Building and Letting an Apartment Building: Return, Tax, Process 2026
Building and letting an apartment building is an investment decision that hangs on return, tax and financing. This guide shows in outline how gross and net return result from construction costs and annual rent, classifies declining-balance depreciation and Section 7b of the Income Tax Act qualitatively and explains the peculiarities of object financing with pre-letting and equity. All calculations are simplified model calculations without investment or tax advice. As of 2026.
Short answer: Building and letting an apartment building hinges on three levers: the yield from build costs and rent, tax depreciation and the object financing. This page shows the calculation logic in its basics, classifies declining-balance depreciation and Section 7b of the Income Tax Act (§ 7b EStG) qualitatively, and explains pre-letting and equity. All numerical examples are simplified model calculations and not investment advice. As of 2026.
Yield in its basics: the calculation logic
The economic viability of a let apartment building follows from the ratio of the total investment to the achievable rent. The gross rental yield divides the annual net cold rent by the total investment and provides an initial orientation. More meaningful is the net yield, which takes management costs and financing into account. The following example is deliberately simplified and serves only to illustrate the logic. All values are assumed and deviate considerably from real projects.
Simplified model calculation for the gross rental yield – all values assumed, not a real calculation and not investment advice (as of 2026).
| Item | Assumption (example) | Calculation step |
|---|---|---|
| Total investment | assumed | plot, build, ancillary costs |
| Living space | e.g. 400 m² | several residential units |
| Annual net cold rent | area × local rent | cold, without ancillary costs |
| Gross rental yield | annual rent ÷ investment | initial orientation |
| Management costs | to be deducted | administration, maintenance, vacancy |
| Net yield | after costs and financing | more meaningful metric |
Simplified model calculation, not investment advice
This example only illustrates the calculation logic and does not replace investment or tax advice. Real yields depend on location, rent, fittings, interest level and tax situation. Have an investment checked by tax advice and the financing bank before the decision.
Declining-balance depreciation and § 7b EStG in their basics
For let residential space, tax law provides, besides straight-line depreciation, further instruments. Declining-balance depreciation allows higher depreciation amounts in the first years, which enlarges the initial tax effect. The special depreciation under Section 7b of the Income Tax Act (§ 7b EStG) can, under conditions, additionally be used for newly created rental housing. Both instruments are tied to conditions, such as construction-time windows, build-cost limits per square metre or an obligation to let. We do not name concrete percentages and deadlines, because they depend on the individual case and reference date.
Tax depreciation at a glance – only qualitative basics (as of 2026, binding: tax advice).
| Instrument | Basic idea | Condition (qualitative) |
|---|---|---|
| Straight-line depreciation | even depreciation over the useful life | building in business or private assets |
| Declining-balance depreciation | higher amounts at first, falling later | time- and use-related criteria |
| Special depreciation § 7b EStG | additional depreciation for new rental housing | construction-time window, cost limits, letting |
As of 2026, binding: tax advice
Whether and to what extent declining-balance depreciation and § 7b EStG can be used for a project depends on the individual case and the respective legal status. Binding information is given exclusively by tax advice. The combination with funding programmes is best checked together with tax advice and the financing bank.
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Object financing: pre-letting and equity
An apartment building is mostly considered as object financing: the bank assesses above all the economic viability of the object and the achievable rental income, not only the personal creditworthiness. It frequently demands a higher equity ratio than with an owner-occupied detached house and places value on solid pre-letting or a plausible letting concept. We do not name concrete interest rates, because they fluctuate daily. For larger volumes, additional particularities apply that a construction financing from €500,000 specifically takes into account.
- Draw up the letting concept early: pre-letting strengthens the negotiating position with the bank.
- Set the equity ratio qualitatively higher than with the owner-occupied house.
- Plan a buffer for additional claims, increased build costs and the first letting phase.
- Document the object's income value and the local rent solidly.
- Coordinate the interest and repayment structure with the financing bank on a project basis.
Prefab house as a construction method for let objects
As a prefab house, an apartment building can be erected with a high degree of prefabrication and a plannable construction time, which can shorten the time until the first rental income. For investors, above all the economic viability per residential unit counts, which can be kept plannable through coordinated fitting standards. All models run under "price on request" because they are calculated on a project basis. Whether an object pays off only shows itself with real plot, build and rent values. An overview of the object type is offered by the page on the apartment building as a prefab house. How to realise such an object step by step is described by the guide building an apartment building.
Letting the large object vs. private capital investment – distinction (as of 2026). No ranking.
| Feature | Build and let apartment building | Private capital investment |
|---|---|---|
| Scale | whole object, several units | single unit |
| Financing | object financing | mostly single financing |
| Management | commercial management | lower effort |
| Risk spreading | over several tenancies | concentrated on one unit |
Anyone looking only for one unit as a private asset building block will find the suitable perspective in the guide prefab house as a capital investment. This page, by contrast, focuses on the larger object with several residential units, object financing and commercial management. Both guides do not replace individual investment or tax advice.
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The most common price questions around Building and Letting an Apartment Building – answered concisely by the Prefabricated House editorial team (as of 2026).
