WHAT INFLATION MEANS
You vaguely associate "inflation" with everything becoming more expensive? You're right about that. The word "inflation" comes from Latin. "Inflatio" means "to inflate". In economics, it means nothing other than the rate of inflation, specifically of services and products. The basis of assessment is always price comparisons with the previous year. An increase in price is referred to as "inflation", while the monetary value decreases. The inflation rate in Germany is currently 7.5%.
WHAT INFLATION MEANS FOR YOUR PROPERTY IN GERMANY
Property often rises in price during inflation, just like other products. There is often talk of so-called "inflation protection through property". Doesn't sound bad at first. Nevertheless, it makes sense to know exactly what inflation on the German property market means for you personally as a property owner.
Inflation protection for property depends on the way in which your property is used. There is a distinction between owner-occupied and non-owner-occupied property. There are also differences between new properties and properties in need of renovation.
OWNER-OCCUPIED PROPERTY
If you use your property yourself, your ancillary and operating costs will increase, just like everyone else, but so will the value of the house you live in. Your owner-occupied property is therefore an attractive security for you, especially in times of inflation.
NON-OWNER-OCCUPIED PROPERTY
As an owner, you also have an advantage over tenants in the case of non-owner-occupied properties. The value of your property increases while the value of your debts decreases. This is due to the devaluation of money during inflation. In contrast to increased rental costs for your tenants, you as the owner have no new costs. If you purchased your property with a loan with a long-term fixed interest rate, you will benefit once again. There are no increased financing costs for you during inflation.
As a landlord, the best way to protect yourself against high inflation is with an index-linked tenancy agreement. This will help you avoid discussions with your tenants, as the index-linked tenancy agreement includes the rent adjustment to inflation. If the rent were never adjusted in times of inflation, the purchasing power generated by rental income would fall. This would be particularly disadvantageous for long-term rental agreements of 10 years or longer. However, please note that you are not allowed to apply other, non-inflationary rent increases to an index-linked rental agreement.
Don't panic: Even if you do not have an index-linked tenancy agreement, you can adjust your rents using local prices. Decide for yourself whether an index-linked tenancy agreement makes sense for you or not. Landlords have very different opinions on this. In any case, this contract is less complicated.
Do you have a property in mind in a specific location? Have a look around with us. We have many offers: https://www.wienroth-immobilien.de/immobilien/alle-immobilien/.
NEW PROPERTY OR PROPERTY IN NEED OF RENOVATION
If you have a new property , it is generally better protected against inflation than if it is in need of renovation. If your home is due for renovation, you will face higher costs. Please also note that there may also be regional differences in times of inflation.
RENOVATING AND INVESTING: TRICKS TO SAVE MONEY
Caution is advised with refurbishments. Specialised products or tradesmen's services are subject to sharp rises in inflation. If you rent out your property, you have the option of adjusting the rent via the index value. But beware: if the tradesman becomes more expensive during inflation, this will have an impact on your investment.
However, if you keep a few tricks in mind, you can turn the tide. Keep an eye on current price trends. Have upcoming renovation work carried out against the usual cycles. Awnings or air conditioning systems are naturally in great demand in rented properties during the summer months. It is better to have them installed in winter. Then it will be cheaper for you as the owner.
You should also invest your rental income in such a way that you achieve a return above the inflation rate. You can do this with ETFs or shares in certain sectors. Investments are considered relatively safe, even in times of inflation. Here, inflation rates are passed on to customers. In addition, turnover and profits also increase here because product and service prices rise.
A tangible asset investment can provide further protection against inflation. Here, partial tax exemptions are possible for partial income from the property fund. It is best to clarify with your investment advisor exactly how high the property quota must be and from what percentage you can achieve partial exemptions.
Caution is advised with refurbishments. Specialised products or tradesman services are subject to strong inflationary fluctuations. If you rent out your property, you have the option of adjusting the rent via the index value. But be careful: if the tradesman becomes more expensive during inflation, this will have an impact on your investment.
INFLATION AND PROPERTY LOAN - WHAT NOW?
It's not just prices that rise during inflation. Interest rates also go up. You are quite safe if you have taken out (or are still taking out) a property loan with a long-term fixed interest rate. What does long mean? Here we are talking about 10-30 years. If you disregard the fixed interest rate, you must expect interest rate increases. If you have neglected to fix your interest rate for a long period, you have the option of offsetting your additional costs with increased rental income.
The good news with loans: Your loan amount will not change. However, your rental income will increase. It will then be possible to repay the loan in a much shorter time. Talk to your bank about the subject of "unscheduled repayments".
If you have any questions about your individual financing plans, please contact us at https://www.wienroth-immobilien.de/finanzierung/finanzierungsanfrage/.
CONCLUSION: CLEVER INFLATION PROTECTION FOR PROPERTY
Use your property as protection against inflation by using it yourself or keeping it in good condition. When renting out your property, make sure you recognise and repair damage at an early stage. This will help you avoid high renovation costs later on. Invest cleverly when buying property in order to benefit from it in the medium to long term and maintain security during periods of increased inflation. Make clever use of property funds to secure additional benefits.
Do you have questions about your upcoming property purchase or the right financing? Do you still need some tips on saving during inflation? Wienroth Immobilien is your local estate agent: https://www.wienroth-immobilien.de.