How much does an annual rent cost

Purchase price factor

The purchase price factor is a key figure for evaluating the profitability of real estate investments. Also called a duplicator, the purchase price factor relates the investment costs to the expected income.

Purchase price factor - what is it?

Many households dream of owning their own home, but concrete gold is a popular asset class for investors. Instead of a homely feel-good atmosphere, the focus is on numbers and factors - above all the real estate return.

While the real estate return primarily shows what profit you can generate over a longer period of time, the multiplier compares the purchase price with the income.

The purchase price factor, which is easy to determine, then tells us how many years a property would theoretically have had to refinance itself. This period is often 15 to 20 years. In popular city locations, however, multipliers from 40 upwards are also possible.

Calculate the purchase price factor

You can calculate the purchase price factor in a few seconds using this simple formula:

Purchase price factor = purchase price of the property / initially achieved annual rent

Example: A condominium in Hamburg with 3 rooms costs € 300,000 with an annual rent of € 11,000. The calculation of the purchase price factor is as follows:

€ 300,000 (purchase price) / € 11,000 (annual rent) = 27 (purchase price factor)

The purchase price factor is primarily dependent on the location of a property. Because this determines what rents residents are willing to pay and, in turn, what prices investors accept. In Hamburg, for example, factors below 20 are rarely found, while lower multipliers below 10 are also possible in more rural regions.

Significance of the purchase price factor

With the purchase price factor, you consider the annual rent in relation to the purchase price. This important key figure is particularly useful when you first look at an investment property. Thanks to the simple calculation, you can quickly estimate how lucrative an investment would be.

Finally, the purchase price factor answers a central question: You can see at a glance how many years your property will have to generate rental income in order to pay off the entire purchase price.

You can also use the purchase price factor the other way around and quickly estimate the selling price of a property based on rental income. Simply multiply the achievable rent by a typical regional purchase price factor.