Buying a Tenanted Apartment as an Investment: Why It's Back in Demand
More and more investors are asking us specifically about tenanted apartments. The logic is understandable: a tenant is already in place, rent starts flowing from month one, and there's no need to handle the letting process yourself. It sounds like the convenient version of a property investment. In practice, though, there's more number-crunching involved than many buyers initially expect. Anyone buying a tenanted apartment doesn't just acquire the property – they also take over the existing lease with all its rights and obligations. This is clearly regulated by law and cannot be negotiated away.
The Advantages: Cash Flow from Day One
The most obvious benefit is immediate rental income. No vacancy period, no time spent on viewings and credit checks, no uncertainty about whether and when a suitable tenant will be found. Especially for investment properties in cities with tight housing markets, this is a real advantage – you know from the outset what will come in each month.
Financing often benefits too. Banks tend to view an already-tenanted apartment more favourably than a vacant one, since the rental income can be factored directly into affordability calculations. And if you're planning for the long term, an established tenancy can work in your favour: a tenant who has lived in the apartment for years typically treats it like their own home, handles minor issues themselves, and reports damage reliably.
Understanding In-Place Rents: The Catch in the Convenient Solution
This is exactly where the biggest pitfall lies. If a lease has been running for many years, the agreed rent is often well below what could be charged on a new letting today. This is known as the in-place rent (Bestandsmiete) – and it cannot simply be raised to market level just because a new owner has taken over.
Rent increases within an existing tenancy are capped by law. Within a three-year period, rent can generally only be raised up to the local comparative rent (ortsübliche Vergleichsmiete – the benchmark rent for comparable local properties), and even then, statutory caps (Kappungsgrenze) of typically 15 to 20 percent apply, depending on the federal state and how tight the local housing market is. So anyone buying an apartment with a very low in-place rent, hoping to quickly reach market rent, will be disappointed. That adjustment happens gradually over years, not at the notary appointment (Notartermin – the mandatory notarial signing of the purchase contract).
For your calculations, this means you should always work with the actual current rent, not the rent that would theoretically be achievable on the open market. Reviewing the lease agreements and, where available, the history of past rent increases should therefore be on every pre-purchase checklist.
Tenant Protection: Why You Can't Simply Move In Yourself
A common misconception: some buyers assume they can simply use the apartment themselves or re-let it freely after purchase. That's not how it works. Existing leases automatically transfer to the new owner upon change of ownership, under the principle of "purchase does not break lease" (Kauf bricht nicht Miete). The tenant therefore retains a normal right to occupy the property, regardless of who owns it.
Termination is generally only possible with a legitimate interest, most commonly owner's personal use (Eigenbedarf). And even then, many properties are subject to a statutory blocking period after purchase – in some regions up to ten years – if the apartment was previously converted into a condominium. So if you're planning to move in yourself in a few years, this needs to be checked carefully in advance; when in doubt, it's worth getting legal advice before signing the purchase contract.
For pure investors, tenant protection is usually not an issue at all – quite the opposite: a reliable tenant who wants to stay is a stabilising factor. The key point is simply to be clear from the outset that you cannot freely dispose of the apartment while the lease is running.
Calculating Returns Realistically: More Than Just Purchase Price Divided by Rent
Many investors calculate the gross rental yield – annual rent divided by purchase price, times a hundred – and leave it at that. That falls short. For a realistic assessment, several factors need to be included:
- The actual current rent, not the theoretically achievable rent
- Maintenance reserve fund (Instandhaltungsrücklage) contributions and ongoing repair costs, especially for older existing buildings
- Management fees, if you don't manage the apartment yourself
- Non-recoverable service charges that remain with the owner
- A vacancy and default risk buffer (Mietausfallwagnis), i.e. a cushion for occasional vacancy or rent arrears
- Financing costs, if the apartment isn't paid for entirely in cash
Only once these items are deducted from the gross yield do you arrive at a net yield that actually says something meaningful about profitability. For older buildings with upcoming renovations – roof, façade, heating – this gap can be substantial. Purchase-related costs such as real estate transfer tax (Grunderwerbsteuer), notary fees (Notar), and land registry fees (Grundbuch – the register recording property ownership and encumbrances), which together can quickly reach the mid-double-digit percentage range of the purchase price depending on the federal state, also belong in the calculation, as they noticeably reduce the actual initial yield.
What to Pay Particular Attention to When Buying
Always request the complete lease agreement, the most recent service charge statements, and, where applicable, the minutes of the last owners' meeting (Eigentümerversammlung) for condominiums before buying. These often contain hints about planned major works that could put significant strain on the maintenance reserve fund. It's also worth looking at the tenant's creditworthiness and how long the existing tenancy has been running – a tenant who has paid reliably for ten years represents a different risk profile than a lease that's only a few months old.
If you're unsure how to properly assess a specific apartment, don't rely on the listing alone. At L&B Immobiliya, we review every property from an investor's perspective and point out issues that are often glossed over in marketing materials. You'll also find suitable investment properties directly in our property listings.
Conclusion for Investors
Buying a tenanted apartment can be a solid, predictable investment, precisely because cash flow is in place from day one. But in-place rents and tenant protection set clear limits on how quickly returns can be increased. Anyone who calculates honestly with actual rent, maintenance, and ancillary costs gets a realistic picture – and ultimately makes a decision that will still hold up ten years down the line.
Considering investing in a tenanted apartment, or want an independent assessment of your existing investment property? Our team at L&B Immobiliya advises in German, English, or Russian, supports you with property searches, and accompanies you all the way to the notary appointment. Simply get in touch via our contact page, or take a look at our services for buying and letting.
