Glossary: IRR, DSCR, LTV, cash flow and more

ADR (average daily rate)

The average price a guest pays for one booked night.

Business assets

Property included in a self-employed person's business; selling a flat held as business assets is taxed even after 10 years.

Cash flow (cash flow)

Cash flow is the difference between money coming in (rent) and money going out (running costs, loan payment including principal, taxes and insurance contributions). Positive cash flow means the flat pays for itself with something left over. Negative means a monthly top-up from your own pocket. Appreciation is not part of cash flow because it is not money in your account.

Cash-on-cash (cash-on-cash return)

Cash-on-cash shows what percentage of your equity comes back to you in cash each year. Unlike IRR it ignores principal repaid and the gain on sale, so it is often low or negative for mortgaged flats even when the investment as a whole is profitable.

CNB (Czech National Bank)

The Czech National Bank; among other things it sets mortgage limits for banks and publishes the koruna exchange rate.

Depreciation

A flat is depreciated over 30 years (depreciation group 5); land is not depreciated. Depreciation can only be claimed with actual expenses, not with the flat rate. On a taxable sale the depreciation claimed is deducted from the purchase price, which increases the taxable gain.

Down payment (equity)

The money you put into the purchase yourself; the rest of the price is covered by the mortgage.

DSCR (debt service coverage ratio)

DSCR = operating profit (rent after running costs, before loan payments and tax) / loan payments (interest and principal). A value of 1.0 means the rent after costs exactly covers the payments. Banks usually want at least 1.2 for investment mortgages, i.e. a 20% cushion. Below 1 you top up from your own pocket, which is not necessarily a loss: repaying principal is saving into the flat.

DTI (debt-to-income)

DTI = total debt / annual net income. Since 1 Apr 2026 the Czech National Bank caps DTI at 7 for investment mortgages, i.e. debt of at most seven times annual net income. The related DSTI ratio compares monthly payments on all loans with monthly net income.

ETF (exchange-traded fund)

An ETF is an investment fund whose units are bought and sold on the stock exchange like shares. Global equity ETFs hold thousands of companies at once, charge low fees and have returned about 6-7% a year over the long run, with sizeable swings. Výnosometr calculates how much you would have if you invested the same money at the same times in an ETF instead of the flat.

Fixation period

The period during which the bank does not change the mortgage rate; afterwards the rate can go up or down.

Flat-rate expenses

A simplified expense claim as a percentage of income (30% for long-term, 60% for short-term rental) instead of documenting actual costs.

Gross yield

Gross yield is the simplest metric for quickly comparing flats and cities. It ignores costs, vacancy, the mortgage and tax, so the real return is usually much lower.

Holding period test

An individual pays no tax on the gain from selling a flat when more than 10 years pass between purchase and sale (5 years for flats bought before the end of 2020). An earlier sale is taxed at 15 or 23%. The test does not apply to a flat held as business assets of a self-employed person.

IRR (internal rate of return)

IRR is the annual interest rate at which everything you put in equals everything the flat gives back (cash flow from rent and net proceeds from the sale). It also accounts for timing: a koruna today is worth more than a koruna in ten years. That makes it directly comparable with a savings account rate or an ETF return. Výnosometr calculates IRR on equity, i.e. on the money you put in yourself, not on the full price of the flat.

Long-term rental (LTR)

A classic lease of a year or longer under the Civil Code, with one tenant and a tenancy agreement.

LTV (loan-to-value)

LTV = loan amount / property value as appraised by the bank. The Czech National Bank sets upper limits: generally 80% (90% for applicants under 36) and, since 1 Apr 2026, at most 70% for investment mortgages, i.e. for a third or further property or a flat bought to let. A higher LTV means a smaller down payment but higher payments and more risk.

Modified IRR (MIRR)

When years with positive and negative cash flow alternate, the IRR equation can have several solutions and none of them is meaningful. Modified IRR assumes that top-ups are financed and income is reinvested at a reasonable rate, and always returns one number. The calculator shows it only in that case and tells you so.

Net operating income (NOI)

Net operating income (NOI) shows what the flat earns on its own, regardless of how it is financed. Owners association payments, insurance, property tax, maintenance, management and, for short-term rental, cleaning and platform fees are deducted from rental income. Interest, principal and income tax are not. Net yield and DSCR are calculated from NOI.

Net yield

Net yield deducts running costs and vacancy from rent and divides the result by the price including one-off costs (legal fees, agency fee, furnishing). It shows the return of a flat bought for cash. When it is lower than the mortgage rate, borrowing tends to lower the return on your own money.

Occupancy

The share of nights in a year when the flat is booked; 70% means roughly 255 nights a year.

OSVČ (self-employed person)

Short-term rental with accommodation services (Airbnb, Booking) is a trade in Czechia and its income falls under section 7 of the Income Tax Act. On top of income tax, social and health insurance contributions are due, for a secondary activity only above a certain income threshold. A classic long-term let is not a trade and no contributions are due on it.

PENB (energy performance certificate)

The energy class is shown in sale and rental listings. Flats in classes F and G have higher heating costs and are harder to let; classes A to C mean low costs. For the return, the heating advances in the owners association statement matter most.

Pessimistic scenario

A stress test: prices grow at most 2% a year, the rate after fixation is 1 pp higher and the flat is booked less.

pp (percentage point)

The difference between two percentages: a rate going from 5% to 6% rises by 1 percentage point (i.e. by a fifth).

Principal

The borrowed amount excluding interest; each payment reduces it, so repaying principal is effectively saving into the flat.

Repair fund

The owners association sets the repair fund contribution, usually by floor area (often 20-40 CZK/m² a month). In older buildings facing a major renovation it can rise sharply, so check planned repairs and the fund balance before buying. The repair fund is a tax-deductible cost for the landlord.

s.r.o. (limited liability company)

A limited company; profit is taxed at 21% and another 15% when paid out to the owner as a dividend.

Short-term rental (STR)

Renting by the night via Airbnb or Booking; for tax purposes it is a trade providing accommodation services.

SJM (joint marital property)

Property acquired during marriage that belongs to both spouses jointly; rental income from such a flat is taxed by only one of them.

SVJ (owners association (HOA))

An SVJ is formed in a building divided into units and decides on repairs, insurance and management. The monthly SVJ statement usually includes an administration fee, the repair fund and utility advances (heating, water, lift, cleaning). In a long-term let the tenant pays the utility advances; the owner always pays administration and the repair fund.

Utility advances

Monthly advances for heating, water, lift and building cleaning; in a long-term let the tenant pays them on top of rent.

VAT (DPH) (value added tax)

A VAT payer charges 12% on accommodation and can reclaim VAT paid on costs. A non-payer charges no VAT on accommodation but must pay 21% VAT on the Airbnb and Booking commission, because it is a service from abroad. VAT registration becomes mandatory once turnover exceeds CZK 2 million a year. Long-term residential lettings are VAT exempt.

ZDP (Czech Income Tax Act)

Act No. 586/1992 Coll., which sets out how income from renting and selling a flat is taxed.

§ 10 ZDP (other income)

Other income; the gain on selling a flat belongs here unless the sale is exempt under the holding period test.

§ 7 ZDP (income from self-employment)

Business income; short-term rental as a trade belongs here, with a 60% flat-rate expense allowance and insurance contributions.

§ 9 ZDP (rental income)

Rental income; a classic long-term let belongs here, with a 30% flat-rate expense allowance and no social or health insurance.