Own funds when buying real estate

Whether it’s for personal use or an investment, every real estate purchase requires equity. The amount of equity you need to contribute is especially important when buying your first property. If you’re buying real estate for your own use, you should contribute as much equity as possible. If you’re investing in real estate as a financial investment, it’s preferable to have less.

As a basic rule:

• Personal interest = as much equity as possible
• Capital placement = as little equity as possible

Why is that?

Equity as a safety mechanism

In order for the bank to grant you a loan for your real estate, it needs a certain guarantee that it will be able to recover the entire amount later. That is why your creditworthiness is examined in advance. The more liquid your finances are, the less equity you will need. On the other hand, if your expenses are higher than your income, you must expect to need more equity. Once you have obtained your loan, you repay it every month.

The better your solvency, the less equity you have.

Important: as an owner-occupier, you must repay the interest on your loan yourself. On the other hand, investors can deduct it from their taxes.

Personal utility: here’s the amount of equity you need

As an owner-occupier, you should therefore contribute as much equity as possible. Moreover, the higher the equity, the lower the interest burden. Indeed, the more equity you contribute, the less risk the bank financing you takes, and the lower the interest rates are calculated.

In principle: 20% equity for owner-occupiers

Monthly costs & income

How much do you therefore need to earn per month? Our advice: your monthly loan cost should not exceed 40% of your net income.

Here’s an example calculation:

• Income (net): 3,000 euros
• 40% = 1,300 euros

The monthly repayment, including interest, should therefore not exceed 1,300 euros.

Capital placement: the little equity you need

While you need as much equity as possible for personal use, as an investor you have the advantage of needing to contribute much less equity. In addition, you can deduct the interest from your taxes. Ideally, it is even the tenant who indirectly pays your interest. As a buyer of real estate as an investment, your equity only covers 10 to 15 percent of the costs.

This includes in particular

• Purchase fees
• Land transfer tax
• Notary fees
• Judicial fees
• Brokerage fees

Rolling capital: quick investments

Our pro tip: use your rolling equity capital. How does it work? It’s very simple: you buy a real estate property and provide equity funds. These are then repaid and can be used directly for your next investment.

Conclusion: this is the amount of equity you need!

Here is once again the general rule:

• Personal interest = as much equity as possible
• Capital investment = as little equity as possible

In the case of personal use, your equity serves as collateral for the bank so that it can recover your money sooner or later, no matter what happens. In principle, the equity you use should not exceed 40% of your net income. As an investor, on the other hand, you only need to contribute 10 to 15% equity. The interest is the tenant’s responsibility, and with rolling equity, you can directly invest in the next real estate property.

To learn more about equity and real estate financing, visit my new project for real estate buyers (Immobilien-Erfahrung.de):

• Equity (external)

Loan-to-value ratio at a glance: Maximum framework for the loans to be granted

• Bank specifies the lending limit
• Each bank sets the limit individually
• As a rule, the limit is 80 percent of the mortgage lending value.

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Spacious area at a glance: The excluded development of the area

• Ensuring fire protection and the visual integrity of properties
• Control over the building distance between properties
• Is unobstructable
• Determination of the distance by boundary measurement
• Marking of the distance by boundary stones

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Partition measurement at a glance: Official measurement of new property boundaries

• This means that the partial area of a plot of land can be sold and given its own entry in the land register.
• Records the new property boundaries in the real estate cadastre
• A publicly appointed surveyor must be commissioned for the survey

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Concealment with intent to deceive at a glance: Trivialising actual circumstances

• Circumvention of the seller’s or broker’s duty of disclosure
• Certain circumstances of an object are concealed
• Concealment of defects is in important point
• Knowledge of the own ignorance of the salesmen or brokers stands in the foreground

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