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? 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 benefits of buying an apartment.
If you’re looking for a home of your own, then you have two choices: buy or rent. From a financial point of view, the argument between renting and buying an apartment 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.
However, a competing factor to consider is the opportunity cost. 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 they should be taken 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.
Mortgage costs are the main expenses for owning a home. They tend to be much larger than maintenance expenditure, even on older homes. So even if it makes sense from a wealth-building perspective to buy your home, you don’t want to spend all your wages on your mortgage. Luckily this is rarely an issue. German mortgage rates are among the lowest in the world, largely thanks to the conservative nature of German lending and low Euribor rates.
With an eye on the property market and future returns, check out why buying an apartment in Berlin as an investment could make financial sense.
When it comes to additional costs, renters do not need to concern themselves with varying interest rates, market fluctuations, maintenance costs and taxes. Owning a house requires some financial flexibility, and it is 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. If you decide to stay for only a short period, it is not worth buying an apartment in Germany, unless you plan to rent it out after you leave. But if you are thinking long-term, then buying makes sound financial sense.
Read more about the fundamentals of financing here.
*EverEstate does not charge a commission on any of its properties.
Buying an apartment 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. You are free to renovate it at your own leisure, and bring it up to the standards you determine. 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. Likewise, this is all done at the expense of a certain flexibility. Renting gives you more freedom, and the ability to move at short notice and more regularly.
Yet not owning your apartment brings with it greater instability. Rents can rise, or landlords can ask you to move out. Germany has far stronger protection for tenants’ rights that many other countries, yet these are still concerns.
At the end of the day, this is about making your house 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.
Check out our Berlin neighbourhood guide to find your dream apartment in your ideal location.
Many German cities, such as Berlin and Leipzig, have traditionally been renters' cities. In fact, in Berlin around 85% rent their homes, rather than own them. However, a confluence of factors has been causing this popularity for renting to change 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.