How much to allocate

Two metrics, two answers

Net worth includes the property's market value minus the outstanding loan. By that measure, a typical first investment property accounts for a relatively modest share of a balance sheet, the equity portion only.

Equity deployed is the amount of cash put into the property: the down payment plus Kaufnebenkosten. By that measure, a first property often accounts for a much larger share of total invested wealth, sometimes the dominant share.

Both numbers are real. They answer different questions. Net worth share answers “how exposed is my wealth to this asset overall.” Equity share answers “how much of my available cash has gone into this single decision.”

The concentration-in-a-single-asset question

A frequently cited reference point in private wealth advisory: no single illiquid asset should exceed roughly thirty percent of net worth, and roughly half of available equity, for a household whose income is otherwise stable. This is a heuristic, not a rule, and different planners use different numbers.

The logic underneath the heuristic is independent of the specific percentage: an illiquid asset large enough to dominate a household's balance sheet limits flexibility in ways that compound over time. Career moves, family events, business opportunities, and emergencies all become harder to handle when wealth is locked up in a single property.

What the bank lets you do vs. what you should set yourself

German banks underwrite to documented income. A common rule of thumb in residential lending: total monthly debt service should not exceed roughly thirty-five percent of net monthly income. Some banks lend higher, some lower.

The number a bank will lend is not the same as the number that lets a borrower sleep at night. Banks underwrite assuming continued employment at current pay; borrowers carry the actual exposure if either changes. The borrower-side discipline is typically tighter than the lender-side limit.

When a second property starts to make sense

For investors with one property already, the second purchase rarely follows the same calculus as the first. A few markers tend to appear in cases where a second purchase looks defensible:

• The first property has been held long enough to demonstrate the operating reality (typically twelve to thirty-six months)
• Cashflow on property one is at or above plan, not behind it
• Reserves have been rebuilt after the first transaction's Kaufnebenkosten
• Income has grown or stabilised, not contracted
• The strategy for the second property is articulable, diversification, scale, tax shield, or different segment, rather than “more of the same”

Adding properties without these markers tends to compound concentration risk faster than it diversifies it.

What this lesson is not

A statement that there is a correct percentage. The right allocation depends on income stability, family situation, planning horizon, other assets, and personal risk tolerance, variables that differ substantially across households. The reference points here are starting frames; the decision is always individual.

What comes next

Allocation is one half of the question. The other half is which type of property strategy actually fits the goal. The next lesson covers the three main shapes, cashflow, appreciation, and tax shield, and the trade-offs between them.