Financing rental property

Hello everyone, I am planning to build a semi-detached house for rental purposes. I own a property myself which I live in and am still paying off. My financial advisor recommends taking a loan with as low as possible repayment of only one percent or even better, to save up a home savings contract [Bausparvertrag] over 10 years to always have the same interest rate for tax purposes. He says I should rather put every cent leftover into the loan of my own property instead of choosing the 2% repayment option. However, I personally see an advantage in the 2% option, precisely from the idea that if I want to sell the property after 10 years to achieve a higher profit because more has been repaid. Slowly, I am losing the forest for the trees and no longer know what would be more sensible. Could someone please, maybe from their own experience, explain what would be more sensible? If more details are needed, just ask. Many thanks in advance!

Hello,

your previous information is correct.

You should not repay a rented property too quickly. Because the difference between your rental income and the interest expenses incurred can be claimed for tax purposes.

If you repay too fast, you will eventually have no interest expenses to offset against the rental income and will have to fully tax your rental income as income. This can also affect your previous income in terms of tax progression and may lead to higher overall taxation.

Before you undertake such a project, you should definitely speak with your tax advisor.

Best regards

M. Thiemann