Calculating property yield: What is a good rental yield?

Return on real estate: Calculation

However, you can also calculate the yield of your dream flat yourself using a simple formula.

Annual rental income x 100 / purchase price = rental yield

For example, if you purchase a flat at a purchase price of 50,000 euros and want to rent it out for 500 euros per month, the calculation looks like this:

6,000 euros x 100 / 50,000 euros = 12

This results in a rental yield of 12 %. But beware: These figures are not reliable! A trustworthy calculation needs much more information. This is a very simple and superficial yield calculation. Almost any investment would achieve an attractive rental return here. A closer look is therefore very important.

Real estate yield calculator

In addition to the time-consuming way of calculating the property yield by hand, we have developed a tool for quick yield calculation. With the following tool, you can have the real estate yield calculated for you – simply and quickly:

Net return on property vs. gross return on property

As already mentioned, the above calculation does not represent an exact calculation. It is the gross rental yield. In your calculation, please always take into account the costs you incur in acquiring, managing and renting out your flat. When calculating the net rental yield the figures look quite different look: Incidental purchase costs must also be added to the purchase price, including notary and financing costs. Not to mention the tax to be paid.

Calculating property yields: important differences between gross and net yields.

All of this increases your total costs. The In turn, the rental income is reduced by the ancillary rental costs. These include, above all, the administration costs and the maintenance reserves. Only when you have deducted these costs from the gross rent do you get your actual income. Based on these figures, the rental yield is suddenly much lower, but also more realistic.

What is a good return on real estate?

Good returns of between 5% and 6% are repeatedly advertised. These returns are indeed very attractive, but in many cases they are not based on realistic figures. This raises the question: What is the average return on property?

In recent years, it has crystallised in Germany: A good and realistic yield is 3-4% (editor’s note: 4.8% is in at the turn of 2023/2024). This takes all costs into account. Anyone who has the key figures in mind from the outset and makes a well-considered purchase decision with the help of professionals can achieve such a return. We are very proud of the fact that the property projects we support achieve an average gross rental yield of around 4.8% and in some cases can even offer flats with a rental yield of over 5%.

Average return on real estate

The average rental yield in Germany is below 3%. One reason for this is that many property buyers do not have the necessary knowledge or do not take advantage of professional support. The decisive location factor is also often not taken into account. For many buyers, it is surprising that the yield on properties in economically weak regions is higher.

From a logical point of view, this makes sense. The decisive factor is the ratio of purchase price to rental income. Although higher rents can be demanded in urban centres, the purchase price in these areas is also above average. Instead, higher yields result when the purchase price is significantly lower.

As it is often not possible for the average person to obtain affordable properties in economically strong locations, it pays off in several ways to have a partner at your side who has corresponding offers. In this way, you benefit from both a lower purchase price and higher rental income.

Checklist for property with a “good” rental yield

So what is important if you want to take the first step towards becoming a successful real estate investor and building your wealth?

• Find out about the possibilities: In a non-binding initial consultation, we will analyse your individual situation together and work out your personal added value through a property investment.
• Property search: We help you make the right decisions and make it our job to find the right property for you.
• Calculate yield flat: The result of the property search is finding the “perfect” yield property. Of course, the yield must be right first and foremost.
• Financing: In co-operation with over 300 banks, we will provide you with the optimum financing concept! Perfectly customised to your individual situation and needs.
• Realisation: We don’t leave you on your own. We accompany you to your viewing and notary appointments until everything is officially finalised.
• Leave the administration to us: You don’t have to worry about dripping taps or drawing up new tenancy agreements. If you wish, we can take care of renovation work, tenant management and much more.
• Generate passive income: The first rental income lands in your account and you realise how pleasant it is to passively increase your assets with your property. Keep up the good work and plan the next project that will bring you further profits.

The Meine-Renditeimmobilie team will answer all your questions and support you right through to the successful completion of your transaction. We will also be happy to help you if you have any questions about calculating property yields. After all, we have already accompanied and supported one or the other property investor on this journey over the past six years. Request your free initial consultation now and become a proud property owner soon!

Frequently asked questions about the real estate yield calculation