Calculate Net Return (Germany)

Slingsby
Sep 13, 2020
Jan 28, 2022
Learn how to calculate the net return, what it is all about and what it is for. Use our free online calculator to determine the net return for your real estate investment.
* Required fields
Purchase Price & Additional Costs
€
€
%
Notarial Charges
The notarial charges including costs for the land register amount to up to 2% of the purchase price in Germany.
€
Rental Income
Basic Rent
The basic rent is the rent paid for the usage of the property and is defined in the rental agreement. The basic rent does neither include operating expenses nor maintenance costs. Alternative names for the basic rent are net rent, base rent or net rental income.
€
Costs
non-transferable Operating Costs
The non-transferable operating expenses can be found in the annual statement. The non-transferable expenses are paid by the landlord or landlady and are stated in the German regulation on operating costs (§1 BetrKV). Costs for the administration of the property are for instance part of the non-transferable operating costs. You may find similar regulations in your jurisdiction.
€
Maintenance Fee
The maintenance fee is only taken into account in the calculation of the return, if you provide a value for it. It provides a more realistic view on the net return and is relevant for the cashflow. The value for the maintenance fee may be found in the documents of the annual statement of the property provided by the property management.
€
Result per Year
Net Return per Year
Here, the net return is calculated as follows:
$$\text{net return} = \frac{(\text{basic rent} - \text{running costs}) * 100\%}{\text{purchase price incl. additional costs}}.$$
In the above formula the basic rent as well as the running costs are provided per year.
The running costs for the property per year consist of the non-transferable operating costs plus the maintenance fee:
non-transferable operating costs per year
+ addition to the maintenance reserve per year
running costs per year
The additional costs for the purchase consist of the real estate agent's provision in case, the notarial charges, the land register costs, as well as the transfer tax:
real estate agent's provision
+ notarial charges and costs for the land register
+ transfer tax
additional costs
In the calculation of the net return on investment the individual costs such as the financing or reparation costs are not taken into account.
%
Gross Return per Year
Gross return = basic rent per year * 100% / buy price
%
Cashflow per Year
This is the cash flow per year based on the input data you provided. It is calculated by subtracting the annual operating costs and the one-time expenses from the annual base rent.
€
Total Costs per Year
The total costs per year consist of the non-transferable operating costs and - if provided - the maintenance fee. However, in real life there may pop up additional costs for instance for repairs.
€
Total Capital
Total capital = purchase price + additional expenses.
The additional expenses are calculated as follows:
brokerage
+ notarial charges and expenses for the land register
+ transfer tax
additional expenses
€
€
%
Result per Month
Cashflow per Month
This is the cash flow per month based on the input data you provided. It is calculated by subtracting the monthly operating costs and the average one-time expenses from the monthly base rent.
€
Total Costs per Month
Average total costs per month.
€
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1. Which input parameters do you need to calculate the net return?

To calculate the net return you'll need
  • the purchase price of the property,
  • the additional costs when buying a property:
    • the agent provision in case,
    • notarial charges and costs for the land register,
    • as well as the transfer tax,
  • the basic rent,
  • the running costs of the property:

2. What are additional costs when buying a property?

The additional costs for purchasing a property consist of notarial charges and costs for the land register, the transfer tax and the provision for the real estate agent in case.
The provision for the real estate agent amounts to 3% to 7% of the purchase price in Germany. At the 23rd of December 2020 a new German law is introduced, that will regulate the provision to ease the financial burden of the property buyer. It is planned, that the buyer only has to pay 50% of the real estate agent's provision. You can provide the provision in our net return calculator either as an absolute value in Euro or as a percentage.
The notarial charges in Germany are regulated by the Gerichts- und Notarkostengesetz (GNotKG) and amount up to 2% of the purchase price.
The transfer tax is automatically calculated for you, when you provide the German state that the property is located in. The transfer tax in Germany is between 3.5% and 6.5% of the purchase price.

3. What is the basic rent?

You can find the basic rent in the rental agreement. As a landlord or landlady you receive the basic rent for the surrender of use of the property. You can provide the basic rent in our calculator either per month or per year. Please select the corresponding time unit field.

4. What are non-transferable operating costs?

The non-transferable operating costs are the expenses for running the property that the landlord has to pay instead of the tenant. The landlord is not allowed to charge the non-transferable operating costs to the tenant. You can find these costs in the annual statement of your property. You may provide the non-transferable operating expenses either per month or per year. Please choose the corresponding time unit field.

5. What is the maintenance fee?

The maintenance fee may be found in the annual statement documents of your property provided by the property management. The maintenance fee influences the cashflow of your capital investment, since it represents an outgoing cashflow. The maintenance reserve is accumulated by the owners of a property to be able to finance necessary reparations. The accumulation of a maintenance reserve is required by German law §21 Abs. 5 Nr. 4 WEG (Wohnungseigentumsgesetz).

6. How is the net return calculated?

Here, the net return is calculated as follows:
$$\text{net return} = \frac{(\text{basic rent} - \text{running costs}) * 100\%}{\text{purchase price incl. additional costs}}.$$
In the above formula the basic rent as well as the running costs are provided per year.
The running costs for the property per year consist of the non-transferable operating costs plus the maintenance fee:
non-transferable operating costs per year
+ addition to the maintenance reserve per year
running costs per year
The additional costs for the purchase consist of the real estate agent's provision in case, the notarial charges, the land register costs, as well as the transfer tax:
real estate agent's provision
+ notarial charges and costs for the land register
+ transfer tax
additional costs
In the calculation of the net return on investment the individual costs such as the financing or reparation costs are not taken into account.

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7. How to interpret the net return?

The net return of a property investment represents the percentage of the basic rent minus the running costs on the purchase price including the additional costs when buying a property. In theory, the higher the net return, the faster the property investment might amortize itself. An amortization takes place, if an investment is able to pay for itself solely by the incoming cashflow.
The net return is much closer to reality than the gross return, since cashflow relevant costs like the non-transferable operating costs and the maintenance fee are taken into account. Having said that, you may still need individual costs such as financing or repair costs to obtain an even more realistic number of the return on investment.

8. How high should the net return be?

The value of the net return should be determined by each property investor individually, since it reflects the personal investing needs. Generally, the higher the return rate, the riskier the investment. What is considered to be a high return rate is determined by the current market environment. For instance, in the current low interest rate policy, interest rates higher than 5% are already considered quite high. However, a few decades ago it was considered normal to obtain such an interest rate when investing for instance in German federal treasury notes, which were considered a very low risk investment at the time. The historically highest interest rate of a German treasury note was observed in 1981 for the 1981/10 with an interest rate of 10.74% [Wikipedia: Bundesschatzbrief]. As a property investor it is therefore a good idea to observe the market first to get an idea of one's own investing and risk needs. Investby.Immo helps with this task by providing the net return as search and sorting parameter in our Property Investment Search Result List.

9. Net return vs. gross return?

The net return of a property investment represents a much more realistic metric than the gross return, since costs for buying the property and running costs are taken into account. Here, the calculation of the net return reflects only factors, that are valid for all investors. This means, that individual costs such as financing or repair expenses are not taken into account. Therefore, you may use the net return of a property investment as search parameter in our Property Investment Search and you can see at first glance the net return of each property.
Find Investments using the Net Return at Investby.Immo
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