Multi-family house as a capital investment in an aging city

Then I end up with a 6% net rental yield, of course before taxes. Or am I mistaken? Again?

Probably – but that’s more because you define "net yield" differently or according to your own criteria.

Of course, you can mentally add the incidental purchase costs to the house purchase, but that’s not sensible – the house is worth €245K, not €265K. If you had to sell the house again in the short term, you could probably get around €245K again, but rather unlikely €265K if you don’t include any speculative gain.

That may initially improve the net yield according to your criteria – however, the ~€20K incidental purchase costs will consume the entire first year’s net rent, and you haven’t even paid any interest or principal to the bank yet, nor any income tax on the rental income.

Your consistent refusal to include income tax in the net yield calculation is, of course, your prerogative – but it is highly nonsensical. If you want to know what remains from an investment, you obviously have to deduct all costs and only then arrive at the true value.

There are (from an accounting/bookkeeping perspective) also no reserves for repairs, and if the house still has repair backlog not visible in the listing, things look rather bleak initially.

Without even picking up a calculator, your yield in the first 2 (probably rather 5) years is thus zero or negative – so far from your targeted 6%.

How much equity do you currently have available? The standard land value would also be interesting, then one would know what they approximately assume for the house value.

Best regards
Dirk Grafe

From income tax on rental income, expenses are first deducted. That includes interest but also depreciation. And of course maintenance measures.

Depending on the situation, this can result in an income tax refund instead of a payment. It would have to be calculated completely.

Therefore, the actual return depends on numerous factors such as financing and all other income.

Therefore, when it comes to houses, one generally speaks of the rent multiplier or the reciprocal gross yield (net annual rent excluding additional costs / purchase price). The worse the location, the better the initial gross yield.

Depending on the constellation, this results in an income tax refund instead of an income tax payment. You would have to calculate everything completely.

You don't have to explain that to me - but the OP still doesn't understand what it means when he receives an income tax refund. It means nothing other than that the actual net yield (at least initially) is negative.

But he is still dreaming of +6% ...

Best regards
Dirk Grafe

Reading tip (and then calculate yourself): Volker Looman, "Die Vermögensfrage Was werfen Immobilien eigentlich genau ab?", faz.de.

Why should the return then improve?

That was meant ironically and as a subtle hint that the KfW likes to act as an assistant. I had assumed I had made this clear with the smiley?

Rhenish greetings

You don’t have to explain that to me - but the OP still doesn’t understand what it means when he receives an income tax refund. That simply means that the actual net return (at least initially) is negative.

But he’s still dreaming of +6% ...

Regards
Dirk Grafe

No. Now the OP understands. He promises from now on to include the income tax in his return calculation as well.

Depending on the constellation, this results in an income tax refund instead of an income tax payment. You’d have to calculate it through completely.

You’re right. I’ve done that now. A very specific property, which I’ve already visited and will visit a second time next week with a building inspector by my side.

Key data: Purchase price incl. incidental costs €290,000, equity €60,000 --> loan €230,000, full repayment in 15 years at 1.7% fixed interest rate. This results in the following return calculation. Copyright of the calculation table belongs to Alexander Goldwein.



Accordingly, I add €3,300 annually, so just under €300 monthly, let’s say €500 including a small maintenance reserve. But that’s it according to my considerations. I’m aware that I have to add more if a tenant doesn’t pay.

If it turns out that I have made a big mistake in my calculation, I’ll lock myself alone in my bedroom and lie down in bed with a bottle of Amaretto.