Solar or property as an investment: an honest comparison of two real assets

Few investment decisions are as deeply rooted in Germany as the rented flat: tangible, bankable, proven. At the same time, the maths has shifted. In good locations, net rental yields often sit between 2.5 and 4 %, while transaction costs of 9 to 12 % have to be earned back first. On the other side stands a younger real asset with a similar basic profile: the entrepreneurial direct investment in a photovoltaic plant or a battery storage facility, with ongoing electricity revenues and a tax lever that property does not offer in this form. This article puts the two side by side; not as an either-or, but as a decision aid for the next allocation.

Is property still worth it as a capital investment?

Yes, but the maths has become tighter than in the low-interest years. In the major cities, net rental yields typically sit between 2.5 and 4 %; in secondary locations and commuter belts, 4.5 to 5.5 % is sometimes achievable. Against that stand mortgage rates of around 3 to 4 %: the gap between rental yield and financing costs, from which wealth used to build almost by itself, has shrunk to a few tenths of a point in many places. On top come transaction costs of 9 to 12 % of the purchase price: real-estate transfer tax of 3.5 to 6.5 % depending on the federal state, notary and land registry of around 2 to 2.5 %, plus an agent's commission where applicable. That money is gone on the day of purchase and has to be earned back over years.

Even so, the rented property keeps genuine strengths that no other real asset offers in this combination:

• Tax-free sale: after a ten-year holding period, the capital gain on privately held property is tax-free (§23 EStG). That is property's biggest structural tax advantage.
• Established financing: banks lend against property on standardised terms; nowhere is the debt lever as easily accessible for private investors. For energy assets, the KfW 270 promotional loan now takes over part of this role; how that works is shown in Financing a direct investment: bank loan, KfW 270 and the pitfalls.
• Owner-occupancy option: a flat can later be moved into or used within the family; an energy asset has no such fallback.
• Adjustable rents: rents follow the price level, often contractually indexed for commercial property; that supports the long-term inflation linkage.

What do property and the energy direct investment have in common?

More than a first glance suggests: both are physical real assets with intrinsic substance, both generate ongoing income (rent or electricity revenues), both can be debt-financed, and both unfold their value over a long horizon of 10 to 30 years. The order of magnitude is comparable too: an energy direct investment typically starts at around €100,000 of investment volume, in the region of a smaller flat; the actual equity outlay is lower depending on the financing structure and tax effect. That is exactly why many investors who are running the numbers on a rented flat now examine both options in parallel: it is the same real-asset instinct, applied to two different assets.

Where do the differences lie?

The differences sit in the tax effect, the effort, the inflation linkage of the income and the risk profile. The following overview puts the typical characteristics side by side:

How do the two differ for tax purposes?

What depreciation does the rented property offer?

Regular building depreciation is 2 % per year for existing buildings and 3 % for residential buildings completed from 2023; only the building share is depreciated, not the land. Alongside that exist special routes that are tightly limited in time and volume: the declining-balance depreciation of 5 % for new builds started between 1 October 2023 and 30 September 2029, the special depreciation for new rental housing under §7b EStG with construction-cost caps, and listed-building depreciation on the renovation share of protected objects, which is scarce on the supply side. In sum, property spreads its depreciation over decades; the early tax effect per euro deployed remains limited. Its real trump card sits at the end: privately held, the gain on sale is tax-free after a ten-year holding period, and ongoing rental income is not subject to trade tax.

How do the IAB and special depreciation work in the energy investment?

The energy direct investment pulls its depreciation forward to the start. With the Investitionsabzugsbetrag (IAB) under §7g EStG, up to 50 % of the planned investment can be brought forward for tax purposes, as early as the year before acquisition; the prerequisites are covered in Investitionsabzugsbetrag: all §7g EStG requirements, and who can use it. In the year of acquisition, the 40 % special depreciation and regular depreciation come on top, as Sonder-AfA §7g (5) vs. declining-balance AfA §7 (2): which combination, when? breaks down in detail. Together, a large part of the investment volume is shifted into the first years for tax purposes; at a high marginal tax rate this lowers the tax burden in the investment year considerably and reduces the effective equity outlay, as How much equity is actually required? works through.

The honest counterweight: the investment gives rise to commercial income under §15 EStG. Ongoing income is taxable, as is the later sale; trade tax comes on top, though the allowance and the credit against income tax largely neutralise it for many investors. There is no equivalent to the ten-year tax exemption of §23 EStG here; how income and exit are taxed in detail is shown in After the IAB: How the ongoing returns and the sale of a direct investment are taxed. Access is not limited to business owners either: those who run their own business invest through it as business assets; employees without a business can invest via an entrepreneurial participation that itself gives rise to commercial income. In short: property is strong at the back end for tax purposes, the energy investment at the front.

Which real asset protects better against inflation?

Neither of them across the board; it depends on the revenue model. Rents can follow the price level, via rent adjustments in residential lettings and index clauses in commercial leases; in practice, tenancy law, rent indices and political intervention have a dampening and delaying effect. With the energy asset, the revenue contract is what matters: an EEG remuneration is fixed in nominal terms over the support period and does not grow with inflation; that makes it predictable, but precisely not inflation-indexed. Offtake agreements (PPAs) can contain price-escalation clauses, and market revenues, such as a battery storage plant's electricity trading, hang on the electricity price level, which correlates with the general price level over the long run. How the major real-asset families fare on inflation protection overall is mapped in Real assets as inflation protection: what actually protects and where energy assets fit in.

What risks do the two investments carry?

The risk profiles are different, not simply higher or lower. The rented property concentrates a lot of capital in a single object at a single location: cluster risk, location risk, rent default, renovation requirements and interest-rate changes at refinancing are the typical fault lines. The energy direct investment is an entrepreneurial investment with a corresponding risk of loss; what matters most are electricity-price and revenue risks, technology and operations, and regulatory change. What that means for battery storage projects in concrete terms, and which questions you should put to any provider, is covered in Risks in BESS direct investments, and how they are structurally addressed. For both investments the same holds: the quality of the individual object or project matters more than the asset class.

Does it have to be an either-or?

No; for most investors it is not. Anyone who already owns property does not need to sell it to invest in energy infrastructure; in practice, the investment is often the next allocation alongside the existing holding, not its replacement. As a rough orientation:

• Property plays to its strengths when owner-occupancy is conceivable, the tax-free sale after ten years fits the plan and you do not shy away from active management.
• The energy direct investment fits better when a high ongoing tax burden at top-rate levels weighs on you, the horizon is long and you can and want to carry entrepreneurial risk.
• Both together diversify across two real-asset families with different revenue sources: the rental market and the electricity market respond to different drivers.

What entering the energy side looks like in concrete terms is shown in Investing in solar parks: revenues, costs and tax leverage at a glance, Investing in battery storage: the options at a glance and Investing in agrivoltaics: dual land use, revenues and tax leverage at a glance; how to recognise credible offers is covered in How to tell a trustworthy provider of energy direct investments. And if the benchmark is a securities portfolio rather than property, Solar or ETF? Real asset and portfolio in an honest comparison runs the same comparison for equities and ETFs. We make no promises of returns: in a non-binding first call we instead work through your situation with disclosed assumptions, including a direct comparison with a property you are currently evaluating.