The pros & cons
It’s probably the biggest purchase of your life, so how can you be sure that buying your own apartment is the right thing to do? Would it be simpler just to rent? This is not an easy decision to make, and comes with a vast number of arguments and points to debate. Here, we try to break down the main points, and present the pros & cons of renting vs. buying.
From a financial point of view, the argument between renting and buying it is not simply a straightforward comparison between monthly mortgage payments and monthly rental payments. When you make a payment towards your mortgage, some of that goes towards paying off the principal loan, which helps to build your equity in the property. Over time, as the value of the property increases, so does your equity in it. It will be a large initial outlay, but you stand to make more money in the end, assuming the market continues to grow steadily.
This means that, when you come to sell the property, you can either use the increased equity to buy a larger property, or take the cash out of the property and use it for other purposes. Renters, however, are helping the apartment building owner to build equity, instead of their own.
This build-up of equity can have downsides, however. When buying a property, you are tying up a significant amount of money in the purchase, money which could be used for other purposes, or for other investments. It is not easy to define or to calculate these potential opportunities, but you should try to take them into consideration when deciding whether to purchase, and what scale of purchase to make.
It might make sounder financial sense to keep some money in reserve, rather than using all your equity to buy the biggest property you can afford.
Additionally, renters do not need to concern themselves with varying interest rates, market fluctuations, maintenance costs and taxes. Renting is comparatively more straightforward. Owning a house requires some financial flexibility. You will need to have reserves for unplanned repairs, whereas renters will have these covered by the landlord or property owner. It is also important to bear in mind that transaction costs in buying property can be substantial. Sales commission, notary fees, property transfer tax, and legal fees all have to be paid by the purchaser, and these can total around 15% of the purchase price.
However, these costs will be recouped in the long run, by the increases in value and equity. The financial benefits of owning a property increase, the longer you stay in the apartment, so if you are thinking long-term, then buying makes sound financial sense.
But buying a property is not all about money and finances. The main personal reason for purchasing an apartment is a desire for stability, the opportunity to lay down some roots and make a more permanent home for yourself. This is done at the expense of a certain flexibility though. Renting gives you significantly more freedom to move at short notice, and more regularly.
However, this comes with its own drawbacks, namely greater instability. Rents can rise, or landlords can ask you to move out. Berlin has far stronger protection for tenants’ rights that most other cities, yet these are still concerns.
The other benefit of owning your own property is the freedom to do whatever you like to it. You can decorate it however you want, personalise it and truly make it a place of your own, in a way that you cannot with most rental properties. However, this freedom comes with the responsibility of keeping up with maintenance and repairs. Renting gives you no such obligations, but it also limits the amount you can do to make it feel like your own home.
At the end of the day, that’s what this is about; making a home. The emotional elements, and those determined by your lifestyle cannot be calculated using a formula, yet they still have a large bearing on your decision. Renting an apartment in a particular neighbourhood can make you feel a part of that community, but buying an apartment there makes you feel like you truly belong. You can plant roots in the area, buy your dream apartment, and make a real home for yourself and your family.
In keeping with its youthful nature and determination to live-in-the-moment, Berlin has traditionally been a renters’ city. However, this has been changing in recent years. Rents are increasing, competition for apartments is tougher, and people are beginning to think more long-term.
If you have the capital necessary for the down payment, closing costs etc., and if you plan to stay in place for a longer period, then buying an apartment is probably more worthwhile than renting. However, each case is different, and you need to analyse your own situation.