Is a simple formula enough to measure the success of your property investment? Often, crucial costs are overlooked that can reduce returns by more than 2%. This article shows you how to accurately assess all factors with an online tool for calculating property returns.
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The topic briefly and concisely
The net rental yield is more meaningful than the gross yield because it takes into account additional purchase costs and non-chargeable expenses, which can reduce the yield by 2-3%.
The return on equity is the crucial metric for leveraged investments and can be significantly increased by the leverage effect, if the overall return exceeds the cost of debt.
Tax depreciation (AfA) of 2-3% annually on the building value significantly reduces the tax burden and enhances the post-tax return.
Are you wondering if your property truly delivers the expected return? Many investors rely on a simple gross calculation and overlook up to 30% of the actual costs. The result is an inflated figure that can lead to poor decisions. A precise online tool for calculating property returns provides a remedy. It allows you to incorporate all variables—from non-recoverable service charges to tax burdens—and thus determine the true profitability of your investment based on data.
Basis of the Evaluation: Gross vs. Net Rental Yield
The gross rental yield is often the first metric that investors encounter, but its significance is limited. It is calculated with the simple formula (annual net cold rent / purchase price) x 100 and ignores all additional costs. For a flat costing €350,000 and an annual cold rent of €13,200, this results in a gross yield of 3.77%. This metric is only useful for a quick initial comparison of properties.
For a realistic assessment, the net rental yield is crucial because it includes purchase-related costs and non-recoverable operational expenses. The formula is: (annual net cold rent - operational expenses) / (purchase price + purchase-related costs) x 100. With the same example property and additional costs of €3,000 as well as purchase-related costs of €35,000, the yield quickly falls to 2.65%. A solid profitability calculation is therefore essential. But which costs exactly need to be deducted to obtain a realistic net yield?
Uncover hidden costs: Non-recoverable items
A common mistake in manual return calculations is ignoring the costs landlords have to bear. These can reduce the net return by 1.5% to 2.5% per year. The Operating Costs Ordinance (BetrKV) clearly regulates which items cannot be passed on to tenants.
The most important non-allocable incidental costs include:
Administrative costs: Fees for property management, account management, or membership fees for landlord associations.
Maintenance and repair costs: Costs for fixing a broken heater or necessary bathroom renovations. Experts recommend setting aside 1.5% of the purchase price annually for this purpose.
Insurance: Private legal protection or rent loss insurance for landlords.
Broker fees for new rentals: Since the introduction of the ordering principle in 2015, these costs must be borne by the landlord.
Even a single major repair can reduce the annual return by more than 1%. A precise online tool for calculating property returns helps to budget these expenses from the outset. This detailed cost analysis forms the basis for the most meaningful key figure: the return on equity.
The Professional Metric: Return on Equity and the Leverage Effect
While the net rental yield assesses the property, the Return on Equity (ROE) measures the success of your personally invested capital. It shows how efficiently your equity is working, also taking into account the costs of external financing. The formula is: (Annual net income - Loan interest) / Equity x 100. A good Return on Equity is often over 10%.
This is where the so-called leverage effect comes into play: If the interest rate on your loan is lower than the overall return on investment of the property, using external financing increases your Return on Equity. Buy a property for €500,000 with €100,000 equity and achieve an overall return of 3.1%, while your loan interest is 3.0%, and the leverage is positive. By using 80% external financing, the Return on Equity can often be more than doubled. A financial calculator helps simulate various scenarios. Next, we consider how tax aspects further impact the result.
Take advantage of tax benefits: Accurately include depreciation (AfA)
Depreciation (AfA) is a crucial factor that positively impacts the post-tax return. As a property investor, you can claim the acquisition and construction costs of the building (not the land) for tax purposes. This reduces your taxable income and consequently your tax burden. Therefore, AfA is an important lever in any investment strategy.
The amount of annual depreciation depends on the year of construction of the property:
For new buildings (completed after 31/12/2022): 3% of the building costs annually for 33 years.
For existing properties (built after 1924): 2% of the building costs annually for 50 years.
