Is your rental property really as profitable as you assume? Many owners overlook crucial expenses that can significantly reduce their returns. This guide shows you how to use an accurate calculator for rental profitability to determine the true returns.
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The topic briefly and concisely
The net rental yield is the key figure, as it takes into account all costs (purchase ancillary costs, non-recoverable costs) unlike the gross yield.
Additional purchase costs (property transfer tax, notary, agent) can increase the total investment by up to 15% and must be included in any profitability calculation.
Tax aspects such as depreciation (AfA) and the deduction of advertising expenses significantly improve the post-tax return.
Deciding to rent a property often relies on a quick calculation that can be misleading. A high base rent alone does not guarantee financial success. To truly determine profitability, you need a comprehensive calculator for rental yield that includes all variables: from purchase incidental costs and non-transferable expenses to tax effects. Only then can you make informed decisions, whether as an heir, private property owner, or investor. We guide you step-by-step through all relevant calculations and show you what really matters.
The Gross Rental Yield: A Misleading First Look
The gross rental yield is a simple metric often used in brochures to suggest attractiveness. It is calculated using the formula (annual net cold rent / purchase price) * 100. With an annual cold rent of 12,000 euros and a purchase price of 300,000 euros, this results in a gross yield of 4.0%. However, this figure ignores all additional costs and is therefore inadequate for a serious evaluation. A value of less than 5% gross is already considered critical, as the net yield will be significantly lower. To recognize the true profitability, all investment costs must be included in the calculation.
Determine the total investment precisely: More than just the purchase price
The purchase price is only part of the initial investment. The additional purchase costs make up a significant portion in Germany and must be mandatorily considered in the calculator for rental profitability.
These costs can increase the total investment by up to 15%.
The main additional purchase costs include:
Land transfer tax: Depending on the federal state, this ranges between 3.5% and 6.5% of the purchase price.
Notary and land registry fees: Approximately 1.5% to 2.0% are incurred for the notarization of the purchase contract and the entry into the land registry.
Broker commission: If a broker is involved, a commission of up to 3.57% of the purchase price may be due.
With a purchase price of 300,000 Euros, additional costs of 30,000 Euros can quickly arise, increasing the investment sum to 330,000 Euros. These costs are crucial for profitability calculations and should be planned into your property financing from the beginning. Considering these expenses is the first step to a realistic return analysis.
Ongoing Costs: The Invisible Return Eaters
After the purchase, ongoing costs that you as a landlord cannot pass on to the tenant will affect your annual balance sheet. These non-apportionable incidental costs are a central component of any serious calculator for the profitability of a rental. You must fully cover these costs from rental income.
These primarily include:
Administrative costs: If you hire a property management company, these costs cannot be passed on.
Maintenance reserve: Reserves must be set aside for repairs to communal property. Experts recommend setting aside between €7.10 and €11.50 per square meter per year, depending on the age of the property.
Repair costs: You bear the costs for repairing the private property, such as replacing windows or renovating a bathroom, alone.
Bank fees: Account management fees for the rental account are also not transferable.
For an 80-square-meter apartment, you should expect an annual maintenance reserve of at least €800. These ongoing expenses significantly reduce your annual net earnings and thus the net return.
The net rental yield: The true measure of your success
The net rental yield is the crucial metric for assessing your investment. It takes into account all relevant costs and provides a realistic picture of profitability. The formula is: (Annual net income / Total investment) * 100. The annual net income is derived from the annual net cold rent minus all non-recoverable costs.
Let's consider our example: €300,000 purchase price, €30,000 additional costs, €12,000 annual cold rent. We calculate €2,500 non-recoverable costs per year (including maintenance and management). Thus, the annual net income amounts to €9,500. The net rental yield is (9,500 € / 330,000 €) * 100 = 2.88%. A yield below 3.5% is considered critical and often indicates insufficient profitability. This calculation forms the basis for deciding whether you should sell or rent an inherited house. Next, this income needs to be assessed for tax purposes.
Tax optimisation: Utilising depreciation and advertising expenses
Your income from leasing and rental is subject to your personal income tax rate. However, you only tax the profit, which is the income minus the expenses (advertising costs). The most important tax component is depreciation (AfA). For properties built after 1924, you can depreciate 2% of the acquisition and construction costs of the building annually for 50 years. For new buildings completed from 2023 onwards, the AfA is even 3% per year. This depreciation significantly reduces your taxable income, even though no cash is outflowed. In addition to the AfA, you can deduct all other expenses, such as interest on loans, property tax, and non-recoverable costs, as advertising costs. A thorough knowledge of the obligations in leasing helps to maximize all potentials. The tax perspective is essential to determine the final return after taxes.
