Developer loan vs rental flat vs listed property, Germany

Three ways into German property side by side: liquidity, who bears which risk, why headline returns differ, tax in brief, minimum ticket and exit. No ranking, no promises.

There are at least three ways to put money into German property: lend to a developer against a land charge, buy a flat to let, or buy shares in a listed property company or fund. They are different bets, with different risks, costs and ways out. This article sets them side by side without ranking them, because the right one depends on your horizon, your tax residence and how much of your capital you can afford to lose. It is general information, not investment advice, and every option here can lose money.

The three options in one paragraph each

A secured developer loan: you lend a fixed sum for a fixed term to a company building or renovating a property, and the loan is backed by a land charge. Your return is the interest the contract states, and your risks are that the borrower pays late or not at all and that the property is worth less than the debts ahead of you. For the regulation and tax of this route see developer loans in Germany: regulation and taxes for private lenders.

A rental apartment: you own the flat, receive rent and carry its costs, vacancies and repairs, and you gain or lose with the market price when you sell.

Listed property: you buy shares of a company that owns many properties, or units of a fund. Germany has only a handful of formal tax-transparent REITs (G-REITs), which must distribute most of their profit; the big residential landlords such as Vonovia and LEG are ordinary listed companies, not REITs. You can also buy a foreign REIT or a property fund through a broker.

Liquidity and term

Developer loan: the term is set by the contract, often measured in months or a few years. There is usually no way out before maturity, and the developer may ask for an extension.
Apartment: you can list it at any time, but a sale takes months and the purchase costs (transfer tax, notary, registry and sometimes a broker) are paid again on the next buyer's side, so a quick resale is costly. See what a purchase costs in Germany.
Listed property: you can sell on any trading day, but the price on that day may be well below what you paid. Daily liquidity does not mean stable value.

Who carries which risk

Developer loan: construction and sale risk sit with the borrower, but you carry the credit risk. If the project stalls, your protection is the land charge, and where it ranks and how the property was valued matter a great deal. A half-built building sells for less than a finished one.
Apartment: you carry the market price, the vacancy and the tenant risk, the repair bill and the rule changes (rent limits, energy-efficiency requirements). You can influence some of these, for example by choosing the location.
Listed property: you carry the market price of the shares and the company's debt and management risk, and you can do little about either. Prices of listed property can fall quickly when interest rates rise.

Return: why headline numbers differ

Be careful when you compare numbers across the three. A loan's stated interest is the maximum you are promised on paper, not what you should expect after delays, extensions, costs and the chance that part of it is lost. A flat's gross yield is rent divided by price before costs; our rental yield guide for Germany explains why gross yields on German flats are low single digits and why the net figure is lower again, and prices have moved differently in nominal and real terms, see German home prices in nominal and real terms. A listed company's dividend yield changes with its share price.

A higher headline number nearly always reflects a higher risk, a longer lock-up, or both. A fair comparison asks, for each option: what is the return after costs and tax, what is the realistic range, and what happens to my money in the bad case? An investment that shows a return but not its bad case has not been described.

Taxes in brief

Developer loan: interest is income from capital. For a German-resident private investor the flat rate is 25% plus the solidarity surcharge (26.375% together, church tax extra, annual allowance EUR 1,000). For a foreign lender the position depends on the double tax treaty and on your home country, see the article above.
Apartment: rent is taxed as income, and a foreign owner is generally subject to limited German tax liability and should expect a German return. A sale within ten years of purchase is generally taxable in Germany as a private sale gain; renting the flat out does not stop that clock. How this applies to you as a non-resident should be confirmed with a German tax adviser. For the sale side see capital gains tax when selling in Germany.
Listed property: the flat rate above applies to German-resident private investors; what applies to you depends on your country of residence and on where the shares are listed.

Minimum ticket

Developer loan: set by the offer. Individual loans backed by a land charge are often large single tickets; pooled and crowdfunding offers allow smaller amounts but come with investor caps.
Apartment: from tens of thousands of euros for a small flat in a cheaper city, and several times that in large cities; see what you can buy in Germany for 120,000 to 600,000 euros.
Listed property: a single share or fund unit.

Exit

Developer loan: repayment at maturity, from the developer's sales or refinancing. An early exit is not normally on offer.
Apartment: sale to a private buyer or an investor, time and cost as above.
Listed property: sale on the exchange, at the price of the day.

How to choose

Horizon: how long can you leave the money alone? A loan locks it for its term.
Liquidity: could you need it back sooner?
Loss: what share of your capital can you lose without damage, and is this position small enough?
Concentration: one borrower, one flat and one share each put a lot of weight on one name or address.
Tax: where are you resident, and has a tax adviser told you what each route costs you?
Control: do you want a say in the asset, or a claim on someone else's project?

A sensible portfolio rarely puts a large share of its capital in a single developer's loan, and not every investor should hold one at all.

What the bad case looks like

These are illustrations of how each mechanism works, not forecasts and not claims about any particular project.

Developer loan: the project is delayed, the loan is extended, and in the end the developer cannot repay or refinance. The property is sold in a forced sale and the proceeds go to creditors in order of rank. A lender ranking behind a bank may receive only part of the principal, and the interest may not be paid at all.
Apartment: a vacancy lasts for months, a roof or heating system has to be replaced, and you must sell in a weak market. After purchase costs, running costs and sale costs the result is below what you paid.
Listed property: interest rates rise, the share price falls and the dividend is cut. The risk is as much behavioural as financial: selling at the bottom turns a paper loss into a real one.

Common mistakes

Comparing a gross figure on one option with a net figure on another.
Forgetting currency: if you earn and spend in another currency, the euro return is only part of the story.
Putting too much into one name, one address or one project.
Treating the land charge as a guarantee of repayment rather than as a claim whose value you must check.
Not reading the extension and subordination clauses before signing.
Deciding on the headline rate before asking what the bad case looks like.

How we help

We can show you the documents and terms of the financing projects we currently work with, as well as the flats and new-build projects we offer, so you can compare them on the same questions. We do not quote return figures and we do not give investment, legal or tax advice. Read the paperwork with your own lawyer and tax adviser before you commit.

Developer loan, rental apartment or listed property fund in Germany: how they compare