Statement of Income

The income statement is a central component of the annual financial statements and shows the revenues and expenses incurred during a fiscal year, as well as the resulting profit or loss. In the real estate sector, it is relevant for real estate companies, housing associations, commercial landlords, and project developers that are required to maintain accounting records. For private landlords, the income statement is replaced by the net income statement (EÜR).

Structure of the Income Statement in a Real Estate Company

An income statement in the real estate sector typically shows, on the revenue side, rental income, income from real estate sales, interest income, and other operating income. On the expense side are depreciation (AfA), interest expenses, maintenance costs, administrative costs, insurance premiums, and property tax. Net income after taxes shows the actual profit or loss for the period. Corporations must prepare the income statement using the total cost or cost-of-sales method (Section 275 HGB).

A distinctive feature in the real estate sector is the significant role of depreciation. Buildings are depreciated over their normal useful life; this non-cash expense substantially reduces accounting profit without actually draining liquidity. As a result, real estate companies often report low or even negative P&L results, even though actual cash flows are positive. For tax planning and discussions with banks, this divergence between P&L results and cash flow is a key factor.

Importance of the P&L for Financing Decisions

Banks and investors use the P&L to assess the economic performance of a real estate company. Key metrics derived from the income statement include EBIT (Earnings Before Interest and Taxes), EBITDA, and the net margin. For lending decisions, the debt service coverage ratio (DSCR) is crucial: it measures whether operating cash flow is sufficient to cover interest and principal payments.

A healthy DSCR for real estate financing is typically at least 1.2-meaning that operating cash flow exceeds debt service by at least 20%. If the DSCR is below this level, it signals an increased default risk to the bank and can lead to less favorable loan terms or a denial of financing. Those who regularly analyze their income statement and react early to declines in earnings can secure their creditworthiness in the long term.

Income Statement vs. Cash Flow Statement

Private landlords do not prepare an income statement but rather a cash flow statement: They compare income and expenses without accrual-based accounting. However, depreciation is also taken into account in the cash-based income statement. The difference: The income statement follows the realization and accrual principle under the German Commercial Code (HGB); the cash-based income statement follows the cash flow principle under Section 4(3) of the German Income Tax Act (EStG).

Threshold values apply for the transition from the cash-based income statement to mandatory accounting (and thus to the requirement to prepare an income statement): Anyone who generates more than 600,000 euros in revenue or more than 60,000 euros in profit per year from a commercial enterprise is subject to accounting requirements (Section 141 AO). Many growing real estate companies exceed these thresholds sooner than expected and must then switch to full double-entry bookkeeping-a good tax advisor should prepare for this step in a timely manner.

Key Performance Indicators and Controlling in Real Estate Companies

In addition to traditional income statement analysis, we recommend that real estate companies regularly monitor the following key performance indicators: the vacancy rate (proportion of unrented space in the portfolio), the rent-to-cost ratio (management and maintenance costs relative to gross rent), and the return on equity (net income relative to equity invested). These figures complement the income statement and provide a complete picture of the real estate portfolio’s profitability.

Practical Tip for Property Owners in Nuremberg and Franconia

Anyone who owns multiple rental properties in Nuremberg or the metropolitan region through a GmbH or GmbH & Co. KG is required to maintain accounting records and prepare an income statement. We recommend viewing the income statement not merely as a mandatory requirement, but as a management tool: Regular monthly or quarterly income statements enable the early detection of profitability issues-such as rising maintenance costs or declining rental income due to vacancies.

In practice, we often observe that real estate companies prepare their income statements only once a year for tax filing purposes. That is too late to react to problems. A monthly comparison of planned versus actual results-supported by good accounting software-creates the foundation for well-informed investment and financing decisions.

Frequently Asked Questions

As a private landlord, do I need a profit and loss statement?

No. Private landlords who generate income from renting and leasing properties must complete Schedule V of the income tax return (income-expense statement). A P&L statement is only required for businesses subject to accounting requirements.

What depreciation expenses can I include in a real estate company’s P&L statement?

Buildings are generally depreciated on a straight-line basis at 2% (standard depreciation) or, for older buildings constructed before 1925, at 2.5%. Technical equipment, operating equipment, and office furnishings follow their own useful lives. Unplanned depreciation (to the lower fair value) is possible if the property value has permanently decreased.

Can a negative income statement result in any tax benefits?

Yes. Under certain conditions, losses from a real estate company can be offset against other income or carried forward or backward to other years. For corporations, the minimum taxation rule (§ 10d EStG) applies, which limits the loss carryforward to 60% of the remaining profit.

What is the difference between P&L results and cash flow?

The P&L result shows the accounting profit or loss, taking into account depreciation, provisions, and accruals. Cash flow measures actual cash flows. For real estate companies, cash flow is often higher than the P&L result because depreciation is non-cash. Cash flow is the more meaningful metric for assessing liquidity and debt-bearing capacity.

What impact will the property tax reform have on the P&L of real estate companies?

The property tax reform, which takes effect in 2025, could lead to significant changes in the current property tax burden-both upward and downward, depending on location and property type. For real estate companies, this is a direct P&L-relevant item that must be revised in budget planning for 2025 and subsequent years. In Nuremberg, the property tax reform has led to significantly higher valuations for many commercially used properties in central locations, which is reflected in higher property tax expenses. An early adjustment of P&L planning and rent calculations is therefore necessary-especially where property tax is passed on to tenants and a recalculation of the operating cost statement is required. We recommend that real estate companies in Franconia carefully review the new property tax assessments and-in the event of errors-file an appeal in a timely manner.

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