Is real estate rental profitable?

In my opinion, two more factors come into play:

1) By using very cheap debt capital, one can create a relatively low-risk leverage. For example, financing a 600k apartment with 200k and more than doubling the return on equity (in the greatly simplified calculation 3*3% - 2*1% = 7%).
2) By certain properties (monument renovation) significantly reducing income tax through monument depreciation over 12 years. Of course, this only makes sense if there is corresponding income.

Otherwise, I can report from my own experience that renting out property is more work than managing ETFs. Even without problematic tenants, there is always something that needs to be repaired in an apartment or a tenant change is due. Sure, you can outsource everything, but that then eats into the return.

Over the years, however, the increase in value should not be neglected in terms of return. Even if the conditions are different, I like to compare rent with dividends and the increase in value with the price increase of stocks.

Over the years, the appreciation should not be neglected in terms of return.

But it’s like with a home of one’s own. Currently, prices are so high... every bad purchase of recent years or decades has somehow paid off, and a sale brings in obscene sums. But I don’t see the prices rising much further. In any case, one must not sugarcoat everything when renting out. What people like to ignore: rental default, repairs, renovations... all very unpredictable and hit the return hard. So definitely don’t reduce it just to purchase price and rental income.

You definitely should not sugarcoat everything yourself when renting out. What is often ignored: rent defaults, repairs, renovations... all very unpredictable and hit the return hard. So definitely do not reduce it to just purchase price and rental income.

That is a very important point. I have built an Excel tool that takes into account private reserves for repairs in individual ownership (i.e. not the maintenance reserve of the condominium owners' association), rent defaults, rising costs, and the individual tax rate. After deducting these factors, the apartments I manage yield about ± 2.5% return. However, my first rental apartment has an equity return of 10%, thanks to 75% financing and only 0.65% interest.

My crystal ball is currently too unclear regarding price development, but looking at it historically, there have been times of stagnation or slightly falling prices, but in the long term there have always been increases (just like in the stock market). For quick liquidity, stocks are certainly better, but here the price swings are also more significant. It’s unfortunate if I need my capital from stocks exactly during a -25% crash; with real estate, the "crash" is probably only about 5%.

Even though our family has invested a lot in real estate, I do not explicitly recommend it to anyone. The management is simply a lot of effort. For me, the fact is that I would never invest all my assets in stocks—it’s a psychological aspect—I am less hesitant to use leverage in real estate, which naturally improves my personal return. Because if I have 50% of available money in stocks and 50% in a savings account, the overall return is just half of the ETF’s increase.

I found renting out a residential unit annoying. After a "bad tenant," we sold the apartment. It would be worth more today, but oh well. Interesting from a return perspective in many areas is renting out garages. No strict eviction protection, low administrative effort, low maintenance, no homeowner associations, low concentration risk... Just as an additional idea.

From a return perspective, garage rental is interesting in many areas. No strong tenant protection, low administrative effort, low maintenance, no homeowners' associations, low concentration risk…

Please note that when renting out a garage without an apartment, sales tax (19%) must be paid. Renting out garages without living space (tied transaction) is considered commercial space rental for tax purposes. Certainly feasible, but must be taken into account both in the return calculation and in the tax declaration.

Sure, without familiarizing oneself with the subject matter, one should refrain from renting anyway. Value-added tax is due and there are regulations about what a tenant may store in a garage and a connection to fire protection liability. In some areas, however, it is exceptionally lucrative - hence the note.