Current rent

Actual rent (also known as contract rent or current rent) refers to the rental income that a property owner is currently actually receiving for their property-as opposed to target rent (the market-rate rent that can be achieved according to the rent index or comparable properties). The actual rent is a key parameter in real estate valuation and yield calculation, as it reflects the owner’s actual liquidity situation and often deviates significantly from the market rent.

Actual Rent vs. Target Rent - The Crucial Difference

The difference between actual rent and target rent significantly determines the nature of a real estate investment:

• Actual Rent < Target Rent: The tenant pays less than the current market rent. This is typical for long-term existing leases in areas with strong rent increases. For buyers, this means potential for rent increases-but also tenant protection and legal limits on adjustments (rent index, 15% cap over 3 years in Nuremberg, rent control).
• Actual rent = Target rent: The rent corresponds to the market level. No immediate potential for increases, but also no risk of adjustments.
• Actual rent > Target rent: In rare cases, the current rent exceeds the market rent-e.g., in older leases with index clauses in a rental market that has since declined. This poses a risk of vacancy when tenants move out, as re-leasing is only possible at market rent.

Significance of the Actual Rent in Real Estate Valuation

In valuation practice, the actual rent plays a central role:

Income Approach: Appraisers use the sustainably achievable rent (market rent/target rent) in the income approach according to ImmoWertV. The actual rent is factored in as a correction factor if it deviates significantly from the market rent-either positively or negatively. If the actual rent is significantly below market rates, the capitalized value is determined based on the target rent, but the purchase price is often reduced by a discount to account for the ongoing tenant retention effect (tenant protection).

Yield Calculation: The gross rental yield based on actual rent (= actual annual base rent ÷ purchase price) shows what an investor earns immediately after purchase. Additionally, the yield is calculated based on the target rent to demonstrate the potential. The difference between the two metrics indicates the potential for adjustment.

Relevance to Financing: When granting loans for investment properties, banks consider the actual rental income to assess the debt service coverage ratio (DSCR). An actual rent significantly below the market rent can limit financing options or lead to stricter terms. When purchasing rented properties, we recommend using the actual rent as the basis for financing discussions and additionally highlighting the potential.

Purchase Price Factors and Actual Rent

When marketing investment properties, the purchase price is often expressed as a purchase price factor (a multiple of the annual net cold rent). The factor indicates how many times the annual net rent the buyer is paying. A high factor with a low actual rent can be misleading: It means either that the purchase price is too high or that there is significant potential for rent increases.

Example: An apartment costs 300,000 euros and generates an actual rent of 700 euros/month (8,400 euros/year). The actual factor is 35.7-which appears very expensive at first glance. The target rent is 1,000 euros/month (12,000 euros/year): The target factor is 25-which is a normal market factor for prime locations in Nuremberg. The investor is buying into this potential. Whether this potential can actually be realized depends on tenancy law, tenant behavior, and protection against eviction.

Actual Rent in the Marketing of Investment Properties

When marketing rented properties in Nuremberg and Franconia, both metrics are relevant:

For buyers: The actual rent determines the immediate cash flow. Those who purchase a property with an actual rent far below the target rent often pay a higher purchase price (relative to the current cash flow) but must be patient until the rent is adjusted. At the same time, such properties offer potential for appreciation.

For sellers: A property with an actual rent close to market rates is often easier to sell and commands a better price, as the return is transparent and immediately realizable. If the actual rent is significantly below market rates, a targeted rent increase prior to the sale-provided it is legally permissible-can substantially increase the sales proceeds.

Tenant Retention: Long-term tenants with actual rents below market rates can be an argument for buyers who shy away from tenant turnover risks-or a disadvantage for yield-oriented investors who rely on quick rent adjustments.

Practical Tip for Property Owners in Nuremberg and Franconia

In established Nuremberg neighborhoods such as Gostenhof, Südstadt, or St. Leonhard, we frequently find that current rents for older apartments are 20-40% below the market rent currently achievable. This creates significant potential, but also complexity: rent adjustments are only permitted within the framework of the Nuremberg rent index (last updated in 2023) and the cap limit (15% in Nuremberg, a tight housing market, over 3 years).

We always calculate both scenarios-actual yield and target yield-for sellers and buyers of investment properties and demonstrate when and how the potential for rent increases can realistically be realized. In doing so, we also consider whether a rent increase is even possible in the near term or whether tenant protection regulations preclude it.

Frequently Asked Questions

Can I raise the rent to market rate if the actual rent is below it?

Yes, but only gradually and within legal limits. In Nuremberg, which is considered a tight housing market, a cap of 15% over three years applies. Additionally, the rent may not be raised above the local comparative rent according to the rent index. The process requires a formally correct rent increase notice and a justification (e.g., reference to the rent index).

How does a low current rent affect the sale price?

For investors, the purchase price is often calculated as a multiple of the annual net rent (purchase price factor). A low actual rent can reduce immediate cash flow and make the factor appear higher. However, experienced investors base their calculations on the target rent and the potential, factoring in the time until the rent adjustment.

What is the difference between actual rent and net base rent?

The net base rent is the agreed-upon base rent excluding operating costs. In practice, the actual rent refers to the net base rent currently being paid. It does not include ancillary costs (advance payments or flat rates), unless it is an inclusive rent (gross rent), which occasionally occurs with commercial properties.

What role does the actual rent play in bank financing?

When reviewing a financing application for investment properties, banks generally base their assessment on the actual rent-not the potential for rent increases. This means that a low actual rent can limit the maximum financing amount, even if the property is attractive in the long term. Buyers should factor this aspect into their financing plans and contribute sufficient equity to offset the lower actual rent.

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