What is the net rental yield?
The net rental yield shows how much of the rental income remains after the running, non-recoverable costs, in relation to the total capital invested. Unlike the gross yield, it adds the closing costs to the purchase price and deducts management, reserve and vacancy allowance from the rent.
That makes it the figure for the purchase decision: it describes the property itself, regardless of how you finance it and what tax rate you pay.
Net rental yield = (annual net rent − non-recoverable costs) ÷ (purchase price + closing costs) × 100
Which closing costs count
Closing costs increase your invested capital without increasing the rent. In practice they amount to about 5 to 12% of the purchase price depending on the state and broker, usually 8 to 12% with a broker:
- Real estate transfer tax: 3.5 to 6.5% of the purchase price depending on the federal state. The calculator applies your state's rate automatically, the table below lists all rates.
- Notary and land registry: together around 1.5%.
- Broker commission: since December 2020 the buyer of a flat pays at most half of the commission. At the usual 7.14% that is 3.57%. Commission-free means 0.
- Other one-off costs: renovation before the first letting, valuation, kitchen. Enter them under "more assumptions".
Real estate transfer tax by federal state
| Federal state | Rate |
|---|---|
| Baden-Württemberg | 5.0% |
| Bavaria | 3.5% |
| Berlin | 6.0% |
| Brandenburg | 6.5% |
| Bremen | 5.5% |
| Hamburg | 5.5% |
| Hesse | 6.0% |
| Lower Saxony | 5.0% |
| Mecklenburg-Western Pomerania | 6.0% |
| North Rhine-Westphalia | 6.5% |
| Rhineland-Palatinate | 5.0% |
| Saarland | 6.5% |
| Saxony | 5.5% |
| Saxony-Anhalt | 5.0% |
| Schleswig-Holstein | 6.5% |
| Thuringia | 5.0% |
Which running costs you deduct
Only what stays with you is deducted. Operating costs such as heating, water or caretaker are passed on to the tenant and do not belong in the calculation.
- Management: the fee of the owners' association manager, plus any separate management of your unit, without the reserve. Usually 25 to 35 € per month.
- Maintenance reserve: rule of thumb 10 € per square metre and year, more for older buildings. Even if the owners' association keeps a reserve, plan additionally for the flat itself.
- Vacancy and default allowance: 2% of the annual rent covers vacancy between two tenants and payment defaults as a flat rate. Valuers calculate the same way.
Interest and repayment are not included. The net rental yield describes the property before financing so you can compare it directly with your mortgage rate.
Worked example
A flat in Bavaria costs €250,000 and is let for €850 net rent. Management €30 and reserve €60 per month, vacancy allowance 2%.
- Closing costs: transfer tax 3.5% = €8,750, notary and land registry 1.5% = €3,750, broker 3.57% = €8,925. Total €21,425.
- Total investment: €250,000 + €21,425 = €271,425
- Running costs per year: management €360 + reserve €720 + vacancy allowance €204 = €1,284
- Net operating income: €10,200 − €1,284 = €8,916
- Net rental yield: €8,916 ÷ €271,425 × 100 = 3.28%
Gross, the same flat would have shown 4.08%. The difference of 0.8 percentage points is the price of the honest calculation, and exactly this difference decides between plus and minus once financing comes in.
How high should the net rental yield be?
- Below 2.5%: prime locations and new builds. At today's interest rates the property usually only carries itself through appreciation.
- 2.5 to 4%: well-kept stock and new builds in sought-after locations. The usual range.
- 4 to 6%: a good figure, mostly outside the metropolitan areas or with older stock.
- Above 6%: stands out. Check the rent assumption, condition and location before you rely on the figure.
Rule of thumb: the net rental yield should be above the effective interest rate of your mortgage. If it is below, every financed euro lowers the return on your equity, and you rely more on rising prices.
Gross or net: which figure when
The gross rental yield is the filter, the net rental yield the decision. For the first look at a listing gross is enough, because you only know the purchase price and the rent. Once a property makes the shortlist, you add the service charge statement, federal state and condition and calculate net.
Only then is it worth looking at financing and cash flow: what is left each month after interest and repayment, and how your invested equity earns.
Share your calculation: the link above contains all inputs. Anyone who opens it sees the same lines and can continue with their own assumptions.