ETF, existing property, or heritage —
an honest comparison.

The most honest answer I can give clients in initial conversations is often the most uncomfortable: there is no universally best asset class. There is only the right mix for your individual situation. And sometimes heritage is not the right tool — even though it is my specialty.

I am not writing this article to sell heritage real estate. I am writing it to show when it makes structural sense — and when it does not. Because only those who honestly know the alternatives can make a well-founded decision.

Three asset classes are essentially open to high earners in Germany: ETF and equities, existing/income real estate, and tax-optimised real estate under § 7i or § 7b. Each of these classes has its strengths — and its limits.

ETF and equities — the wealth-building classic

ETF is the best instrument for long-term wealth building from monthly net surpluses. Low costs, broad diversification, high liquidity, no operational effort. Anyone investing 1,000 or 2,000 euros per month from net income is structurally correct with a globally diversified ETF savings plan.

What ETF cannot do: provide a tax leverage. Returns are subject to 26.375 percent capital gains tax — independent of your personal tax rate. A high earner with a 42 percent marginal rate therefore pays less tax on ETF gains than they would on wages. But they do not use their high tax rate to reduce their existing tax burden.

That is the central asymmetry. ETF does not reduce what you pay today. It only creates what you will own tomorrow. For someone in the 42 percent tax rate, that is a forfeited part of the effect.

Existing properties — the solid middle ground

Existing properties — that is, classic income objects without special tax incentives — are a solid choice for investors who want to work operationally. Rental yield, value appreciation, inflation protection. Anyone buying a condominium in a growing city and holding it for ten years rarely makes a mistake.

What existing properties do not offer: a comparable tax leverage. The linear depreciation of 2 percent on the building portion is solid but blunt. With a 400,000 euro property at 80 percent building portion, this results in annual depreciation of 6,400 euros — versus the special depreciation on a heritage property of the same purchase price of around 25,000 euros per year in the first eight years.

Existing properties work particularly well for investors who enjoy renovating, renting, and managing themselves. Who appreciate the operational element. For high earners with limited time and a high tax rate, existing properties are usually suboptimal — they tie up capital without generating the tax added value that the same investment in a heritage property would create.

There is an exception: exceptionally good locations where value appreciation dominates. A condominium in Munich-Schwabing or Hamburg-Eimsbüttel can be an excellent investment even without tax advantage. But there, entry prices have meanwhile risen so high that the rental yield is close to zero.

Tax-optimised real estate — the leverage for high earners

Heritage real estate under § 7i and KfW-certified new construction under § 7b are the only two asset classes in Germany that combine a massive tax leverage with asset character. What distinguishes them structurally:

• Up to 100% depreciation of the renovation portion within 12 years
• Tax savings at the top tax rate, not flat capital gains
• Asset with inflation protection — unlike equities
• Rental income as ongoing cash flow — unlike ETF
• Scarcity in heritage stock — supply structurally limited

With a gross income of 150,000 euros and a heritage property of 400,000 euros at 70 percent renovation portion, annual tax savings of around 11,000 euros arise in the first eight years — in addition to rental income, inflation protection, and value appreciation. This sum would take several decades in an ETF portfolio to be compensated by compound interest.

When what fits — an honest heuristic

Here is my honest heuristic after fifteen years of consulting. It is simplified, but it helps with initial sorting:

Anyone earning under 80,000 euros gross should first establish an ETF savings plan. Tax-optimised real estate is structurally worthwhile only from a certain marginal tax rate — and below 80,000 euros this leverage is too small to justify the complexity. From 100,000 euros gross the question becomes interesting. From 150,000 euros gross, not using § 7i is a clear loss of wealth-building potential.

But even then it applies: a heritage property should not be the only investment. It should be a building block in the portfolio — alongside an ETF savings plan for monthly liquidity, an emergency reserve, and possibly other tangible assets. Diversification applies here too.

The most important question first

Before any client makes an investment decision, I always ask the same question: what is your investment horizon? Three years? Ten years? Two generations? The answer decides everything. A heritage property does not work in three years. It works in twelve, fifteen, twenty years. Anyone who cannot or will not think this way should keep their hands off it.

But anyone who thinks in generations — who invests for the children, the grandchildren, the long-term stability of the family — finds in tax-optimised real estate one of the most powerful tools of German law. Heritage real estate is not for everyone. For the right people, it is a tool that returns five-figure amounts annually that they would otherwise transfer to the tax office.

Which mix is right for you personally can be clarified in a structured initial conversation within 45 minutes. Sometimes the answer is: ETF is enough. Sometimes: you have the wrong tax advisor. And sometimes: here is a leverage you should look at.