Rational factors

From a financial point of view, there are a number of factors that need to be considered and compared in order for a comparison between renting or buying to yield reasonable results:

Ancillary or closing costs and other costs associated with the purchase of real estate in Germany

Consider land transfer tax, notary and court fees, and broker commissions if one is involved. These costs vary at the state level. This money is lost in the event of a resale.

Are there any costs for conversion, modernization and/or renovation?

Financing costs for the purchase of real estate

This factor is extremely important, since it can be a pro as well as a con for a purchase of real estate. Here, the term of the loan (in Germany typically 10 years) and the interest rate are crucial. As far as possible, you must calculate the total cost of financing in advance. Check with a good home loan consultant which rates apply, which term makes sense for you, which combination of own capital and loan suits your needs best. You will be able to save a lot of money across the term of financing. Also subsidized loans, such as the KfW 124 (home ownership scheme) can help reduce overall costs.

The amount of the monthly rent

What is the current monthly rent you are paying? Is it higher or lower than the proposed EMI by the mortgage consultant?

Rent increases

Do you expect rents to increase over the next few years? Landlords might increase rent over the couple of few years to increase his profit; so you need to take that into the equation as well!

Ongoing maintenance costs and other ongoing costs

As a property owner, maintenance costs will come your way on a regular basis. Things will break! Obviously exact amounts cannot be determined in advance, but the following rule of thumb can be used for the calculation: You set aside 1% of the purchase costs per annum. For example, if you have paid €500,000 as the purchase price, you set aside €5000 in maintenance & repair. I suggest to put this aside into a Tagesgeld account, which you have instant access to.

You will also have to pay property tax and insurance premiums (e.g. homeowners insurance).

Increase/decrease in value of the property

Consider the choice of location when it comes to the issue of appreciation or depreciation of the property. Popular areas might get more popular down the line and hence your property value might increase.

The equity capital used can no longer generate a return for you

In most cases, your equity is sensibly (see above) brought into the financing. This capital can no longer work elsewhere for and generate returns.

The difference between the EMI and the rent payment can also not generate income

If the financing rate is 900 € and the monthly rent 700 € , then theoretically the 200 € could be saved each month and generate profits (e.g. in a diversified portfolio). This factor is only relevant if the money saved is actually put aside and invested.

Emotional Factors

Good reasons for the own 4 walls are in addition emotional factors. Here, for example, the feel-good aspect, more space and freedom count. Freedom in the sense “I can do whatever I feel like within my own four walls”. On the other hand, own property will make it a bit more difficult to move across the country for another job opportunity – so it can be limiting as well.

For each con, there will be measures to mitigate, which we can discuss for your specific case.

Emotional factors can be measured badly in money.

Conclusion

When it comes to the question of buying or renting, there are couple of factors that need to be considered. Commercial as well as emotionals ones.

Your own home gives more personal freedom, whereas a rented apartment is more flexible if you’re still uncertain whether you want to settle or not.