Ertragswertverfahren: the formula, a worked example and the two decisive levers
With a let property nobody pays for the walls, they pay for the income it produces. That is exactly what the Ertragswertverfahren – Germany's income approach to valuation – reflects, and because valuers, banks and the official valuation committees all use it, buyers are well advised to master the mechanics themselves. This article walks through the formula step by step, values an apartment building in full, and shows why two figures move the result more than the rent does.
What the income approach determines
The aim of every valuation is the Verkehrswert (market value). § 194 BauGB defines it as the price achievable “in the ordinary course of business according to the legal circumstances and actual characteristics, the general condition and the location of the property […] disregarding unusual or personal circumstances”. How you get there is set out in the Property Valuation Ordinance (ImmoWertV), in force since 1 January 2022.
It knows three routes – the comparative, income and asset-cost approaches. Under § 6 (1) ImmoWertV they are to be chosen “according to the type of the object of valuation […]; the choice must be justified”. For a let apartment building that justification is easy: the market prices it on income. That is precisely where § 27 (1) ImmoWertV starts – the income value is determined “on the basis of income achievable in line with the market” – and under subsection 2 it rests on four figures: land value, net income, remaining useful life and the object-specific adjusted property yield rate. Estimate any one of them instead of deriving it and you have an opinion, not a result.
The formula of the general income approach
§ 28 ImmoWertV sets out the standard variant: the preliminary income value is the sum of the capitalised net income share of the structures, “determined after deducting the land value interest amount”, plus the land value. In six steps:
| # | Step | Calculation | Source |
|---|---|---|---|
| 1 | Gross income (Rohertrag) | annual market rent, excluding recoverable charges | § 31 (2) ImmoWertV |
| 2 | Management costs (Bewirtschaftungskosten) | administration + maintenance + rent-loss risk (+ non-recoverable operating costs) | § 32 ImmoWertV |
| 3 | Net income (Reinertrag) | gross income − management costs | § 31 (1) ImmoWertV |
| 4 | Land value interest | land value × property yield rate | § 28 ImmoWertV |
| 5 | Building income value | (net income − land value interest) × capitalisation factor | § 28, § 34 ImmoWertV |
| 6 | Income value (Ertragswert) | building income value + land value | § 28 ImmoWertV |
The capitalisation factor in step 5 is not a rule of thumb, it is prescribed. § 34 (2) ImmoWertV calls it the “annuity present value factor payable annually in arrears” and gives the formula:
Here p is the interest rate in per cent, LZ the property yield rate (Liegenschaftszinssatz) and n the remaining useful life. Under § 28 ImmoWertV the capitalisation period equals exactly that remaining useful life – not your fixed-rate period, not your intended holding period.
The worked example
An apartment building with five flats, built in 1985, valued as at 2026. 400 m² of living space at €8.50 net cold rent per m² per month. The plot measures 600 m² with a standard land value of €250/m². For this property type the valuation committee publishes a property yield rate of 4.0%.
| Step | Calculation | Result |
|---|---|---|
| Gross income | 400 × 8.50 × 12 | 40,800 € |
| Administration costs | 5 flats × 298 | 1,490 € |
| Maintenance costs | 400 × 11.70 | 4,680 € |
| Rent-loss risk | 2 % of 40,800 | 816 € |
| Management costs | 1,490 + 4,680 + 816 | 6,986 € |
| Net income | 40,800 − 6,986 | 33,814 € |
| Land value | 600 × 250 | 150,000 € |
| Land value interest | 150,000 × 0.04 | 6,000 € |
| Net income share of structures | 33,814 − 6,000 | 27,814 € |
| Remaining useful life | 80 − 41 years | 39 years |
| Capitalisation factor | formula above, q = 1.04, n = 39 | 19.58 |
| Building income value | 27,814 × 19.58 | 544,723 € |
| Income value | 544,723 + 150,000 | 694,723 € |
Around €695,000 – a good 17 times the annual net cold rent. Run the same case through a flat multiplier and you land in roughly the same area by accident; run it through the mechanics and you know afterwards which assumption took you there.
