Magazine · · 2 min read
Calculating rental yield: gross, net and the price-to-rent factor
Gross yield is in every listing and says little. How to get from it to net yield, what the price-to-rent factor means — and which items are forgotten most often. With a worked example.
Gross rental yield
Gross rental yield relates the annual net cold rent to the bare purchase price: annual rent divided by price, times 100. A flat for 250,000 euros that brings in 800 euros of rent a month has an annual rent of 9,600 euros and thus a gross yield of 3.84 per cent.
Gross: annual rent ÷ price × 100 — good for comparing, poor for deciding.
It is good for quickly comparing two offers and nothing more. It ignores that buying costs more than the price, and that part of the rent goes every year on costs that cannot be passed on to the tenant.
The price-to-rent factor
The price-to-rent factor (Kaufpreisfaktor) says how many years of rent the price corresponds to: price divided by annual rent. In the example that is 250,000 ÷ 9,600, about 26 years of rent.
A factor of 26 means the price equals 26 years of rent.
It is the inverse of gross yield — the same information in another form, often handier in practice. A low factor is not a bargain but first of all a signal: the market may expect less appreciation, more vacancy or higher maintenance there.
From gross to net
Net rental yield works with what is left and with what was actually invested: (annual rent − non-recoverable costs) ÷ total investment × 100. Total investment includes the purchase costs — land transfer tax, notary, land registry, an agent where applicable — and any renovation before letting.
Net: what is left, divided by what was really put in.
With 10 per cent purchase costs, total investment in the example is 275,000 euros. Say the non-recoverable costs are 80 euros of management a month (960 a year), 12 euros of maintenance per square metre and year on 65 square metres (780) and a 2 per cent allowance for lost rent (192). Of 9,600 euros, 7,668 remain, and net yield is 2.79 per cent — a good percentage point below gross.
What is missing most often
Most often the purchase costs are missing from the denominator and maintenance from the costs. Leaving out purchase costs means computing a return on an amount that never existed. Setting maintenance to zero assumes the roof, windows and heating last forever; ImmoZahl gives 7 to 15 euros per square metre and year as a guide, depending on age and condition.
A yield is only as good as the costs you did not forget.
Neither figure includes financing, taxes or changes in value. This article is general information, not investment advice: it shows how the figures follow from assumptions, not whether a property suits anyone. ImmoZahl's rental yield calculator works through both figures with every item.
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