Finance
The costs of buying at a German foreclosure auction
Closing costs at a German foreclosure auction: property transfer tax, land registry fees and what falls away compared with an ordinary purchase. With worked examples.
15 May 2026·5 min
Calculating the yield on a buy-to-let bought at auction: a step-by-step guide
Klaava editorial team·28 April 2026·Updated on 25 May 2026·7 min read
Foreclosure auctions have a reputation as a lever on yield. A discount against market value improves every ratio on paper. But only a buyer who knows the right formulas and counts every cost reaches a grounded decision.
This article explains the key ratios, works through examples based on typical auction properties, and gives realistic yield ranges for German markets.
The three ratios that matter
Gross rental yield
The simplest ratio. It sets the annual net rent, meaning rent excluding service charges, against the purchase price, here the bid plus the costs on top.
Formula: Gross rental yield = annual net rent / total purchase price × 100
Advantage: quick to work out and easy to compare.
Drawback: it ignores running costs, voids, renovation and financing. Gross rental yield is not a measure of what you actually earn.
Net rental yield
The net rental yield takes account of the running costs the landlord bears and cannot pass on to the tenant.
Formula: Net rental yield = (annual net rent – running costs) / total purchase price × 100
Running costs typically include:
- Management, around 3 to 5 per cent of the annual rent
- A maintenance reserve, around 1 to 1.5 per cent of the purchase price a year, depending on the age of the building
- An allowance for lost rent, around 2 to 4 per cent of the annual rent
- Service charges that cannot be passed on
Rule of thumb: on an investment property the net rental yield should be at least 3.5 to 4 per cent to leave positive cash flow after financing costs.
Return on equity
Return on equity measures the earnings against the money you actually put in. It matters most when you borrow.
Formula: Return on equity = annual surplus after tax and interest / equity invested × 100
This ratio benefits from leverage: with a rising market value and low interest rates it can sit well above the net rental yield.
Working out the total price correctly
The most common mistake in these calculations is treating the bid as the price and ignoring everything else.
Total price at a foreclosure auction:
| Item | Guide figure |
|---|---|
| Winning bid | 100 % |
| Property transfer tax | 3.5 to 6.5 %, by state |
| Land registry entry | approx. 0.5 % |
| Court fees for the proceedings | approx. 0.5 to 1.0 % |
| Renovation, where needed | individual |
| Total price | Bid + 5 to 9 % in costs |
Renovation belongs in the total price, because it falls due before the first tenancy and ties up capital.
Worked example: a two-room flat in a secondary city
Property: apartment, 65 sqm, built 1985, fully let, in North Rhine-Westphalia Value in the report: 180,000 euros Winning bid: 135,000 euros, that is 75 per cent of the value in the report Monthly net rent per the report: 650 euros
Total price
| Item | Amount |
|---|---|
| Winning bid | 135,000 euros |
| Property transfer tax, 6.5 % | 8,775 euros |
| Land registry entry, 0.5 % | 675 euros |
| Court fees, 0.5 % | 675 euros |
| Renovation reserve, spent at once | 5,000 euros |
| Total price | 150,125 euros |
The yield
Gross rental yield: Annual rent: 650 euros × 12 = 7,800 euros Gross rental yield: 7,800 / 150,125 × 100 = 5.2 %
Net rental yield: Running costs, around 25 per cent of the annual rent: 1,950 euros Maintenance reserve, 1 per cent of the price: 1,500 euros Net annual income: 7,800 minus 1,950 minus 1,500 = 4,350 euros Net rental yield: 4,350 / 150,125 × 100 = 2.9 %
For comparison: had the buyer paid the 180,000 euros in the report and added around 9 per cent in costs, for a total of 196,200 euros, the net rental yield would be only 2.2 per cent. The discount from buying at auction improved the yield by almost 32 per cent.
What yields are realistic?
Expectations depend heavily on location, the quality of the property and how much competition turns up on the day. As rough orientation:
| Market | Typical gross rental yield | Room for an auction discount? |
|---|---|---|
| Munich, Hamburg, Frankfurt | 2.5 to 3.5 % | Barely, competition is heavy |
| Berlin, Stuttgart, Cologne | 3.0 to 4.5 % | Possible for a well-prepared buyer |
| Secondary cities such as Nuremberg or Hanover | 4.0 to 6.0 % | Good, fewer rival bidders |
| Smaller towns and the surrounding areas | 5.0 to 9.0 % | Very good, barely any professional competition |
Note: these figures assume a fully let property in reasonable condition. A property needing work can show a higher gross yield but needs a serious cost buffer.
What makes an auction property different
The rent in place against the market rent
The report states the current net rent. It can sit well below the market rent, particularly under an old tenancy. Check:
- What is the current net rent?
- What is the local comparative rent under the official rent index?
- Is an increase under § 558 BGB possible, and when?
- Can the tenant pay over the long run?
A rent below market drags the opening yield down, but it also carries room to raise it, and that belongs in the valuation.
An empty property is both risk and chance
An empty auction property can be let at market terms as soon as it is fit. The risk is the months of emptiness during the work and the uncertainty of finding a tenant. Budget for at least 3 to 6 months of void.
Estimating renovation systematically
The report lists the known defects and often gives cost estimates. Use those as your basis:
| Trade | Typical range |
|---|---|
| Roof, complete | 20,000 to 60,000 euros |
| Heating system | 8,000 to 20,000 euros |
| Bathroom, plain | 5,000 to 15,000 euros |
| Windows, whole house | 10,000 to 30,000 euros |
| Damp-proofing a cellar | 5,000 to 40,000 euros |
| Dry rot treatment | 20,000 to 80,000 euros |
Add a buffer of 15 to 25 per cent to whatever you estimate.
Frequently asked questions about yield
What yield is realistic at a foreclosure auction? In secondary and smaller markets, net rental yields of 3.5 to 5.5 per cent are achievable. In the major cities competition is heavy and yields often sit below 3 per cent, even at auction.
Should renovation go into the purchase price? Yes, without exception. Renovation is invested capital that has to earn its way back. Add it to the total price before you calculate the yield.
Can I earn more at auction than on the open market? Yes, if the bid comes in below market value. A discount of 20 per cent improves the yield by around 25 per cent in relative terms. Where few bidders turn up, such discounts are realistic.
What is the minimum yield for a sensible investment? That depends on your financing costs. As a rule of thumb, the net rental yield should sit at least 1.0 to 1.5 percentage points above your current interest rate to leave positive cash flow.
How to turn these numbers into a maximum bid is set out in bidding successfully at a foreclosure auction. Financing such a purchase is covered in financing a purchase at auction.
This article is general information. It does not replace individual investment advice.
Klaava
Walk into the next auction informed.
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