Management costs: the model values of Annex 3
The cost items in the example are not freely chosen. § 32 (1) ImmoWertV lists four types of management cost – administration, maintenance, rent-loss risk and operating costs – and only to the extent that they are “not covered by apportionment or other assumptions of cost”. What the tenant pays therefore does not reduce the income value; which items are recoverable at all is covered in the article on non-recoverable operating costs.
For the amounts, Annex 3 to the ImmoWertV prescribes fixed model values (as at 1 January 2021):
| Item | Residential use | Commercial use |
|---|---|---|
| Administration | 298 € per flat or per single/two-family house, 357 € per condominium unit, 39 € per garage | 3 % of gross income |
| Maintenance | 11.70 € per m² of living space (decorative repairs borne by the tenant), 88 € per garage | 100 %, 50 % or 30 % of the residential figure, depending on the type of use |
| Rent-loss risk | 2 % of gross income | 4 % of gross income |
The notional maintenance figure used in valuation is, incidentally, not the same thing as the maintenance reserve a German owners' association actually accumulates.
Lever 1: the remaining useful life
Under § 4 (3) ImmoWertV the remaining useful life is “the number of years for which a structure can, under proper management, be expected to remain economically usable” – as a rule total useful life minus age. But the wording goes further: repairs and modernisation may “extend” that period, deferred maintenance may shorten it. Total useful life itself is set as a model value by Annex 1: 80 years for single and two-family houses, apartment buildings and mixed-use residential buildings, 60 years for retail and office buildings, 40 years for workshops and production buildings.
For residential buildings Annex 2 sets out a points model: up to 20 points are awarded for modernisation elements – 4 each for a new roof including improved insulation and for external wall insulation, 2 each for windows and external doors, service lines, heating, bathrooms, interior fit-out and floor plan. The points then feed the remaining useful life via
with the coefficients a, b and c from Table 3 of Annex 2. Back to the example building: age 41, total useful life 80, so a relative age of 51.25 % – age divided by total useful life. Without modernisation that is below the 60 % threshold Table 3 gives for zero points, so it stays at 80 − 41 = 39 years. After modernising roof, windows, heating, bathrooms and service lines (4 + 2 + 2 + 2 + 2 = 12 points, threshold 16 %) the same formula runs with a = 0.3640, b = 0.8080 and c = 0.9622:
39 years become roughly 51. The capitalisation factor rises from 19.58 to 21.62 and the income value from €694,723 to €751,269 – about €56,500 more, purely from the extended useful life and without a cent of rent increase. There is a ceiling: the model stretches the remaining useful life “to a maximum of 70 per cent of the respective total useful life”, and up to 90% for comprehensively refurbished properties.
Lever 2: the property yield rate
Under § 21 (2) ImmoWertV property yield rates are “capitalisation rates at which the market values of properties bear interest at market-typical average rates, according to the type of property”. They are not estimated but derived from actual purchase prices: § 193 (5) BauGB assigns the task to the valuation committee, which keeps a register of purchase prices and derives these rates from it; they are published in the committee's property market report. § 33 ImmoWertV then requires the rate to be tested for suitability and adjusted to the specific property where it deviates.
How hard the rate bites, at otherwise unchanged assumptions:
| Property yield rate | Capitalisation factor | Income value |
|---|---|---|
| 3.0 % | 22.81 | 818,600 € |
| 3.5 % | 21.10 | 752,772 € |
| 4.0 % | 19.58 | 694,723 € |
| 4.5 % | 18.23 | 643,367 € |
| 5.0 % | 17.02 | 597,786 € |
A single percentage point between 3.0 and 4.0 moves the value by more than €120,000 – far more than any realistic rent adjustment could. “Which property yield rate, and from where?” is therefore the first question to put to any income valuation.
The two other variants
Besides the general one, § 27 (5) ImmoWertV names the simplified and the periodic income approach. The simplified method under § 29 ImmoWertV capitalises the entire net income and adds the land value discounted over the remaining useful life – the discount factor under § 34 (3) ImmoWertV being simply 1 ÷ qn. It merely allocates the land value differently. The periodic method under § 30 ImmoWertV is meant for fluctuating income, with an observation period that should not exceed ten years.
What the courts have decided
The income approach is a valuation rule, not a tax provision. Even so, two of its inputs regularly reach the Federal Fiscal Court (Bundesfinanzhof, BFH): the remaining useful life, because it borders on building depreciation, and the purchase price, because it is tested against the income value. Both decisions below are officially published (marked „V"), so the tax authorities apply them generally.
