Is real estate worthwhile as a retirement provision? Opportunities and challenges at a glance

Anyone thinking about their financial security in old age today often asks themselves the question: does it make sense to buy a property as a retirement provision? Especially in an environment of rising rental costs and uncertain stock markets, concrete gold seems attractive to many. But what really needs to be considered if a property is to become a stable basis for retirement planning? We provide a sound overview of the opportunities, risks and financing issues.

Why real estate is often attractive as a retirement provision

Compared to other forms of investment, real estate offers two key advantages: rent-free living in old age and a generally stable performance. If you buy early, you can pay off the property by the time you retire and thus save on rental costs - a considerable financial advantage. Many investors value real estate because it offers a high degree of stability and security compared to other forms of investment.

Advantages at a glance

• Rent savings: Particularly in the case of owner-occupied properties, rental costs are completely eliminated in old age. In the long term, the savings potential can be considerable.
• Stable value: Real estate prices in selected regions, especially metropolitan locations, often show a stable or slightly rising long-term trend.
• Flexible use: properties can be sold or rented out as required to generate additional funds.

Even if these advantages sound attractive, it is important to carefully examine the long-term perspective.

What you need to know about financing and equity

The purchase of a property for retirement provision requires realistic financial planning. The question of how much equity should be brought in is crucial for the affordability of the monthly charges and the repayment period.

How much equity makes sense?

• At least 10-15% of the purchase price should be available as equity to cover ancillary purchase costs such as land transfer tax, notary and estate agent fees. These costs are generally not financed by banks.
• We recommend 20-30% equity in order to obtain better interest conditions and reduce the monthly loan installments. A higher equity ratio also reduces the risk of financial bottlenecks during the term of the loan.

Repayment strategies for debt reduction until retirement

To ensure that the property is paid off by the time you retire, the repayments should be set at a correspondingly high level:

• For a purchase with a 20-year term and an interest rate of around 3.5%, an initial repayment of at least 2-3% is recommended.
• The older the buyer, the higher the repayment rate needs to be in order to pay off the remaining debt by the time they retire. For example, a 50-year-old requires a significantly higher monthly installment than a 35-year-old.

The independent real estate professionals at VON POLL IMMOBILIEN recommend individual financial advice for a tailor-made repayment and interest rate plan - VON POLL FINANCE is the best contact here.

Regional differences: Where is a property particularly worthwhile as a retirement provision?

The location is decisive for the value stability and rentability of a property.

Stable locations offer security

• Large cities and metropolitan regions such as Munich, Hamburg or Berlin are characterized by high demand, limited supply and stable price trends. The risk of a loss in value is comparatively low here.
• Popular local recreation areas or growth regions with good infrastructure projects also offer potential.

Risks in structurally weak regions

• Regions with a declining population and weak economic power, especially in parts of eastern Germany, harbor higher risks in terms of loss of value and long marketing times.
• Nevertheless, individual cities or municipalities within these regions can still open up interesting opportunities through targeted location development. A professional location analysis is essential here.

Recognize the value of your property with our free online valuation service.

Use and sale: what options are there in old age?

Not everyone wants to use their property themselves when they retire - whether for health reasons, because they want to be close to the city or because their family situation has changed.

Letting as additional income

• The property is rented out as an investment and generates regular rental income.
• When planning, maintenance costs of 1-2% of the property value per year and possible rent loss risks should be taken into account.
• Vacancy risks can be minimized through targeted location and tenant selection.

Annuity models and partial sale

• Property annuitization (life annuity, usufruct models): Sale of the property with a lifelong right of residence or annuity in return for handing over the property. An opportunity to generate additional capital without losing the comfort of living.
• Partial sale: Sale of a share of the property to generate liquidity while continuing to live in the property.

Important: Please note that we are unable to provide legal advice. For the legal assessment of such models, we recommend consulting specialist lawyers.

Real estate as part of a combined pension strategy

A property should never be the sole means of retirement provision. Instead, experts recommend a broad diversification of investment forms in order to minimize risks and be able to react flexibly to life situations.

Useful additions to real estate provision

• Equity and ETF funds: offer good potential returns with higher liquidity and broad diversification.
• Company pension plans and Riester pensions: Incorporate state subsidies and supplement private pension provision.
• Tangible assets such as precious metals: Offer crisis protection with a low correlation to the real estate market.

By combining different asset classes, a balanced retirement provision with stable returns and liquidity security can be created.

Conclusion: Real estate as a sensible component of retirement provision

Buying a property can be a valuable addition to retirement provision - especially if

• sufficient equity is available,
• the financing is planned in such a way that the property is paid off by the time you retire,
• the location is checked for value stability and demand,
• and the property becomes part of a broadly diversified pension portfolio.

We recommend careful planning and early financing as well as professional advice from our experts. VON POLL IMMOBILIEN will be happy to help you achieve your personal real estate goals - whether it's buying a property, selling it or finding the best financing.