You have inherited a house and are faced with the decision: rent it out or sell it? This question is more than just a financial consideration; it touches on legal, tax, and personal aspects. We show you how to make an informed, data-driven decision.
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The topic briefly and concisely
Renting out an inherited house is only profitable if the net yield, after deducting maintenance (around 1-2% of the property's value per annum), management, and taxes, is positive.
Heirs must fulfil statutory renovation obligations under the Building Energy Act (GEG) within two years, which can incur costs of up to €50,000.
As an heir, you enter into existing rental agreements and assume all legal obligations without having the right to special termination.
The rental of an inherited house can represent an attractive, long-term source of income. However, before you embark on this path, a cool calculation is essential. Many heirs underestimate the actual effort and ongoing costs associated with the role of landlord. From maintenance and tax obligations to legal pitfalls – the decision has far-reaching consequences. This article analyses the key factors and shows you when renting your inherited house is worthwhile and when selling is the better alternative.
Initial Calculation: Gross Yield is Not Profit
The initial calculation of rental yield often appears tempting and straightforward. Let's assume your inherited house has a market value of €450,000 and you earn a monthly net rent of €1,500. This results in an annual gross rental yield of 4.0%. However, this figure only tells half the story. From this gross yield, you must deduct all non-apportionable costs. Only then will the actual net yield be revealed, which often stands at just 2-3%. A professional valuation of the market value is the first step towards a realistic calculation. This initial analysis is crucial to understand the true financial prospects.
Hidden cost drivers: Maintenance and administration
As a landlord, you are responsible for the maintenance of the property, and these costs can be significant. Experts advise setting aside 1.0% to 2.0% of the property's value annually for maintenance reserves. For a house valued at €450,000, this would mean €4,500 to €9,000 per year. These costs cannot be passed on to the tenant. Additionally, there are other expenses that reduce your return:
Management costs: If you hire a property management company, they will typically charge around 5-6% of the net rent.
Insurance: Adequate building and liability insurance is essential and costs several hundred euros annually.
Vacancy risk: In Germany, around 4.5% of all apartments were vacant in 2022, which poses a potential risk of rental loss.
Legal and advisory costs: Costs of over €500 can quickly arise for tenancy agreements or in the event of disputes.
Many heirs massively underestimate the total of these ongoing expenses. A precise understanding of these costs is fundamental for deciding whether renting or selling is more profitable.
Tax Aspects: What Remains of the Rent
Rental income is subject to income tax in Germany and must be declared in Annex V of your tax return. Your personal tax rate, which can be as high as 45%, is applied to the taxable rental income. However, you can deduct various costs as advertising expenses to reduce your tax burden. These include interest on loans, property tax, and the aforementioned maintenance costs. An important lever is the depreciation for wear and tear (AfA). For inherited properties, you continue the decedent's AfA. For houses built after 1924, the standard linear AfA is usually 2% of the original purchase or construction costs of the building per year. For rented properties, the market value for inheritance tax is set at only 90%, providing a slight advantage. A precise calculation of the tax implications is essential.
Legal Obligations: The Responsibility as a Landlord
As a landlord, you take on a range of legal obligations that are anchored in the German Civil Code (BGB). You step in as a legal successor to existing tenancy agreements and cannot simply terminate them; an inheritance case does not constitute a special termination reason. The legal framework is strict and demands attention:
Tenancy agreement: All contracts must comply with the current legal regulations of 2025 to be legally secure.
Service charge statement: You must prepare an accurate and comprehensible statement annually. Errors can lead to invalidity.
Maintenance obligation: You are legally obliged to maintain the rented property in a contractually compliant condition.
Rent control: In areas with a tense housing market, the rent for new lettings can only exceed the local comparative rent by a maximum of 10%.
These obligations involve considerable time and administrative effort. Before making your decision, you should know how to correctly set the rent price.
Renovation Trap for Old Buildings: The Risk of Unpredictable Costs
Many inherited houses were built decades ago and no longer meet today's energy standards. The Building Energy Act (GEG) often requires specific renovations when there is a change of ownership, such as in the case of an inheritance. Heirs typically have two years to comply with these obligations. Failure to do so can result in fines of up to €50,000. Typical renovation obligations include replacing boilers that are more than 30 years old or insulating the top floor ceiling. The costs for a comprehensive energy renovation can quickly exceed €50,000 to €100,000. This investment must be factored into your return calculation. Inheriting a house in need of renovation thus poses a significant financial risk that requires careful consideration.
Conclusion: A data-driven decision is essential
The question of whether renting out your inherited house is worthwhile cannot be answered in a general way. A gross return of 4% can quickly be halved after deducting all costs and taxes. The administrative effort and legal obligations also require time and expertise. Renting out is often only sensible if the property is in good condition, is located in a high-demand area, and you are prepared to take on the long-term responsibility. In many other cases, especially if renovation is needed or within an heir community, a sale is the more economically sensible and stress-free solution. A neutral, AI-supported rental yield analysis from Auctoa can help you evaluate all factors objectively. This way, you make a secure, fact-based decision, rather than relying on intuition.
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Additional useful links
Bundesfinanzministerium provides comprehensive information on inheritance and gift tax.
Bundesfinanzministerium explains the application of the rules for valuing real estate for inheritance and gift tax purposes.
The Berliner Mieterverein provides information about the rights of heirs, spouses, and family members in the event of a tenant's death.
The Statistische Bundesamt (Destatis) provides a table on rents and household net income.
The Statistische Bundesamt (Destatis) offers information on the tenant ratio in Germany.
The Vereinigte Lohnsteuerhilfe (VLH) provides information on which expenses landlords can deduct for tax purposes.
The Finanzamt NRW explains how to determine depreciation for a house or apartment.
The Einkommensteuerrichtlinien (EStH) des Bundesfinanzministeriums contain official information on depreciation.
Wikipedia offers an overview of inheritance tax in Germany.
FAQ
What is a good rental yield for an inherited house?
A good net rental yield (after deducting all costs) for an inherited house is typically over 3%. A gross yield below 4% is often a warning sign, as the running costs can quickly consume the return. A precise calculation is crucial.
How does depreciation (AfA) work for an inherited property?
As an heir, you adopt the depreciation of the previous owner (known as the “stepping into the shoes” theory). If the house was built after 1924, you can generally continue to claim 2% of the original purchase or construction costs of the building as tax-deductible expenses each year.
What happens to the rental agreement if I inherit a rented house?
As a new landlord, you automatically enter into the existing tenancy agreement, assuming all rights and responsibilities. An inheritance case is not a valid reason for special termination. Rent adjustments are only possible within the legal framework.
What risks are involved in renting out an inherited property?
The biggest risks are unpredictable renovation costs in older buildings, rent defaults due to vacancies or insolvent tenants, legal disputes, and the significant personal time required for management. In the case of communities of heirs, the potential for conflict is also a factor.
Can I deduct the costs for renovating an inherited house from tax?
Yes, you can generally deduct maintenance expenses immediately as advertising costs from rental income. However, if the renovation costs exceed 15% of the acquisition costs in the first three years after inheritance, they must be depreciated over the useful life of the building.
When is selling the inherited house the better option?
A sale is often preferable when there is a significant backlog of renovations, the location is challenging, you wish to avoid the administrative burden, or as part of an inheritance community, you seek a swift and straightforward division of assets. Additionally, the sale provides immediate liquidity without long-term commitments.
