Calculating Rental Yield

The gross rental yield sets the annual net cold rent in relation to the bare purchase price. It is quick to calculate and works well for comparing different properties at a glance — but it ignores incidental purchase costs and ongoing costs entirely.

The net rental yield is the more meaningful figure: it additionally takes into account the incidental purchase costs (real estate transfer tax, notary, land register) as well as the annual management costs. The result is usually well below the gross yield and reflects the actual profitability of the investment more realistically.

The achievable yield depends heavily on the district, because purchase prices and rent levels do not always rise in proportion to one another. In sought-after locations such as the Äußere Neustadt, Blasewitz or the Hechtviertel, purchase prices have risen more strongly than rents in recent years — the net rental yield here is often 2 to 3 %. In districts with more moderate purchase prices such as Pieschen, Gorbitz or Prohlis, by contrast, net yields of 4 to 5 % are achievable.

As rough benchmarks:

For a robust net rental yield, the following items should be included:

• Incidental purchase costs: real estate transfer tax (5.5 % in Saxony), notary and land-register costs (approx. 1.5–2 %) — in total usually 7–7.5 % of the purchase price.
• Management costs: maintenance reserve, administration and rent-default risk, customarily 15–25 % of the annual rent.
• Vacancy risk: realistically one to two months' rent per year, especially when tenants change.

Anyone who consistently factors in these elements quickly sees whether a property still fits their goals as a capital investment — or whether a sale at the current market value is the economically more sensible decision.