Inheriting a multi-family house presents you with a financial crossroads. Is it a blessing or a complex burden? This guide provides you with rational, data-driven assistance for your decision.
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The topic briefly and concisely
An objective property valuation is the essential foundation for any rational decision, whether you decide to sell or keep an inherited multi-family house.
The ongoing costs and administrative burden of renting are often underestimated by up to 30%; only the net return matters.
Tax aspects such as the 10-year speculation period and inheritance tax allowances can significantly influence the financial outcome.
Inheriting a multi-family house is a profound event that, in addition to emotional aspects, also involves significant financial uncertainties. Many heirs feel overwhelmed by the complexity of the decision: should the property be sold for immediate liquidity or retained for long-term returns? This choice has financial implications that are felt over decades. This article provides you with a structured framework to objectively evaluate both options and consider all relevant factors, from rental yields to tax burdens and legal renovation obligations.
Step 1: Create an objective data foundation
The Essentials at a Glance
Objective Evaluation is Crucial: An unbiased, data-driven valuation forms the foundation for any rational decision and protects against emotional misjudgments.
Conduct a Cost-Benefit Analysis: Compare the potential rental income and property value increases with ongoing costs, administrative efforts, and tax liabilities.
Observe Tax Deadlines: The ten-year speculation period and personal allowances for inheritance tax are often the most significant financial levers.
Check Legal Obligations: The Building Energy Act (GEG) may enforce renovations upon ownership transfer, which can substantially reduce the return on investment.
Step 1: Establish an Objective Data Basis
The decision to sell or retain an inherited multi-family house begins with a fundamental question: What is the property truly worth today? Emotional ties to a family heritage can cloud judgment and lead to an assessment error of over 20%. A professional, AI-assisted valuation of your inherited property provides you with an impartial market value. This figure is the anchor point for all subsequent calculations.
In addition to the pure market value, a technical assessment is essential. Check the condition of the roof, façade, heating system, and pipes. An undiscovered backlog of renovations can quickly incur costs exceeding 50,000 Euros and nullify the profitability of renting. Gain clarity on the energy status, as this significantly determines future legal requirements. Only with these hard facts can you seriously weigh the two scenarios – selling or retaining – against each other.
Scenario 1: Retain the multi-family house as a long-term investment
Owning a multi-family house promises consistent rental income and protection against inflation through tangible assets. In many German cities, the gross rental yields for residential properties range between 3% and 5%. However, the gross yield alone can be misleading. To calculate realistically, you need to determine the net yield.
Calculate the net yield precisely
The net yield accounts for all costs that cannot be passed on to the tenants. Many owners underestimate these non-recoverable costs by up to 40%. Therefore, an accurate calculation is crucial. You need to deduct the following items from the annual cold rent:
Maintenance reserve: Experts recommend setting aside at least 1% of the building's value annually or a flat rate of 11.50 euros per square metre for older buildings.
Administrative costs: Expect to pay between 250 to 400 euros per residential unit per year for professional property management.
Rental vacancy risk: Conservatively calculate 2% to 4% of the annual cold rent to cover vacancies or payment defaults.
Costs for bank accounts and other fees.
You will only get a realistic view of your potential income after subtracting these items. For simplicity, use an online rental yield calculator. This analysis will show whether renting truly generates the desired cash flow or becomes a subsidised venture.
Scenario 2: The sale for rapid liquidity release
Selling an inherited multi-family house offers clear advantages: You immediately gain high liquidity and free yourself from any responsibility for management and maintenance. You can then invest this capital in a diversified manner or use it for other life goals. Selling is often the preferred solution when a community of heirs needs to be dissolved quickly.
Understand the Tax Implications
Two types of taxes are crucial when selling: inheritance tax and capital gains tax. Inheritance tax is due regardless of whether you keep or sell the property. The amount depends on your degree of kinship and the associated tax allowances. For children, for example, the allowance is 400,000 euros per parent.
Capital gains tax is the most important factor in the sales decision. It applies if less than ten years have passed between the acquisition by the decedent and the sale by you. The profit from the sale is then taxed at your personal income tax rate, which can significantly reduce the return. The ten-year period starts from the date of the deceased's purchase contract. Check this date carefully before creating a checklist for the sale.
Special Case of Inheritance Communities: How to Navigate Complex Interests
If the community of heirs consists of several people, the decision regarding the multi-family house becomes more complex. Different life situations and financial goals often lead to conflicts. While one heir may rely on quick liquidity from the sale, another may wish to keep the property as a long-term retirement investment. Such deadlocks can block the value of the estate for years.
