Operating costs

Operating Costs - Operating costs (also known as management costs or OpEx) include all ongoing expenses incurred in the operation and maintenance of a property. These include administrative costs, maintenance and repair costs, utility costs (heating, water, trash, insurance), and the risk of lost rent. Operating costs reduce gross income and are decisive for the actual return on an investment property.

Composition

Operating costs can be divided into pass-through and non-pass-through costs. Pass-through operating costs (pursuant to § 2 BetrKV) can be passed on to the tenant: heating, water/sewage, garbage collection, building insurance, property tax, landscaping, janitorial services, elevator, street cleaning. The following are not pass-through costs: management fees (condominium manager, rental management), maintenance reserve, repairs (unless caused by the tenant), and the risk of rent loss. These costs are borne entirely by the owner.

Management costs for multi-unit buildings are often underestimated: A professional property manager costs between 20 and 40 euros per unit per month, depending on the provider and scope of services. Added to this are WEG management fees, account maintenance fees, and costs for the annual settlement. In total, management costs for a ten-story apartment building can amount to several thousand euros per year-items that are often omitted from simple return-on-investment calculations.

Key Figures and Guidelines

For yield calculations, operating costs are expressed as a percentage of annual rental income or as a value in euros per square meter. Typical guidelines for residential real estate: Management costs 250-400 euros per residential unit per year, Maintenance 8-15 euros/m²/year (depending on age and condition), Rent default risk 2-4% of annual rental income. Overall, non-pass-through operating costs for residential real estate amount to approximately 15-25% of the annual net base rent.

Different guidelines apply to commercial real estate: Maintenance costs are often lower, as tenants are frequently responsible for minor repairs in the leased property themselves. In contrast, the risk of rent loss may be higher-commercial tenants have a statistically higher risk of insolvency than private households, especially during economically volatile times.

Operating Costs in Yield Calculations

For the net rental yield, operating costs are deducted from the gross income: Net rental yield = (annual net rent − non-pass-through operating costs) ÷ purchase price × 100. A purchase price factor of 25 (gross yield of 4%) can drop to a net yield of only 2.5-3% after deducting operating costs. This difference is significant and determines the long-term attractiveness of an investment. Anyone who considers only the gross rental yield systematically overestimates the actual profitability.

Practical Tip for Investors in Nuremberg

We recommend that investors in the Nuremberg metropolitan region calculate operating costs realistically-real estate listings often show only the gross rental yield and omit non-pass-through costs. For a multi-family home built in 1960 in Nuremberg-South, you should expect maintenance costs of 12-15 euros/m²; for a new construction, 6-8 euros/m² is sufficient. Request the utility bills from the past three years from the seller-they show the actual operating costs and reveal hidden cost drivers.

Also pay attention to the condition of the roof, heating system, facade, and windows: these four areas account for the largest special expenses in older buildings. A pre-purchase appraisal that estimates maintenance needs for the next ten years is a worthwhile expense for investment properties.

Frequently Asked Questions

Which operating costs can I deduct for tax purposes?

For rental properties, all operating costs are deductible as business expenses-both those that can be passed on to tenants and those that cannot. The operating costs passed on to the tenant are recorded as income and simultaneously offset as expenses. As a result, only the non-pass-through costs are tax-deductible.

How can I reduce operating costs?

The most effective measures are: energy-efficient renovation (permanently reduces heating costs), Changing the property manager (comparing management fees across the market), framework agreements for contractor services, and prevention (regular maintenance avoids costly repairs). Switching to LED lighting and water-saving fixtures also measurably reduces operating costs.

Does the tenant have to bear all operating costs?

Only if the allocation is agreed upon in the lease agreement. Without such an agreement, all operating costs must be borne by the landlord. The costs eligible for allocation are exhaustively listed in the Operating Costs Ordinance (BetrKV)-costs beyond this may not be allocated.

What is meant by the risk of rent loss?

The risk of rent loss is an imputed risk item that reflects the statistical loss due to vacancies and rent defaults (e.g., in the event of a tenant’s insolvency). It is typically estimated at 2-4% of the annual net rent excluding utilities. In Nuremberg, where vacancy rates are structurally low, the risk of rent loss tends to be set at the lower end of this range.

Operating Costs Over Time and for Existing Properties

Operating costs are not a static figure-they change with the age of the building, rising energy prices, changing legal requirements, and the general price level in the construction industry. Anyone who buys a property built in 1970 and fails to set aside reserves for ten years will face a massive wave of costs at the latest when the roof or heating system needs to be renovated. A realistic maintenance budget must therefore also account for scenarios involving major investments.

Mandatory retrofitting requirements are an often-underestimated driver of operating costs: In recent years, the federal government has tightened numerous requirements for existing buildings-from mandatory heating system replacements and insulation regulations to smoke detector requirements. Owners who ignore these requirements risk not only fines but also reduced rentability and lower sales proceeds.

Comparison: Operating Costs for New Construction vs. Existing Buildings in Nuremberg

In the Nuremberg metropolitan region, there are significant differences between the cost structures of new construction and existing buildings. A new building constructed in accordance with GEG 2023 is highly energy-efficient: heating costs are significantly lower, maintenance contracts for modern heat pumps are predictable, and maintenance reserves are minimal in the first few years. The monthly advance payment for utilities is often 30-40% lower than comparable figures for older buildings.

A Wilhelminian-style building in Nuremberg’s Südstadt district, on the other hand, may score points for its charm and location, but it incurs significantly higher operating costs: older heating systems, facades in need of renovation, poor energy efficiency ratings, and often a more complex condominium structure with differing owner interests. For investors, this means: The seemingly low purchase price of an older building must always be weighed against the higher ongoing operating costs. Only the net rental yield after operating costs reveals the true return on investment.

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