BFH, judgment of 23 January 2024 – IX R 14/23
The key warning for anyone computing the remaining useful life themselves: a taxpayer may indeed use „jeder sachverständigen Methode […], die im Einzelfall zur Führung des erforderlichen Nachweises geeignet erscheint" — any expert method suitable in the individual case — to establish a shorter actual useful life under § 7 Abs. 4 Satz 2 EStG. But: „Der schlichte Verweis durch den Steuerpflichtigen auf die modellhaft ermittelte Gesamt- und Restnutzungsdauer eines Gebäudes nach Maßgabe der betreffenden Immobilienwertermittlungsverordnung genügt nicht" — a plain reference to the model-based total and remaining useful life under the ImmoWertV is not enough. The figure you derive from Annex 2 above carries your income valuation; it does not carry your depreciation. That requires an expert report addressing the actual condition of the building.
BFH, judgment of 29 October 2019 – IX R 38/17
Conversely, the case law protects the agreed purchase price against correction by model values. A price „von den Vertragsbeteiligten vereinbarter und bezahlter Kaufpreis ist grundsätzlich auch der Besteuerung zugrunde zu legen" — agreed and paid by the parties is in principle the basis for taxation too — provided it was not a sham, is not an abuse of structuring options, and the court does not conclude on an overall assessment „dass die vertragliche Kaufpreishöhe oder -aufteilung die realen Wertverhältnisse in grundsätzlicher Weise verfehlt und wirtschaftlich nicht haltbar erscheint" (that the price or its allocation fundamentally misses the real value relationships and appears economically untenable). For you: an income value below the purchase price is a negotiating position and a yield signal — it only becomes a reason to cut the depreciation base where the real value relationships are grossly missed.
Frequently asked questions
Is the income value the same as the purchase price?
No. The income value is the outcome of a procedure, the purchase price the outcome of a negotiation. If the asking price is well above it, you are paying for something other than income – expectations about the location, a wish to live there, scarcity. That can be sensible, but it should remain a conscious decision.
Why is loan repayment not in the calculation?
Because the method values the property, not your financing. Interest and repayment depend on your credit standing, not on the plot. What is left at the end of the month is shown in calculating the cash flow of a property.
Where do I get the land value?
From the valuation committee's standard land value (Bodenrichtwert). Under § 40 (1) ImmoWertV the land value is to be determined “without regard to the structures present on the plot”, primarily by the comparative approach; under subsection 2 an object-specific adjusted standard land value may be used instead. You will need the same figure later for the allocation of the purchase price between land and building.
Does my own calculation replace a formal valuation?
No. An official market value report by the valuation committee under § 193 (1) BauGB is a different animal – and under subsection 3 has no binding effect anyway unless otherwise provided or agreed. Your own calculation is a testing tool: it shows which assumption is carrying a price before you make an offer.
Track the income value continuously, not just once
RenoDiary brings rent, management costs, land value and the renovation plan together per property – and its deal analysis shows whether the asking price matches the income.
Start for freeSources
- ImmoWertV (German Property Valuation Ordinance, §§ 4, 6, 10, 12, 21, 27–34, 40 and Annexes 1–3) — Gesetze im Internet (retrieved on 11 August 2026)
- § 194 BauGB (market value) — Gesetze im Internet (retrieved on 11 August 2026)
- § 193 BauGB (duties of the valuation committee, register of purchase prices) — Gesetze im Internet (retrieved on 11 August 2026)
- BFH, judgment of 29 October 2019 – IX R 38/17 (appropriateness of the agreed purchase price), officially published — full text at the Bundesfinanzhof (retrieved on 29 August 2026)
- BFH, judgment of 23 January 2024 – IX R 14/23 (ImmoWertV remaining useful life is not enough for a shorter actual useful life), officially published — full text at the Bundesfinanzhof (retrieved on 29 August 2026)
This article provides general orientation and does not replace individual tax or legal advice within the meaning of § 3 StBerG. What governs is the wording of the ordinance as applicable at the time, the circumstances of the individual case, and the assessment of a qualified expert.