The 3 yield metrics at a glance — what sets them apart
Calculating property yield in practice means keeping three distinct metrics clearly separated. Gross yield is annual cold rent divided by purchase price, times 100, and serves only as a quick first filter. Net yield is more precise because it deducts operating costs from rent and adds purchase costs to the purchase price before relating the two. Return on equity calculates the annual surplus after interest relative to the equity actually invested, revealing whether financing leverage is working in the investor's favor or — at an effective mortgage rate of around 4.0 percent in August 2026 — actually eroding returns.
For context on what counts as a good gross or net yield in Munich and how these figures compare nationally, see our article Munich Rental Yield 2026: 5 Numbers Every Landlord Should Know. This article picks up exactly where that one leaves off: how to correctly and fully calculate all three metrics for your own property.
| Metric | What's included? | Usefulness |
|---|---|---|
| Gross yield | Annual cold rent, purchase price | Quick comparison, but incomplete |
| Net yield | + Operating costs, + purchase costs | Precise profitability metric |
| Return on equity | + Loan interest, equity invested | Shows financing leverage effect |
Calculating gross yield: formula, example, when it's enough
Gross yield (%) = (annual cold rent ÷ purchase price) × 100
Example: an annual cold rent of 12,000 euros on a purchase price of 400,000 euros gives 12,000 € ÷ 400,000 € × 100 = 3.0 percent. By comparison, gross yield in Munich currently ranges from about 2.5 to 4.0 percent, while the German national average across 52 major cities is 4.17 percent, per our own market analysis. Gross yield is useful for quickly pre-filtering multiple listings, but it ignores operating costs, purchase costs and financing entirely — which is why net yield matters more for an actual decision.
Calculating net yield: formula, operating costs & purchase costs in detail
Net yield (%) = [(annual cold rent − operating costs) ÷ (purchase price + purchase costs)] × 100
Operating costs: what's included?
Non-recoverable operating costs typically run 15 to 25 percent of annual cold rent (baufi24.de, renditerechner24.de, 2026): management costs, the maintenance reserve, and a vacancy risk buffer alone calculated at 2 to 4 percent of annual rent.
Purchase costs: what's included?
On the investment side, purchase costs in Bavaria total roughly 8 to 10 percent of the purchase price: real estate transfer tax at a flat 3.5 percent (unchanged since 2013), notary and land registry fees of about 1.5 to 2 percent, and, if applicable, agent commission of around 3.57 percent including VAT.
Calculating return on equity: formula, leverage effect, and when debt financing pays off
Return on equity (%) = (annual surplus after interest ÷ equity invested) × 100
The leverage effect means debt financing increases return on equity as long as the property's net yield exceeds the effective mortgage rate. Once net yield falls below that rate, the effect reverses. The effective mortgage rate for 10-year fixed financing in August 2026 ranged from about 3.6 to 4.1 percent, with best rates from 3.29 percent and an average of roughly 4.0 percent (drklein.de, baufi24.de, finanztip.de, August 2026).
At an effective mortgage rate of around 4.0 percent (August 2026), the leverage effect turns negative for any Munich property with a net yield below 4 percent — exactly the range where most existing Munich properties, at 1.8 to 2.2 percent net yield, currently sit.
As a rule of thumb, a return on equity of 20 percent or more is above average, while 8 to 15 percent is typically achievable with positive leverage (mcmakler.de, baufinanzierungen.de, 2026).
One worked example, three metrics: the same Munich apartment calculated from gross to equity yield
Purchase price: 660,000 €
Annual cold rent: 17,000 €
Purchase costs (9% of price): 59,400 €
Total investment: 719,400 €
17,000 € ÷ 660,000 € × 100 = 2.58 %
Operating costs (20% of rent): 3,400 €
(17,000 € − 3,400 €) ÷ 719,400 € × 100 = 1.89 %
Equity (30% of total investment): 215,820 €
Debt (70%): 503,580 € at 4.0% effective → annual interest: 20,143 €
Annual surplus after interest: 17,000 € − 3,400 € − 20,143 € = −6,543 €
Return on equity: −6,543 € ÷ 215,820 € × 100 = −3.03 %
This confirms the tipping point: with a net yield of 1.89 percent against a 4.0 percent mortgage rate, leverage turns negative — debt financing makes the return worse, not better. Raising rent through furnished letting (20 to 40 percent higher rents, see our guide on Munich's furnished-apartment surcharge rules) or increasing the equity share are the two realistic ways to fix this.
Common calculation mistakes that make landlords too optimistic
- Ignoring purchase costs: overstates net yield by underestimating the true investment by 8-10 percent.
- Forgetting vacancy risk: at least 2-4 percent of annual rent should be reserved as a buffer.
- Confusing gross with net yield: the 0.5-1 percentage point gap often determines whether a property beats the mortgage rate.
- Omitting interest from return on equity: produces a far too positive picture, especially at current rates near 4.0 percent.
- Underestimating the maintenance reserve: especially in older Munich and Bavarian buildings, leads to unexpected special assessments later.
mHomes calculates your property's true yield
We determine gross yield, net yield and return on equity for your Munich property including all operating and purchase costs, and show concrete levers to lift net yield above the current mortgage rate.