In a community of heirs, a neutral, fact-based discussion basis is even more important. An agreed-upon property valuation prevents disputes over the value. It creates a common basis for negotiations. Often, a sale is the only solution that satisfies all interests, as the proceeds are clearly quantifiable and easily divisible. A structured process, as described in a guide to selling from a community of heirs, is essential here. If one heir is to buy out the others, the value must also be indisputable to avoid future conflicts.
Underrated Risk: Renovation Obligations and Energy Costs
A critical cost factor that is often overlooked is the statutory renovation obligations. The Buildings Energy Act (GEG) mandates certain energy modernisations when a property changes ownership – including through inheritance. These must be implemented within two years of registration in the land register. Failure to comply can result in fines of up to 50,000 euros.
The most common mandatory measures include:
Insulation of the top floor ceiling or the roof: The thermal transmittance (U-value) must not exceed 0.24 W/(m²·K).
Replacement of old boilers: Constant temperature boilers that are more than 30 years old must be replaced.
Insulation of heating and hot water pipes in unheated rooms.
Depending on the scope, these measures can incur costs ranging from 20,000 to over 60,000 euros, significantly impacting the rental yield for years. A thorough assessment of the renovation needs is therefore a critical step in your decision-making process.
Conclusion: Make a data-driven and strategic decision
The question "Sell or keep inherited apartment building?" cannot be answered with a blanket statement. An emotional decision is almost always the wrong one. Consider the property for what it is: a significant asset that requires strategic planning. Conduct a cool, rational analysis that takes into account all the factors mentioned here.
Weigh the potential net return and value development against the risks such as renovation obligations, rental losses, and management effort. Compare this scenario with the immediate liquidity and opportunities presented by the sales proceeds. The first step to making an informed decision is always a neutral, data-driven assessment. If you are unsure, our ImmoGPT chat can provide initial guidance, or you can request a free valuation directly. Make the choice that secures your wealth for the future.
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Additional useful links
The Federal Statistical Office (Destatis) offers comprehensive information on construction prices and the real estate price index in Germany.
The Federal Ministry of Finance provides detailed information on inheritance and gift tax in Germany.
You can find more statistics and information on housing in Germany at the Federal Statistical Office (Destatis).
The Deutsche Bundesbank publishes financial stability reports that provide insights into the stability of the financial system.
The KfW Banking Group (KfW Research) offers relevant information on residential construction.
An analysis of falling house prices in the housing market in 2024 can be found at the DIW (German Institute for Economic Research).
The Cologne Institute for Economic Research (IW Köln) offers a topic page with comprehensive information on the real estate market.
The vdp (Association of German Pfandbrief Banks) provides information on the VDP real estate price index, which reflects the development of real estate prices in Germany.
FAQ
What is the first step if I have inherited a multi-family house?
The most important first step is obtaining a neutral, professional property valuation. This creates an objective data basis for all further decisions and is essential, especially in communities of heirs, to avoid conflicts.
What role does the Building Energy Act (GEG) play in my decision?
The GEG plays a crucial role. In the event of an ownership change through inheritance, you may be obligated to carry out costly energy renovations (e.g., roof insulation, heating replacement) within two years. You must include these costs in the profitability calculation of the 'retention' scenario.
What happens if we cannot reach an agreement in the community of heirs?
If the co-heirs cannot reach an agreement, selling is often the only solution to avoid a partition auction. The proceeds from the sale can be easily divided. A neutral evaluation by a third party like Auctoa can help find a solution acceptable to all.
How do I calculate the actual return if I keep the house?
You need to calculate the net return. Deduct all non-transferable costs to tenants from the annual net rent. This includes the maintenance reserve (approximately 1-1.5% of the building's value per annum), management costs, and a buffer for rental losses (around 2-4% of the rent).
Can Auctoa help me with the decision?
Yes. Auctoa provides an AI-powered, neutral property valuation that offers you an objective basis. Our ImmoGPT chat can also address initial questions and assist you in structuring the pros and cons of both options – selling or keeping – for your specific situation.
Is selling always the easier solution?
Selling is often easier in the process since it provides a clear endpoint and immediately generates liquidity. However, it is not always the financially better option, especially if the speculation period has not yet expired or if the long-term rental yield after deducting all costs is very attractive.
