Operating Costs (Bewirtschaftungskosten)
Ongoing expenses of property ownership
Operating costs (Bewirtschaftungskosten) are the ongoing expenses of owning and maintaining an investment property. Unlike acquisition costs, these are annual and tax-deductible.
What's Included
Property Management:
Typically 8-12% of gross rent for full-service management (tenant finding, rent collection, maintenance coordination)
Maintenance & Repairs:
Reserve 1-2% of property value annually for upkeep (broken appliances, painting, etc.)
Administrative Costs:
Property tax (Grundsteuer), building insurance, HOA fees (Hausgeld) for condos
Vacancy Reserves:
Budget for 1-2 months of lost rent per year for turnover periods
Real Example: Annual Operating Costs
€450,000 Property (€1,800/month rent):
- Property management (10%):€2,160
- Maintenance reserve (1.5%):€6,750
- Property tax:€1,275
- Building insurance:€450
- Vacancy reserve (1 month):€1,800
- Total operating costs:€12,435/year
Tax savings at 42% bracket: €5,223 → Net cost: €7,212/year
Operating Expense Ratio
Industry rule of thumb: Operating costs typically consume 25-40% of gross rental income:
- New properties: 15-25% (lower maintenance)
- Mid-age properties: 25-35% (typical)
- Older properties: 35-45% (higher repairs)
What's NOT Included
Operating costs don't include:
• Mortgage payments (that's financing cost)
• Acquisition costs (notary, transfer tax)
• Major renovations (these add to property basis)
• Utilities paid by tenant (Nebenkosten)
Minimizing Operating Costs
- Self-manage: Save 8-10% by handling tenant relations yourself (not recommended for first property)
- Buy newer properties: Lower maintenance in first 10-15 years
- Screen tenants carefully: Good tenants = less turnover = lower vacancy costs
- Set aside maintenance reserves: Avoid surprises and forced sales
Related Terms
Deductible Expenses(Werbungskosten)
Werbungskosten are expenses related to earning rental income that you can deduct from your taxable income. This includes mortgage interest, repairs, property management fees, insurance, and more.
Net Rental Yield(Netto-Mietrendite)
Net rental yield is annual rental income minus all expenses, divided by property value. It gives a realistic picture of cash return. Typical German yields: 2-5% net.
Property Management(Hausverwaltung)
Property management (Hausverwaltung) companies handle tenant relations, rent collection, maintenance, and legal compliance. Fees typically 8-15% of rental income.