Increasing Return on Equity: The Power of Debt Financing
For investors, the return on equity is often more meaningful than the property return. It measures the return on the capital you have actually invested. The formula is: (Annual net income after interest / Equity) * 100. By using borrowed capital (leverage effect), the return on equity can be leveraged, provided the interest on borrowed capital is lower than the net rental yield. If you buy the sample property for €330,000 entirely with equity, you achieve a return of 2.88%. However, if you finance 80% (€264,000) at an interest rate of 2.0% (€5,280 interest p.a.), your net profit reduces to €4,220. Your equity investment, however, is only €66,000. Your return on equity rises to (4,220 € / 66,000 €) * 100 = 6.39%. Good investor advice helps you find the optimal financing structure. However, this leverage only works as long as the investment remains profitable.
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An often neglected factor in the calculation of rental profitability is the risk of vacancy. It is unrealistic to expect 100 percent occupancy over decades. Tenant changes, renovations, or weak demand can lead to gaps lasting for months. Therefore, a conservative calculation should only account for 11 or 11.5 months of rent per year. A vacancy rate of 2% to 5% is considered normal and should be included as a calculative cost position (rental loss risk). For an annual base rent of €12,000, a rate of 4% corresponds to an annual loss of €480. This buffer protects you from liquidity shortfalls, as costs such as property tax and insurance continue even during vacancies. A realistic risk assessment, such as the one enabled by our ImmoGPT chat, is the key to a sustainable and successful rental strategy.
Conclusion: Accurate Calculation as the Foundation of Your Success
What amount should be set for the maintenance reserve?
The amount depends on the age and condition of the property. As a rule of thumb, the rates from social housing are used: For buildings up to 21 years old, approximately €7.10/m² per year, for older buildings up to €11.50/m² per year.
Can I deduct purchase-related costs from my taxes?
For a rented property, acquisition costs, including purchase-related costs, cannot be deducted directly. However, they are amortized for tax purposes along with the building value over its useful life (e.g., 50 years) (depreciation for wear and tear, AfA).
What is the difference between net and gross rental yield?
The gross rental yield only relates the annual cold rent to the pure purchase price. The net rental yield is more precise: it deducts non-allocable costs from the rent and adds purchase-related costs to the purchase price.
How does vacancy risk affect my calculations?
Vacancy risk reduces your calculated annual income. Instead of counting on 12 monthly rents, you should conservatively calculate with 11 or 11.5 rents. This creates a buffer for tenant changes or renovation periods and leads to a more realistic return forecast.
What is the leverage effect in real estate?
The leverage effect describes the increase in equity return through the use of borrowed capital (loans). If the interest on the loan is lower than the total return of the property, the loan increases the return on your invested capital.
Where can I find a reliable calculator for the profitability of letting real estate?
Instead of simple online tools, you should use a detailed spreadsheet or specialized software that takes into account all the factors mentioned here (purchase-related costs, non-allocable costs, depreciation for wear and tear, vacancy). For a well-founded analysis, Auctoa also offers AI-supported assessments and the interactive ImmoGPT chat.
Additional useful links
Statistisches Bundesamt (Destatis) provides comprehensive information and statistics on the topic of housing.
Statistisches Bundesamt (Destatis) offers current data on construction prices and the real estate price index.
Deutsche Bundesbank explains its indicator system for the residential real estate market.
Deutsche Bundesbank publishes its financial stability reports.
Deutsches Institut für Wirtschaftsforschung (DIW) offers an article on the topic of real estate price bubbles.
Gesetze im Internet (Bundesministerium der Justiz) provides the legal text of § 535 of the Civil Code (BGB) regarding tenancy agreements.
FAQ
How much should the maintenance reserve be set at?
The amount depends on the age and condition of the property. As a general rule, the rates from social housing apply: for buildings up to 21 years old, approximately €7.10/m² per year, for older buildings up to €11.50/m² per year.
Can I deduct the additional purchase costs from my taxes?
In the case of a rented property, the acquisition costs, which include the incidental purchase costs, cannot be deducted directly. However, they are depreciated for tax purposes along with the building value over the useful life (e.g., 50 years) (depreciation).
What is the difference between net and gross rental yield?
The gross rental yield only relates the annual cold rent to the pure purchase price. The net rental yield is more precise: it deducts non-apportionable costs from the rent and adds incidental purchase costs to the purchase price.
How does the risk of vacancy affect my calculations?
The risk of vacancy reduces your projected annual income. Instead of calculating with 12 months' rent, you should conservatively estimate with 11 or 11.5 months. This creates a buffer for tenant changes or renovation periods and results in a more realistic return forecast.
What is the leverage effect in real estate?
The leverage effect (gearing) describes the increase in return on equity through the use of debt (loans). If the interest on the loan is lower than the total return on the property, the loan increases the return on your invested capital.
Where can I find a reliable calculator for the profitability of a rental?
Instead of simple online tools, you should use a detailed spreadsheet or specialized software that takes into account all the factors mentioned here (incidental purchase costs, non-recoverable costs, depreciation, vacancy). For a thorough analysis, Auctoa also offers AI-supported assessments and the interactive ImmoGPT chat.
