 per cent. B's extra €2,854 of depreciation is a deduction, not a refund: at a 42 per cent marginal rate, it reduces income tax by about €1,199 a year. See rental property tax benefits in Germany.

Two further rules can raise a new build's depreciation, and neither applies by default:

• Declining-balance depreciation of 5 per cent of the remaining book value (§ 7(5a) EStG) needs construction to start, or the purchase contract to be signed, between 1 October 2023 and 30 September 2029, with acquisition by the end of the completion year. If B qualified, its first full year would show €11,422 instead of €6,853.
• Special depreciation of up to 5 per cent a year for four years (§ 7b EStG) needs a building application in the qualifying window, the Effizienzhaus 40 standard with a QNG sustainability seal, building costs within €5,200 per square metre and ten years of letting.

Ask the developer for written evidence, have a tax adviser (Steuerberater) confirm eligibility, and check whether the price already reflects the benefit.

In ten years, B will be a ten-year-old apartment competing with other existing flats. Any premium you paid for being new should be justified by the rent, not by an assumed resale price. A tenanted apartment like A usually sells to investors, who price the current rent. Either way, a gain on a sale within ten years is generally taxable, and depreciation claimed increases it (§ 23 EStG).

A new build may fit if you can fund up to two years of payments without rent, your plan survives a delayed completion and the numbers still work at a lower rent than projected. An existing apartment may fit if you want income from the start and evidence behind it, and you have a reserve for the works its records reveal. Neither fits if the purchase only works at the developer's rent or with depreciation nobody has confirmed. Waiting, or a smaller purchase, may fit better.

Once you have chosen a category, Alpha Minoris's Buyer's Agent service reviews properties with you, coordinates viewings and collects the documents in Berlin, Dresden or Leipzig: the lease, owners' association records and energy certificate for an existing flat; the building description, construction schedule and payment plan for a new build. You do not need to live in the city. A surveyor, a lawyer, a tax adviser and the notary each keep their own role.

Is a new build a better rental investment than an existing apartment?

Not automatically. A new build offers higher depreciation, fewer early repairs and a first rent outside the rent brake. An existing apartment usually offers a lower price per square metre, rent from day one and a verifiable record. Compare both on the same total budget.

Are new-build apartments exempt from rent controls?

Partly. The rent brake does not apply to an apartment first used and let after 1 October 2014. Rent increases during a tenancy still follow the ordinary rules and caps.

How much depreciation can I claim on a new-build rental apartment?

Usually 3 per cent a year of the building's cost for buildings completed from 2023. Declining-balance or special depreciation applies only if the dates, standards and cost limits are met.

When do I pay for an off-plan apartment?

In up to seven instalments as construction progresses, once the contract is effective, your priority notice is registered and building permission exists. Transfer tax and notary costs are due shortly after signing.