For older buildings (built before 1925): 2.5% of the building costs annually for 40 years.
With the declining balance AfA for new buildings, 5% of the costs can even be deducted in the first year, creating a significant liquidity advantage. This tax benefit can increase the net return post-tax by 0.5% to 1.0% per year. Therefore, a comprehensive online tool for calculating property returns should always include an AfA module. But what is considered a desirable outcome in the current market environment?
Market benchmark: What is a good real estate return in 2025?
A "good" return is always relative and depends on location, risk, and investment strategy. However, as a rule of thumb, a net rental return of at least 3% to 4% should be targeted to represent a solid investment. After a period of strong price increases up to 2022, market conditions have normalised. Property prices in Germany showed an increase of 3.8% in the first quarter of 2025 compared to the previous year.
In prime locations such as Hamburg or Leipzig, purchase prices are high, often pushing initial returns below 3%. However, they offer high security and potential for value appreciation. In B or C locations, returns of over 5% are often possible, though with higher risk, such as vacancies. More important than a single percentage point is the long-term stability of rental income and location. The decision between renting or selling strongly depends on these local return expectations. To consolidate these complex factors, a digital tool is essential.
Conclusion: Using data-driven tools to make better investment decisions
Calculating property yields is more complex than it might initially appear. A simple gross calculation is not sufficient to assess the actual profitability of an investment. Only by considering all costs, the financing structure, and tax benefits can a realistic picture be drawn. The difference between a superficial and a detailed calculation can determine the success of investments with a volume exceeding 400,000 €.
A professional online tool for calculating property yields takes this complex task off your hands and protects against misjudgments. It allows you to simulate various scenarios and understand the impact of individual factors. For a precise calculation, an accurate market value of the property is essential. The Auctoa ImmoGPT chat can provide you with an initial, data-based assessment here. This way, you make decisions not based on gut feeling but on a solid, comprehensive analysis.
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Additional useful links
Statistisches Bundesamt provides information on construction prices and the property price index.
Statistisches Bundesamt offers tables on house prices and land prices.
Deutsche Bundesbank presents its indicator system for the residential property market.
Deutsche Bundesbank publishes statistics on real estate and construction prices.
Bundesanstalt für Immobilienaufgaben (BImA) provides information on its tasks and services.
Wikipedia offers a comprehensive article on rental yield.
DIW (Deutsches Institut für Wirtschaftsforschung) analyses the development of purchase prices in the housing market.
BBSR (Bundesinstitut für Bau-, Stadt- und Raumforschung) provides a theme page on housing and real estate.
KfW-Bankengruppe provides information on the promotion of existing properties for private individuals.
FAQ
Why is an online tool for calculating property returns better than a manual calculation?
An online tool minimizes errors that can easily occur during manual calculations. It ensures that all relevant cost items, such as non-apportionable additional costs, maintenance reserves, and tax effects (depreciation), are considered, leading to a significantly more precise and reliable return forecast.
What costs do I easily overlook when calculating returns?
Maintenance reserves (approximately 1.5% of the purchase price per year), costs for property management, bank account fees, and potential rental losses are often overlooked. These items can significantly reduce the net yield.
How does financing affect my property return?
By using borrowed capital (leverage effect), you can increase your return on equity, provided the overall return on the property is higher than the interest on your loan. However, high external financing also increases the risk in the event of rising interest rates or rental defaults.
Can I use the depreciation (AfA) in every case?
You can only use depreciation allowances (AfA) for properties that you use to generate income, such as for renting out. Owner-occupied residential property cannot be depreciated, with the only exception being listed buildings.
From when is a property yield considered good?
A net rental yield of over 4% is generally considered good. In highly sought-after locations, a yield of around 3% can also be attractive if a high potential for value appreciation is expected. Ideally, the return on equity should be over 10%.
What data do I need for an online yield tool?
You will need the purchase price, the additional purchase costs (land transfer tax, notary, estate agent), the expected annual net cold rent, an estimate of non-allocable costs, the amount of your own and borrowed capital, as well as your loan interest rate and personal tax rate.
