A property listing advertises an attractive rental yield. For your decision it still remains open how much money actually remains after ongoing payments. A ratio of annual rent to purchase price answers a different question than your monthly cash surplus. Added to that is the tax perspective, which cannot simply be replaced by either of these two calculations. A clear separation prevents apparently contradictory results.
Disclose the yield concept used
Our editorial recommendation: First ask for the exact formula behind any advertised percentage. Which rent is assumed, which period and which capital amount? Are acquisition costs included? Is it about actual income or an expected re-letting? A figure without these details is too imprecise for a reliable comparison.
For the following example we explicitly define a simple gross metric: annual net cold rent divided by purchase price. This is a calculation convention disclosed here and not a complete or legally definitive valuation. Other analyses may use a different denominator or further deductions. Therefore do not compare percentage figures whose definition you do not know.
An example shows the gap to the cash surplus
All figures are entirely fictitious: The purchase price is 240.000 Euro, the actually assumed annual net cold rent 12.000 Euro. By our simple definition that is five percent. If you additionally include assumed acquisition costs of 24.000 Euro in the total capital employed, the same 12.000 Euro mathematically amount to roughly 4,55 percent. None of these figures is a current market statement or an investment promise.
This difference alone shows why the reference size is important. A further examination would also have to take into account the expenses that are actually relevant for your property. You should not automatically treat every communal payment as a final personal expense or assume without checking that all costs can be passed on. The concrete allocation requires the actual documents and the appropriate legal framework.
The liquidity calculation follows the real cash flow
Create, in addition, an overview of the expected incoming and outgoing payments. This includes the actually required ongoing funds and, where applicable, the full loan instalment. A repayment of loan principal is a cash outflow, even if it does not have the same economic function as an ongoing service provider invoice. A positive calculated figure without consideration of your instalment therefore only explains your account balance incompletely.
Supplement to the fictitious example: After self-assumed ongoing expenses, 9.000 Euro per year remain before financing. With an equally freely assumed annual instalment of 10.800 Euro, 1.800 Euro are missing in the payment plan, i.e. an average of 150 Euro per month. That does not automatically prove that the investment is good or bad. It merely shows that under these assumptions it requires additional ongoing liquidity.
Examine taxable income separately
§ 21 EStG places income from letting and leasing within the tax framework. [ESTG21] Which expenses, depreciations or special circumstances are taken into account in your tax calculation is not thereby decided individually. The payment plan shown here is expressly not a tax assessment and not a calculation of your taxable result.
Have tax assumptions checked based on your project, instead of planning to include an expected tax advantage as a guaranteed monthly inflow. A later reimbursement and a payment due today do not automatically line up. If an offer names an after-tax figure, ask about the personal and factual prerequisites assumed.
Show uncertainty as a variant
Our editorial recommendation: In the next step change individual assumptions, for example a temporarily missing rental income or an additional necessary expense. Use your own reproducible scenarios for this. An arbitrary safety percentage without reference to the building is not automatically more reliable than an explicitly open question.
Finally keep three results side by side: the clearly defined yield metric, the actual payment plan and the professionally reviewed tax assessment. Describe the assumptions and limits of each calculation. That way you can see why an advertised percentage and a monthly additional need can occur at the same time. For an investment decision, individual financing, tax and, where applicable, technical advice are required in addition.