Property investment viability assessment: step by step

Michael Pauker · 2026-10-14

The sales particulars give you a figure: a 4% rental yield. The bank quotes a loan payment, the tax adviser a depreciation allowance, the seller a rent. Each figure is correct in isolation. None tells you what happens to your bank balance at the end of the month.

That is precisely what an investment viability assessment establishes. It brings the purchase price, associated costs, financing, ongoing costs and tax together in a single calculation. And it shows what happens if the tenant moves out or interest rates rise.

In this guide, we work through a complete calculation for a rental flat. Using figures that have not been massaged to make the investment look better.

01What an investment viability assessment needs to do

The term is used in different ways. Valuers often mean an assessment for banks or public authorities. For you as a buyer, it means something else: your own investment calculation. It answers three questions.

1. How much money do I need to contribute, upfront and every month?
2. What is left before and after tax?
3. Does the calculation still hold up if things go worse than planned?

A yield formula answers, at most, part of the first question. That is why it is not enough to base a purchase decision on.

02The example flat: total investment and financing

Take Jonas, 38, single, employed, with taxable income of €60,000 a year. He is assessing a tenanted two-room flat in Lower Saxony: 62 m², built in 1996, purchase price €215,000, no estate agent. The tenant pays €713 excluding service charges, or €11.50 per m². The name is fictitious; all figures are an illustrative calculation, not a forecast.

Jonas finances the entire purchase price through the bank and pays the associated costs of €14,569 from his own funds. The bank offers a nominal interest rate of 4.0%, fixed for ten years, with an initial principal repayment rate of 1.5%. This is within the range quoted by providers in late September 2026 for ten-year fixed-rate periods. The payment is €985.42 a month, or €11,825 a year.

You can use the purchase costs calculator to work through step 1 for your federal state.

What will your purchase cost on top of the purchase price? Enter the purchase price, federal state and land charge.

03“The 3.2% is the rental yield alone, without financing — so rent divided by purchase price?”

The usual metrics are quick to calculate. They are useful for comparing properties on offer, not for making a purchase decision.

A purchase price multiplier of 25 means that the flat costs 25 years’ rent. The net rental yield is almost one percentage point below the gross yield. This already reveals the crux of the problem. Jonas pays 4.0% interest on his loan. The flat generates a net yield of 3.06%.

Your metrics at a glance Enter the purchase price, rent and non-recoverable costs.

The calculator shows you how much the purchase price and rent affect the metrics.

04“What percentage do you assume for maintenance? That seems rather low to me.”

For a flat in a jointly owned building, there are three categories of costs that are not borne by the tenant.

The first two items appear in the owners’ association’s annual budget. Request it before buying and read the meeting minutes to check whether refurbishment is planned. Your own reserve covers things that break inside your flat, because the owners’ association does not pay for those. How much you allow depends on their condition. For a flat built in 1996 with an old bathroom, €0.50 per m² would be rather tight. The guide Checking owners’ meeting minutes before buying explains how to assess the reserve and upcoming works.

05“How much will I have to contribute out of my own pocket each month?”

Jonas therefore contributes around €360 a month, or just over €400 including reserves. This figure needs to fit his household budget, right from the first month. The bank checks this too, in its household affordability assessment.

When would the flat break even before tax? Working backwards, it would need rent excluding service charges of around €1,125 a month, or just over €18 per m². At this purchase price and with full purchase-price financing, that is a long way from the actual rent.

06“Is that positive before or after tax?”

The tax office takes different items into account from those affecting your bank balance. Principal repayments are not an expense; they build wealth. In contrast, Jonas can deduct depreciation (AfA), even though no money changes hands for it. For residential buildings completed after 1924, the allowance is 2% a year on the building’s share of the cost (§ 7 Abs. 4 Satz 1 Nr. 2 Buchstabe a EStG). Here, the building’s share is assumed to be 75%. Contributions to the maintenance reserve only count once the owners’ association spends the money (BFH, Urteil vom 14.01.2025, IX R 19/24).

The saving of €1,430 corresponds to a tax rate of around 38% on the loss. That is Jonas’s marginal tax rate within this income range, not the flat 40% or 42% used in many calculations. Those earning less save less. The rental income and tax calculator shows how tax changes in your own case.

You can receive the refund during the current year by applying to the tax office for a reduction in payroll income tax deductions. Your monthly contribution then falls accordingly.

That is the honest picture. Jonas pays around €285 out of his own pocket every month. At the same time, his debt falls by around €274 a month. Whether that is worthwhile depends on two things no calculation can predict: how the rent and the flat’s value develop over the years.

07How your own capital changes the calculation

Many investors ask whether contributing more of their own capital makes the calculation work. Let us calculate the same flat with a 20% deposit, meaning €43,000 in addition to the purchase costs.

With a deposit, the monthly contribution is halved. The tax saving falls because there is less interest to pay. And the €43,000 is tied up. It could also earn interest elsewhere. Whether committing that money is worthwhile depends on what you would otherwise do with it. There is no universally applicable answer.

08The stress test: what happens if things go worse?

A calculation that only works under normal conditions is no calculation at all. You should always run through three events.

Three months of vacancy cost Jonas around €1,350 net. Follow-on financing at an interest rate 1.5 percentage points higher costs him just over €2,600 more in interest every year, or around €220 a month. Together, the two would more than double his monthly contribution. You should therefore plan for a cash reserve that covers at least several monthly loan payments.

09Who a flat like this might suit

Anyone seeking positive cash flow before tax needs a different ratio of rent to purchase price, such as a lower purchase price multiplier, or more of their own capital. That is a question of the property, not the calculation.

10Risks and limitations of the calculation

• Vacancy. Every month without a tenant hits cash flow in full; only part is recovered through tax.
• Interest rates. Once the fixed-rate period ends, follow-on financing may be more expensive. The calculation above shows what 1.5 percentage points mean.
• Maintenance. Special levies by the owners’ association and repairs inside the flat can exceed the reserves.
• Tax law. Depreciation rules and tax rates can change. Your tax rate may fall in retirement, making depreciation less effective.
• Resale. Whether you will be able to sell the flat later, and at what price, remains uncertain. The calculation above deliberately excludes capital appreciation.
• Assumptions. Every figure in this example is an assumption. Your calculation needs your figures: tenancy agreement, owners’ association budget, bank offer, tax assessment notice.

11Further reading

• Calculating rental yield: formulas and examples
• Income-producing property: metrics and risks
• Deducting loan interest on rental property
• Ongoing costs of owning a flat
• Leverage effect in the glossary
• Cash flow in the glossary

12Sources

All sources accessed on 14 October 2026.

• § 32a EStG (2026 income tax schedule), § 7 EStG (depreciation)
• BFH, Urteil vom 14.01.2025, IX R 19/24 (maintenance reserve deductible as income-related expenses only when spent)
• § 34 GNotKG und Anlage 2 (notary and land registry fees)
• Lower Saxony Act on the Rate of Property Transfer Tax, rate of 5.0% since 1 January 2014
• Schwäbisch Hall, current mortgage interest rates (as at 27 September 2026): https://www.schwaebisch-hall.de/bauen-kaufen/baufinanzierung/bauzinsen-aktuell.html
• Illustrative calculation: our own calculation, as at 14 October 2026

Note: This guide provides general information and is not a substitute for tax or legal advice. All figures are illustrative calculations with disclosed assumptions, not a forecast, as at 14 October 2026.