Buy-to-Let: Rental Yield, Vacancies, Maintenance and Management

What you will learn

• How to calculate gross rental yield and the purchase-price multiple (Kaufpreisfaktor).
• Which costs a landlord can pass on to tenants and which stay with the owner.
• How to build a realistic net yield with vacancy, maintenance and management allowances.
• Which German rent rules limit the rent you can charge.

Explanation

Gross yield and the purchase-price multiple

Advertisements usually show the gross rental yield (Bruttomietrendite):

Gross yield = annual cold rent ÷ purchase price

German investors also use the purchase-price multiple (Kaufpreisfaktor): price ÷ annual cold rent. A multiple of 25 means the price equals 25 years of rent, which is a gross yield of 1 ÷ 25 = 4%. A higher multiple means a lower yield.

Recoverable and non-recoverable costs

Many running costs are recoverable: the landlord passes them on to the tenant as service charges (Betriebskosten), for example property tax, water, waste collection and building insurance. The Betriebskostenverordnung (Operating Costs Ordinance) lists the cost types that can be agreed. Other costs are non-recoverable and reduce the owner's income:

• Administration: the fee for the owners' association manager (WEG-Verwaltung) and any separate manager for your flat (Sondereigentumsverwaltung), who handles tenants, rent and the yearly service-charge statement.
• Maintenance: repairs inside the flat, plus your share of the building's maintenance reserve (Erhaltungsrücklage), which is paid with the monthly owners' fee (Hausgeld).
• Vacancy and bad debt: months without rent between tenants, and unpaid rent.

For a flat, the monthly Hausgeld contains both recoverable parts (passed on to the tenant) and non-recoverable parts (administration, reserve). Ask for the latest annual statement to see the split.

Net yield

Net yield = (annual cold rent − non-recoverable costs − vacancy allowance − maintenance allowance − management) ÷ (price + purchase costs)

The numerator is the net operating income (NOI) from lesson 1. Dividing by price plus purchase costs shows the yield on the total money invested. Allowances are assumptions, not facts; write them down and test different values.

German rent rules (general orientation)

• Rent brake (Mietpreisbremse): in areas named by the state government, a new rent is generally limited to 10% above the local comparative rent (ortsübliche Vergleichsmiete), with exceptions. The Bundestag extended it until the end of 2029.
• Cap on increases (Kappungsgrenze): in an existing tenancy, rent increases up to the comparative rent are limited to 20% within three years, or 15% in areas the state designates.
• Deposit (Kaution): at most three months' cold rent.

This means you cannot simply raise the rent to fix a weak calculation. Check the current local rules and the local rent index (Mietspiegel) before buying.

Worked example

Hypothetical example: a 60 m² flat for €240,000. Cold rent €12 per m² per month. Assumptions: purchase costs 10% (€24,000); non-recoverable part of the Hausgeld €80 per month; extra maintenance inside the flat €12 per m² per year; vacancy allowance 3% of rent; separate flat management €30 per month. Excluded: financing, taxes, depreciation, rent increases.

1. Annual cold rent: 60 m² × €12 × 12 = €8,640.
2. Gross yield: €8,640 ÷ €240,000 = 3.6%. Multiple: €240,000 ÷ €8,640 ≈ 27.8.
3. Non-recoverable Hausgeld: €80 × 12 = €960.
4. Maintenance: 60 × €12 = €720.
5. Vacancy: 3% × €8,640 ≈ €259.
6. Management: €30 × 12 = €360.
7. NOI: €8,640 − €960 − €720 − €259 − €360 ≈ €6,341.
8. Net yield: €6,341 ÷ (€240,000 + €24,000) = €6,341 ÷ €264,000 ≈ 2.4%.

The advertised 3.6% becomes about 2.4% on the total money invested, before any interest or tax. In other words, about a quarter of the rent goes to costs and allowances, and the purchase costs lower the yield further.

Common mistake

Practice activity

A 75 m² flat costs €300,000 with purchase costs of 9% (€27,000). Cold rent is €11 per m² per month. Non-recoverable Hausgeld is €1,200 per year, flat maintenance €10 per m² per year, vacancy 3% of rent, management €420 per year. Calculate the gross yield, the purchase-price multiple and the net yield.

Key takeaways

• Gross yield = cold rent ÷ price; the purchase-price multiple is its inverse.
• Only non-recoverable costs reduce the landlord's income; check the Hausgeld split.
• Net yield on price plus purchase costs is the realistic starting point for any decision.
• Rent brake, caps on increases and deposit limits restrict how far rent can rise.

Next step

In the next lesson you will add the mortgage to this calculation and measure cash flow and cash-on-cash return.