Inheritance Manager
Real Estate Legal Information
Is renting out my inherited house worthwhile?
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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Renting out an inherited house is only profitable if the net yield remains positive after deducting maintenance (around 1-2% of the property's value per year), management, and taxes.
Heirs must fulfil legal renovation obligations according to the Building Energy Act (GEG) within two years, which can result in costs of up to €50,000.
As an heir, you enter into existing rental agreements and assume all legal obligations without having a special termination right.
Renting out an inherited house can be an attractive long-term source of income. However, before embarking on this path, a cool calculation is essential. Many heirs underestimate the actual effort and ongoing costs associated with the role of a landlord. From maintenance and tax obligations to legal pitfalls – the decision has far-reaching consequences. This article analyses the crucial factors and shows you when renting out your inherited house is worthwhile and when selling is the better alternative.
The initial calculation of rental yield often seems enticing and straightforward. Let's say your inherited house has a market value of €450,000 and you achieve a monthly net rent of €1,500. That results in an annual gross rental yield of 4.0%. However, this number is only half the truth. From this gross yield, you must deduct all non-recoverable costs. Only then does the actual net yield become apparent, which often lies only at 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.
As a landlord, you are responsible for the maintenance of the property, and these costs can be significant. Experts recommend setting aside 1.0% to 2.0% of the property's value annually as a maintenance reserve. For a house valued at €450,000, this would amount to €4,500 to €9,000 per year. These costs cannot be passed on to the tenant. Additionally, there are other factors that can reduce your returns:
Administrative costs: If you hire a property management company, they charge about 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, presenting a potential risk of lost rental income.
Legal and advisory costs: Costs quickly exceed €500 for rental contracts or disputes.
Many heirs drastically underestimate the total of these ongoing expenses. A precise understanding of these costs is fundamental in deciding whether renting out or selling is more worthwhile.
Rental income is subject to income tax in Germany and must be declared in the Anlage V of your tax return. Your personal tax rate, which can be up to 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. A key lever is depreciation for wear and tear (AfA). For inherited properties, you continue the AfA of the deceased. For houses built after 1924, the linear AfA is usually 2% of the original acquisition or production costs of the building per year. For rented properties, the market value for inheritance tax is set at only 90%, which provides a slight advantage. An accurate calculation of the tax implications is essential.
As a landlord, you take on a range of legal obligations enshrined in the German Civil Code (BGB). You become the legal successor in existing tenancy agreements and cannot simply terminate them; inheritance does not constitute grounds for special termination. The legal framework is strict and requires 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 render it invalid.
Maintenance Obligation: You are legally obliged to maintain the rented property in a condition consistent with the contract.
Rent Control: In areas with tight housing markets, the rent for new lettings may not exceed the local comparative rent by more than 10%.
These obligations entail a considerable amount of time and administrative effort that should not be underestimated. Before making your decision, you should know how to set the rent correctly.
Many inherited houses were built decades ago and no longer meet today's energy standards. The Building Energy Act (GEG) often prescribes specific renovation measures when there is a change of ownership, including inheritance. Heirs typically have two years to fulfil these obligations. Failure to comply 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 of 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 therefore presents a significant financial risk that requires careful examination.
The question of whether renting out your inherited house is worthwhile cannot be answered in general terms. A gross return of 4% can quickly halve after deducting all costs and taxes. Managing the property and fulfilling legal obligations also require time and expertise. Renting is often only advisable if the property is in good condition, located in a high-demand area, and you are prepared to take on the long-term responsibility. In many other cases, especially if renovations are needed or in inheritance communities, selling is the more economically sensible and less stressful solution. A neutral, AI-supported rental yield analysis from Auctoa can help you objectively evaluate all factors. This way, you can make a secure decision based on facts rather than intuition.
Bundesfinanzministerium provides comprehensive information on inheritance and gift tax.
Bundesfinanzministerium explains the application of regulations for valuing real estate for inheritance and gift tax purposes.
The Berliner Mieterverein informs about the rights of heirs, spouses, and family members in the event of a tenant's death.
The Statistical Office of Germany (Destatis) provides a table on rents and household net income.
The Statistical Office of Germany (Destatis) offers information on the proportion of renters in Germany.
The Vereinigte Lohnsteuerhilfe (VLH) explains which costs landlords can deduct for tax purposes.
The Finanzamt NRW explains how to determine the depreciation for a house or apartment.
The Income Tax Guidelines (EStH) of the Bundesfinanzministerium contain official information on depreciation.
Wikipedia provides an overview of inheritance tax in Germany.
What is a good rental yield for an inherited house?
A good net rental yield (after deducting all costs) for an inherited house is generally over 3%. A gross yield below 4% is often a warning sign, as running costs can quickly eat into the profit. A precise calculation is essential.
How does depreciation (AfA) work for an inherited property?
As an heir, you take on the depreciation of the previous owner (known as the "footstep theory"). If the house was built after 1924, you can usually continue to claim 2% annually of the original acquisition or construction cost of the building as tax-deductible expenses.
What happens to the rental agreement if I inherit a rented house?
You automatically enter the existing rental agreement as the new landlord and assume all rights and obligations. An inheritance is not a reason for extraordinary termination. Rent adjustments are only possible within the legal framework.
What are the risks of letting an inherited property?
The biggest risks include unforeseeable renovation costs in older buildings, rental losses due to vacancy or insolvent tenants, legal disputes, and the significant personal time required for management. In addition, there is potential for conflict within inheritance communities.
Can I deduct the renovation costs of an inherited house from taxes?
Yes, you can usually deduct maintenance expenses immediately from rental income as tax-deductible expenses. However, if 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 an inherited house the better option?
Selling is often better when there is significant renovation backlog, the location is difficult, you want to avoid management effort, or you seek a quick and clean asset division as part of an inheritance community. Selling also provides immediate liquidity without long-term commitments.
