IRR vs. ROI – Which Metric Really Matters for German Property in 2025?
When you assess a property deal, two acronyms dominate the conversation: ROI (Return on Investment) and IRR (Internal Rate of Return). Both answer the ultimate question – "Is it worth it?" – but they zoom in on different parts of the story and can lead to very different yes‑or‑no decisions.
1. ROI – The Snapshot of Total Gain
ROI uses a single, intuitive formula: (Net Profit − Initial Cash) / Initial Cash × 100 %. If you pay cash and only care about the end result, ROI is fine. The moment you add financing and multi‑year cash flows, however, ROI becomes a static photograph – it ignores the time value of money.
2. IRR – Bringing Time into the Equation
IRR feeds every cash flow (down payment, loan instalments, rent, repairs, sale proceeds) into a single equation and solves for the discount rate that makes NPV zero. In plain English: it tells you the annual compound return on your own cash. Consequently:
- The longer the holding period, the more early cash flows weigh on IRR.
- High leverage boosts IRR – and magnifies risk.
3. Typical Acquisition Costs in Germany
- Property transfer tax (Grunderwerbsteuer): 3.5 % – 6.5 % (Berlin 6 %).
- Notary + land registry: ≈ 1.2 %.
- Broker fee (Maklercourtage): usually 2 – 3.57 %, split 50/50 between buyer and seller.
- Renovation / due‑diligence / legal buffer: budget 1 – 2 %.
4. Worked Example – 90 m² Flat in Berlin
Sticker price: €500,000.
| Equity (30 %) | €150,000 |
| Purchase add‑ons | ≈ €32,000 |
| Loan (70 %) | €350,000 @ 4 % p.a., 25 yr annuity |
| Gross monthly rent | €2,500 |
| Operating costs | €450 (5 % vacancy + reserve) |
| Loan payment | €1,848 |
| Net cash flow / month | ≈ €202 |
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Feed these numbers into German Immo Flow:
- Year‑1 ROI ≈ 1.6 %.
- 10‑year IRR (assuming 2 % capital growth) ≈ 6.8 %.
5. Use the Calculator in 3 Steps
- Enter state, broker fee, down‑payment on the "Acquisition" tab.
- Fill in rent, loan, OPEX on "Cash Flow".
- Compare IRR, cash‑on‑cash, cumulative cash flow on "Results".
6. FAQ
Is a higher IRR always better?
No. A sky‑high IRR often relies on high leverage or rosy appreciation assumptions – both double‑edged swords in a downturn.
Can IRR be positive if monthly cash flow is negative?
Yes. Future appreciation or a large exit can outweigh interim deficits once discounted.
Which metric should I use?
Short‑term or lump‑sum deals: ROI. Multi‑year, leveraged buys: IRR. Ideally look at both.
7. Key Take‑away
In German real estate, you must consider all holding costs and the time value of money simultaneously. ROI shows the finish line; IRR exposes the efficiency of every euro you invest. Plug your own figures into our calculator – data beats averages.