Gross-to-net return

Gross and Net Yield - The gross and net yields are the key metrics for assessing the profitability of a real estate investment. The gross yield compares the annual rental income to the purchase price and provides a quick initial assessment. The net yield additionally takes into account all management costs and incidental purchase costs, providing a more realistic picture of the actual return.

Calculation

Gross yield: Annual base rent ÷ Purchase price × 100

Example: €12,000 annual base rent ÷ €300,000 purchase price = 4.0% gross yield

Net yield: (Annual base rent - non-pass-through management costs) ÷ (Purchase price + incidental purchase costs) × 100

Example: (€12,000 - €2,400 management costs) ÷ (€300,000 + €24,000 incidental costs) = 2.96% net return

Non-pass-through management costs include the maintenance reserve, administrative costs, the risk of rent loss, and non-pass-through shares of operating costs. Purchase-related costs include real estate transfer tax (3.5% in Bavaria), notary and land registry fees (approx. 2%), and, if applicable, real estate agent commissions.

Interpretation and Comparison

The gross yield is suitable for a quick property comparison-it filters out individual cost factors and makes properties comparable. The net yield is relevant for the investment decision-it shows what actually remains after all running costs.

Typical yields in major German cities are:

• Gross yield: 3-6% (prime locations 2-3%, secondary locations 4-6%)
• Net yield: 1.5-4% (after deducting all costs and ancillary expenses)

Neither gross nor net yield takes into account the appreciation of the property or tax implications (depreciation, interest deduction)-for a comprehensive assessment of yield, one must consider cash flow after taxes or return on equity.

Yields and Location in Nuremberg

In the Nuremberg metropolitan region, achievable yields vary significantly depending on location and property type. For condominiums in good to very good locations (Erlenstegen, St. Johannis, Maxfeld), gross yields are often 2.5-3.5% - demand is high, and prices have risen accordingly. In neighborhoods with a larger housing stock and lower purchase prices (Langwasser, Lichtenhof), gross yields of 4-5.5% are achievable, though with higher management costs and greater tenant risk. In the surrounding Franconian region-Schwabach, Neumarkt, Ansbach-gross yields of 5-7% are occasionally possible, though with lower potential for appreciation.

Complete Yield Calculation - Calculation Example: Nuremberg

Property: Condominium in Nuremberg-Lichtenhof, 65 m², purchase price €220,000, base rent €900/month.

Key figure	Calculation	Result
Annual base rent	€900 × 12	€10,800
Additional purchase costs (Bavaria, excluding broker)	3.5% real estate transfer tax + 2% notary/registration fees	€12,100
Total investment	220,000 + 12,100	€232,100
Gross yield	10,800 ÷ 220,000 × 100	4.91%
Management costs (incl. RLI, admin.)	approx. 20% of gross rent	−2,160 €
Annual net rent	10,800 − 2,160	€8,640
Net yield	8,640 ÷ 232,100 × 100	3.72%

Practical Tip for Property Owners in Nuremberg and Franconia

We recommend that investors in the Nuremberg metropolitan area not be blinded by high gross yields-the net yield is what matters. In Nuremberg, gross yields for condominiums range between 3% and 5%, depending on the location. When calculating, be sure to use realistic estimates: maintenance reserve (at least 1% of the building’s value per year), management fees (approx. €25-35 per unit per month), and a rental loss risk of 2-4%. Only then will you obtain a reliable net return to serve as a basis for your decision. We assist investors in Nuremberg with property analysis and help them critically evaluate promised returns.

Frequently Asked Questions

What is a good gross return?

A gross return of 4% or higher is considered solid for an existing apartment in a major German city. Below 3%, the investment becomes tight when net costs are realistically calculated. Yields above 6% should be scrutinized-high yields often mask properties in need of renovation, problematic tenant structures, or weak locations. In Nuremberg, a gross yield of 4% in good locations is a realistic benchmark-those expecting more must either accept greater risk or a less desirable location.

What is the difference between net yield and return on equity?

The net yield refers to the total capital invested (purchase price + ancillary costs). The return on equity takes into account the leverage from debt financing: If the property is 80% debt-financed and the rental yield exceeds the loan interest rate, the return on equity is significantly higher than the net yield. However, this leverage effect works both ways-if the loan interest rate exceeds the property yield, the return on equity is reduced.

How do I account for vacancy in the yield calculation?

Professional investors assume a risk of rent loss of 2-4% of the annual base rent-this covers vacancy periods between tenant changes and potential rent losses. For properties with high tenant turnover (small apartments, student housing), this rate should be higher than for stable tenancies with long-term tenants. In Nuremberg, the average vacancy rate for residential real estate is very low-nevertheless, the risk of rent loss should never be set to zero in the calculation.

When does an investment property make sense despite a low return?

A low net return of 2 to 3 percent does not automatically mean a bad investment-the overall picture is what matters. In prime Nuremberg locations such as St. Johannis, Erlenstegen, or the Old Town, purchase prices are high, which depresses the current return. At the same time, the potential for appreciation is higher than in outlying areas due to the location’s attractiveness, long-term demand, and limited space for new construction. Anyone who views such a property as a long-term wealth-building strategy with inflation protection and does not require an immediate high current yield can make this calculation sensibly. Tax considerations also play a role: For those with a high personal tax rate, depreciation, interest deductions, and maintenance expenses significantly reduce the effective tax burden, raising the actual after-tax return well above the nominal net return. We recommend always calculating returns based on three scenarios: current net return, tax-optimized return on equity, and projected total return including appreciation over the investment horizon.

Back to the Real Estate Glossary.