Investing
Rental yield
Gross yield divides the annual rent by the purchase price and flatters almost every property. Net yield takes the purchase costs into the denominator and the running costs out of the numerator. The gap between the two is usually between one and two percentage points.
Net rental yield
—- Gross yield
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- Annual net rent
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- Running costs per year
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- Price multiple
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Where the yield goes
From gross rent to the surplus that the yield is calculated on.
What this means for you
How it is worked out
If the price were different
Net yield against purchase price, everything else unchanged.
How to read it
Why the listing figure is never the real one
An agent's brochure divides the annual rent by the asking price and calls it the yield. That number ignores the ten to fifteen per cent of purchase costs you will pay on top, and it ignores everything the flat costs you every year: managing agent, maintenance, the months it stands empty, the items in the service charge statement that no tenant can be asked to cover. Put those back in and the figure typically drops by one to two percentage points. That gap is the whole difference between a purchase that works and one that does not.
What this calculator still does not tell you
Yield is a property figure, not a personal one. It says nothing about how you finance the purchase, what tax bracket you are in, or what the flat will be worth in fifteen years. Two people buying the identical flat on the same day can end up with very different outcomes, because one borrowed at 3.6 per cent and the other paid cash, or because one can offset losses against a high salary and the other cannot.
It also assumes today's rent continues unchanged. In Germany that is conservative in strong markets, where rent rises are capped but real, and optimistic in weak ones, where a departing tenant can mean months of vacancy and a lower rent than before. A yield above six per cent almost always means the market is pricing in a risk that the arithmetic here cannot see.
The price multiple, and why Germans use it
Divide the purchase price by the annual net rent and you get the Kaufpreisfaktor — the number of years of rent the price represents. It is the inverse of the gross yield and the figure German banks and agents actually talk in. Roughly 22 to 28 is normal in western cities, above 30 requires either genuine capital growth or rent with room to rise, and below 18 usually signals a market with weak demand.