Mental Models · Invest
"ETFs beat property." Let's run your numbers.
You are not wrong about returns. You may be wrong about what €50,000 can actually control. The missing variable is leverage.
Run your own numbersThe case for ETFs, made fairly
Low fees, Sell in seconds, No tenants, Broad diversification, Around 7% long-run. Every one of these is true, and for many people ETFs are the right call. But this list quietly leaves out the one thing a bank will fund for property and not for an index fund.
The missing piece
A bank lends you up to 100% for bricks, not for an MSCI World
Your tenant and the mortgage do the heavy lifting on the loan, while your returns are calculated on the whole property, not just the cash you put down. Even a cautious 2% on a leveraged property beats a strong 7% on the same cash in ETFs. That is the lever the ETF case usually forgets.
One year of growth
2.3× more
ETFs
7% on €50,000
Property
2% on €400,000
A smaller percentage on a far bigger base, and that base is what the bank funds.
The leverage calculator
Same cash, same monthly outlay, two ways to invest it. Drag the sliders to your situation.
How is this calculated?
We compare the same lump sum invested in ETFs against the same sum committed as equity to a leveraged property. ETF wealth compounds at the total return, while property equity grows through appreciation on the whole property value, with a dashed line adding illustrative after-tax rental cashflow. It is illustrative, not financial or tax advice. For guidance specific to your situation, speak to a licensed tax advisor.
The honest scorecard
We are not pretending property wins everything. Here is where each one genuinely comes out ahead.
Liquidity
Effort and hassle
Diversification
Leverage
Forced discipline
Inflation hedge
Tax after 10 years
ETF Vorabpauschale vs property §23 tax-free sale
Tax points are general information, not tax advice.
When ETFs are the better call for you
- You may leave Germany within about five years, property transaction costs need time to earn back.
- You want genuinely zero admin and no tenants.
- You cannot raise a deposit yet, in which case ETFs are a great way to build one, then buy later.
- You want to spread risk across thousands of companies rather than concentrate it in one flat.
See leverage on a real German flat
The calculator above keeps things simple. Our full property simulator models a specific property with transaction taxes, cashflow and the tax position, using deals sourced by our property partner.
FAQs
Yes, on fees, effort and liquidity, ETFs win comfortably. A broad index fund costs a fraction of a percent a year, settles in seconds and needs no tenants. The single thing this comparison leaves out is leverage. A German bank will lend against a flat, often up to 100 percent of the purchase price for a strong borrower, but almost none will lend you that to buy an MSCI World. Your returns then grow on the whole property, not just the cash you put in.
Long-run global equity returns have sat around 6 to 8 percent before inflation, and German residential property has appreciated more modestly, often 2 to 4 percent a year depending on the city, plus rental income. On an unleveraged basis ETFs usually look stronger. Once you apply high leverage to the property, often 90 to 100 percent financing, the return on your own committed cash can far exceed the ETF, which is exactly what the calculator on this page lets you test.
Leverage cuts both ways: it amplifies gains and losses, and a property is illiquid and concentrated in one asset. Those are real risks. The offsetting points are that German residential prices are historically less volatile than equities, the tenant and rental income service much of the debt, and a long fixed-rate mortgage (Zinsbindung) removes interest-rate surprises for 10 to 15 years. Neither option is risk-free, they carry different risks.
ETF gains are taxed at the flat Abgeltungsteuer of roughly 26.4 percent including Soli when you sell, with an annual Vorabpauschale charged along the way. A privately held property sold after a 10-year holding period (the Spekulationsfrist) can be sold completely tax-free on the gain. This long-term tax treatment is one of property's strongest, and most overlooked, advantages. This is general information, not tax advice.
Many investors do, and that is often the sensible answer. ETFs give you liquidity and diversification while you build a deposit; a leveraged property adds an asset that grows on borrowed money and is largely paid for by a tenant. The point of this page is not that property beats ETFs in every case, but that ignoring leverage makes the comparison misleading.