Real Estate With No Money: Is That Possible?
Many people on the internet suggest that can invest in real estate in Germany without any money. In this GermanReal.Estate FAQ we check if that is possible and how you can do it (incl. 4 alternatives).
- Realistically speaking, it is very tough or even next to impossible to invest in German real estate with no money
- Investing in real estate with very little money makes it a lot easier than trying to invest in real estate with no money
- The example of a real property in Germany shows how much money you need to buy a property worth 100.000€
- For multiple reasons, it helps to start your real estate investing career if you have little savings when buying a property
- While saving for your (first) real estate purchase, you can invest in these 4 alternatives to profit from rising property prices
Is It Possible To Invest In Real Estate With No Money?
There are a lot of articles on the internet and videos on YouTube telling you how to invest in real estate with no money. Is that even possible (in Germany)? Or are these articles and videos just clickbait? 🤔
You want to get rich quickly, we get it! You read Rich Dad, Poor Dad and want to use other people’s money. We get that too. But there’s something called reality that might limit your real estate investing dreams if you have absolutely no money. Let’s see if it’s possible to invest in real estate with no money, and how you can do it in this article on the GermanReal.Estate FAQ.
How To Invest In Real Estate With Very Little Money
Before we talk about investing in real estate with absolutely no money at all, let’s first see if you can start investing in real estate with very little money. Even having a little money to start with makes it a lot easier to kick-start your real estate investing career here in Germany. You will be surprised at how little money we are talking about because the best thing about investing in real estate is that you can use other people’s money.
If you bring at least a small down payment to the table, you can get a large mortgage from the bank to buy a property. Even if you could afford to buy the property outright without a mortgage, it wouldn’t be a good idea to do it. Debt is great, even with the current interest rate of 3% to 4%. Good debt of course – don’t get into a consumer loan.
Why is a mortgage the best thing in the world? The video below explains it in detail, but to summarize, the impact of inflation over time on the mortgage you get today means you will end up paying the bank less than what you got from them (adjusted by inflation). Also, your tenant will pay the majority of your mortgage together with the German government. When you invest in real estate in Germany you get pretty significant tax benefits.
Calculating Your Cash Flow – An Example
Let’s look at a recent example and see just how little money you need to start your real estate investing career. PerFinEx, our sister company, had an investment property in a large city in Saxony with more than 200 flats. As the investment property as in a C-location, it was very affordable compared to other (better) locations.
- 2-room flat with 40 sqm for 97.600€
- Return on rent of 4,7% per year (±5% including the garage)
- 3,5% real estate transfer tax in Saxony (increased to 5,5% in 2023)
- 2% for notary and land registry
As a side note, PerFinEx sold this property in December 2022 because in 2023 the real estate transfer tax rate in Saxony was raised to 5,5%! The buyer saved money by not paying a commission to a real estate agent as well since PerFinEx is not operating as a real estate agent (PerFinEx is a financial advisor).
In total, the amount required to purchase this property was 103.000€. The incredible thing about this deal was that all the money could come from the bank and the buyer was not required to put in a single cent of their own money. That is because the banks liked that property so much that they were willing to finance even +100% of the property value. What a great deal! Or was it? 🤔
Are you interested to invest in real estate in Germany with a positive cash flow? Our real estate security tokens pay a regular passive income to investors.
2 Reasons You Need Some Money To Start Investing In Real Estate
Reason 1: If you want 105,5% financing from the bank, you need an incredibly good financial situation. If you have absolutely no savings, or maybe even a consumer loan, low income, or a bad credit score (called a Schufa Score in Germany), there is no way you can get 105,5% financing from a bank.
It is extremely tough to start investing in real estate with no money at all. You need at least a little bit of money and a decent financial situation. Nobody says you need to put your own money into the property, but you still need some money to secure a mortgage in the first place.
Reason 2: Let’s say you get 105,5% financing. Let’s look at your monthly cash flow using the 5% return on rent from the property above. A 5% return is great (well above the German average in 2023), but you don’t get to keep your 5% return on rent. You have to pay your mortgage as well as many other expenses.
If you have financed more than 100% of the property, it’s likely you didn’t get the lowest interest rate on your mortgage. At current rates, you’ll probably get a mortgage for closer to 4%. Factor in paying another 2% in principal repayment (as part of your mortgage). Doing some quick math, you’re earning a 5% return from rent while paying 6% to the bank (4% interest + 2% principal), leaving you with a deficit in your cash flow of about 1%.
This means, that in addition to paying all your rental returns to the bank, you will need to pay money out of your pocket. To keep the example simple, we can calculate with a rule of thumb: 100€/month will cover a 100.000€ mortgage. For the 103.000€ property, you would need around 100€/month to cover the additional mortgage payment, any taxes, property management costs, and the costs of any vacancies.
To summarize: It’s unlikely you’ll get 105,5% financing from the bank if you have absolutely no money at all, and even then, you will need to put in your own money after purchasing the property because you won’t have a positive cash flow. You’ll have no passive income! At least not in the beginning.
4 Ways To Invest In Real Estate With Less Than 1.000€
So what’s the good news? Even if you do need a least some money to get started, you don’t need a lot to invest in real estate (in Germany). As long as you have a solid base income where you earn a little more than you spend each month, you can start saving money. It won’t be long until you have 5.000€ or 10.000€ set aside to start looking at small properties to invest in.
You don’t need large sums like 25.000€, 50.000€, or even 100.000€ to get started. If you don’t have it yet, look at building that solid base by increasing your income or reducing your expenses, and you will be on your way to becoming a successful real estate investor.
In the meantime, you can start investing in real estate in other ways than purchasing rental properties. Consider these 4 ways to invest in real estate with less than 1.000€:
REITs, or Real Estate Investment Trusts. Investing in REITs can get you started with earning good passive income – By law, REITs must distribute 90% of their rental earnings to investors.
Because REITs in Germany are highly regulated, it is very tough for them to make a positive return for investors. You can read more here.
Real Estate Crowdfunding or Real Estate P2P investing. In Germany, real estate crowdfunding or P2P (peer-to-peer) investing platforms have become quite popular in the last few years.
But there is risk involved, and not all platforms are transparent. With the recent downturn in the real estate market, more and more platforms and real estate crowdfunding projects are defaulting.
Real Estate ETFs. ETFs, or Exchange Traded Funds, with a focus on underlying real estate investments, are another great option.
There are about 100 real estate ETFs available to choose from. So choose carefully which real estate is suitable for your personal financial situation.
Real Estate Security Tokens. To find out more about this type of real estate investment, visit our GermanReal.Estate marketplace to find out about available properties to invest in with security tokens.
You can invest in property developments as well as property portfolios (like our community portfolio: new constructions) that we launched in February 2023.
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