apartment building

Multi-family residence - A multi-family residence (MFH) is a residential building with three or more self-contained residential units, each of which has its own entrance, kitchen, and bathroom facilities. Multi-family residences are primarily used as investment properties and are valued using the income approach.

Ownership Structure, Management, and Valuation

For apartment buildings, we generally distinguish between two ownership models. In the case of sole ownership, the entire building, including all apartments, belongs to a single owner or an owners’ association (such as a GbR or GmbH). The owner bears all maintenance costs but also has full decision-making authority regarding renovations, rent setting, and sale. In condominium ownership under the German Condominium Act (WEG), the building is divided into individual units as separate ownership and common ownership of load-bearing components, the roof, the facade, and common areas. Each unit can be sold individually.

Managing a multi-unit residential building requires professional organization. In the case of sole ownership, a property manager often handles day-to-day management-from utility billing and tenant communication to coordinating repairs. In the case of WEG ownership, the appointment of a certified WEG manager is required by law. In the Nuremberg metropolitan region, management costs amount to approximately 25 to 35 euros per residential unit per month for WEG management and 20 to 30 euros for rental management.

The valuation of a multi-family home is performed using the income approach in accordance with the ImmoWertV. In this process, the sustainable rental income (gross income) is adjusted for operating costs and capitalized using a multiplier derived from the property interest rate and the remaining useful life. The property interest rate for multi-family homes in the Nuremberg area currently ranges between 3.0 and 5.0 percent, depending on location and property quality. Additionally, the land value is assessed separately.

Yield Calculation and Maintenance Planning

For investors, the gross rental yield is the key metric. It is calculated by dividing the annual rent by the purchase price and currently ranges between 3.5 and 6.0 percent for multi-family homes in Nuremberg. The net rental yield additionally accounts for non-pass-through management costs-including administration, maintenance reserves, and the risk of rent loss-and is typically 1.0 to 1.5 percentage points lower.

Proactive maintenance planning is economically crucial for multi-family homes. We recommend setting aside at least 10 to 15 euros per square meter of living space annually as a maintenance reserve. Larger projects such as roof replacement, facade insulation, or heating system replacement should be budgeted for over the long term to avoid unforeseen special assessments or liquidity shortages.

Financing and Tax Considerations

Financing a multi-family home differs from financing an owner-occupied home. Banks typically require a higher equity ratio (at least 20 to 30 percent) for investment properties and assess not only the buyer’s creditworthiness but also the property’s rental situation and rental yield. The loan-to-value ratio is often determined based on the income value, which results in a lower loan limit than expected for properties with low rents.

From a tax perspective, the multi-family home offers significant advantages as an investment: interest, management, and maintenance costs are deductible as business expenses against income from renting and leasing. For new construction, a declining balance depreciation of five percent per year has been available since 2023 (new Section 7b of the German Income Tax Act). For older buildings, the straight-line depreciation rate of two percent applies. Listed multi-family homes are particularly attractive: Here, § 7i EStG allows for a significantly higher special depreciation rate for renovation costs, which greatly reduces the tax burden in the first few years.

Practical Tip for Nuremberg, Fürth, and Erlangen

The multi-family housing market in the Nuremberg-Fürth-Erlangen metropolitan region is characterized by a large stock of post-war buildings from the 1950s to the 1970s, which often require significant renovation. At the same time, these very properties offer potential for investors, as they enable significant rent increases and appreciation in value following energy-efficient renovations.

In Nuremberg’s Südstadt, Gostenhof, and St. Johannis, there are numerous multi-family homes from the Wilhelminian and post-war eras that are traded as rental properties. In Fürth, the area around Gustavstraße and the Südstadt is known for older multi-family homes. In Erlangen, the stock is concentrated in the city center and the housing developments of the 1960s. We assist buyers and sellers in realistically valuing multi-family homes and identifying properties with sustainable return potential.

Frequently Asked Questions

How many units constitute a multi-family home?

In the real estate industry, a residential building with three or more separate residential units is considered a multi-family home. Buildings with two residential units are referred to as two-family homes and are subject to different tax and rental regulations in some cases. This distinction is relevant for valuation and financing, as banks apply different loan-to-value ratios for multi-family homes than for single-family and two-family homes.

What is a realistic return on investment for a multi-family home in Nuremberg?

The gross rental yield in the Nuremberg metropolitan area currently ranges from about 3.5 to 5.0 percent; in some surrounding municipalities, yields of 5.0 to 6.0 percent are achievable. The building’s energy efficiency, the vacancy rate, and upcoming maintenance costs are key factors in determining the actual return on investment. We recommend conducting a detailed profitability analysis that accounts for all costs before making a purchase.

What should I pay particular attention to when buying a multi-family home?

In addition to the return calculation, the lease agreements, the structural condition, and the ownership structure are crucial. We recommend reviewing all existing lease agreements for notice periods, rent adjustment clauses, and rent arrears. The structural condition should be assessed by an expert, with the roof, facade, heating system, and plumbing representing the most costly items. For properties divided under the WEG (German Condominium Act), the amount of the maintenance reserve and the resolutions of the owners’ meeting must also be reviewed.

When is it worthwhile to convert a multi-family home into condominiums?

Converting a multi-family house into condominiums (WEG division) is attractive if the sum of the individual apartment values exceeds the total sales value as an investment property. This so-called division profit is often substantial in sought-after locations such as downtown Nuremberg or Erlangen. However, one must take into account the conversion ban in tight housing markets (§ 250 BauGB), which applies in certain Bavarian municipalities, as well as the required certificate of separation from the building authority.

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