Net income

In the real estate sector, net income refers to the positive balance of all revenues and expenses of a property or real estate company within a fiscal year-after deducting all operating costs, maintenance expenses, interest and principal payments, and tax liabilities. It is the accounting profit of a real estate business unit and forms the basis for distribution decisions, investment plans, and tax assessments. In the private rental sector, it roughly corresponds to net cash flow after taxes.

Calculation of the Net Income for Rented Properties

For a private landlord, the net income is calculated as follows:

Net Income = Annual Gross Income (Rental Income) − Operating Costs − Annual Debt Service (Interest + Principal Payments) − Tax Liability

Important: The taxable net income (the figure relevant for the tax return) differs from the cash-effective annual net income (cash perspective):

• Taxable net income: Rental income minus income-related expenses (including depreciation). Depreciation is tax-deductible but does not represent a cash outflow. Principal payments are not a tax expense but do constitute a cash outflow.
• Cash-based net income (cash flow): Rental income minus all actual payments (operating costs, maintenance, debt service, taxes), excluding depreciation (since it is non-cash).

This difference is crucial for investors: A property with a positive taxable surplus can still have negative cash flow if the principal repayment rate is high. Conversely, a property with a tax loss (due to high depreciation) can still generate positive cash flow.

Annual Surplus in WEG Statements and Real Estate Companies

In the WEG, the annual surplus (or annual result) refers to the balance of maintenance fee payments and actual expenses during the fiscal year. A surplus is typically allocated to the maintenance reserve or offset in the subsequent statement.

For real estate corporations (GmbH, GmbH & Co. KG, real estate funds), the net income is the profit under commercial law as reported in the annual financial statements (HGB) after deducting all costs and taxes. It serves as the basis for:

• Profit distributions to shareholders
• Retention (allocation to reserves)
• Tax assessment of the corporation (corporate income tax 15% + solidarity surcharge + trade tax)

Net Income as an Indicator of Property Quality

The net income of a rental property indicates whether a property is self-sustaining and generates a profit:

• Positive net income (positive cash flow): The property generates a surplus after all costs. The owner does not need to make additional contributions; if the surplus is sufficiently high, reserves can be built up.
• Negative net income (negative cash flow): The owner must contribute money monthly. This can make tax sense (losses from V+V reduce other income), but it carries liquidity risks and is not sustainable in the long term without corresponding expectations of appreciation.

Net Income and Interest Rate Risk

A net income that is currently still positive can quickly turn into a shortfall upon refinancing if interest rates rise. Anyone who finances an investment property today at 4% interest and must refinance at 6% in 10 years will see their net annual profit shrink significantly-or turn negative. We therefore recommend always simulating the net annual profit for a scenario with a higher follow-up interest rate before making a purchase decision.

Practical Tip for Owners in Nuremberg and Franconia

In the current Nuremberg market (2025: purchase price multiples 18-30, gross rental yields 3-5%, financing interest rates 3.5-4.5%), a positive cash-flow annual surplus with a high level of debt financing is achievable only under favorable conditions and with a strong rental market. We recommend that investors calculate both the taxable annual net income and the actual cash flow-while running through scenarios with rising and falling interest rates (renewal risk at the end of the fixed-rate period).

We support you in performing a complete profitability analysis for specific properties in the metropolitan region.

Frequently Asked Questions

What is the difference between net income and cash flow for a rental property?

The taxable net income takes depreciation into account (reduces taxable profit without causing a cash outflow) and ignores principal payments (cash outflow, but no tax expense). Cash flow, on the other hand, shows the actual cash flow: income minus all real expenses, including principal payments, but excluding depreciation. Both perspectives are important and complement each other.

How is the net income of a real estate GmbH taxed?

Corporations (GmbH) pay corporate income tax (15% + 5.5% solidarity surcharge = 15.825%) on net income, as well as trade tax (in Nuremberg approx. 14-16% depending on the assessment rate of 400% - calculated as: tax base × assessment rate). This results in a total tax burden of approximately 30% at the corporate level. Distributions to shareholders are then additionally subject to withholding tax (25%).

As a private landlord, can I offset an annual net loss against other income?

Yes. Losses from renting and leasing (§ 21 EStG) can be offset in the same year against positive income from other sources (e.g., salary, business) and thus reduce the total tax burden. Prerequisite: The intention to generate income must be evident (not a hobby). Properties that consistently generate losses with no prospect of an overall surplus may be classified by the tax office as not tax-deductible.

At what point does it make sense to establish a real estate GmbH instead of renting out properties privately?

As a rule, a limited liability company (GmbH) structure only makes sense when the taxable income tax rate is well over 30% and the portfolio is large (5+ units)-because then the tax advantage at the corporate level outweighs the administrative burden and setup costs. With a single rental property, the administrative burden usually outweighs the benefits. Individual tax advice is essential here.

Net Income in the Purchase Analysis

When purchasing an investment property in Nuremberg, the expected net income is one of the key metrics in the purchase analysis. Investors should not only consider the current status of rental income and costs but also run through various scenarios: How does the net income change if one or two tenants move out at the same time? What happens in the event of major repairs (roof, heating, facade) that are not fully covered by the maintenance reserve? How does the net annual profit change if the lease is renewed at a higher interest rate?

A comprehensive purchase analysis includes at least three scenarios: Base (current actual figures), Optimistic (potential for rent increases after tenant turnover, favorable renewal terms), and Pessimistic (vacancy, interest rate stress, unexpected repairs). Only by understanding all three scenarios can one make an informed purchase decision. For our clients in the Nuremberg metropolitan region, we prepare structured profitability analyses that account for all relevant parameters-including an honest assessment of the realistically achievable annual net income based on current market data.

What is the difference between annual net income and distribution yield?

For real estate funds and closed-end real estate companies, the distribution yield is reported in addition to the annual net income-that is, the portion of the annual net income (or cash flow) distributed to shareholders. The annual net income may exceed the distribution if portions of the profit are retained (set aside as reserves). Conversely, distributions can exceed net income if reserves are released-which is not sustainable in the long term. Investors should keep an eye on both metrics to realistically assess the actual earning power of an investment.

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