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purchase or lease costs
Are you facing the decision to buy a property or lease land? The long-term <strong>buying or leasing costs</strong> can vary significantly and greatly impact your financial future. This article highlights the crucial factors for your choice.
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The incidental costs of purchase can amount to 10-15% of the property purchase price and must be factored in early.
The ground rent is usually 2.5-5% of the property's value per year and may increase over the term.
In the long term, buying a property can be more advantageous for building wealth despite high initial costs than renting.
The question of whether buying or leasing is the more advantageous option concerns many prospective property owners and investors. Both models have specific cost structures and long-term financial implications. There is no one-size-fits-all answer, as the optimal decision depends on your individual situation, financial possibilities, and goals. This article thoroughly analyzes the costs of buying or leasing and helps you make an informed decision. We consider both the immediate expenses as well as ongoing commitments and potential value developments.
The purchase of a property involves significant one-time costs that go beyond the mere purchase price. These so-called ancillary purchase costs can quickly amount to 10% to 15% of the purchase price. The main items include the property transfer tax, which varies depending on the federal state, as well as notary and land registry fees. For a property valued at 300,000 euros, additional ancillary costs of up to 45,000 euros may arise. Accurately calculating these expenses is crucial for a solid property financing. These initial investments are an important factor in comparing the costs of buying or leasing. Knowing all the incurred amounts precisely protects against unpleasant surprises.
In addition to the one-time additional purchase costs, property owners regularly incur recurring costs. These include interest on mortgage financing, which, despite historically low phases, can currently be around 3% to 4%. In addition, there are maintenance reserves, for which experts recommend at least 1 euro per square metre per month. For a 100 m² house, this already amounts to 1,200 euros annually. The annual property tax is also a fixed item. These ongoing expenses must be considered when assessing the purchase or lease costs in order to realistically assess the long-term financial burden. A detailed property cost valuation report can provide clarity here.
Leasing, particularly in the form of leasehold, represents an alternative to purchasing land. In this case, the land is not bought but rented for a long period, often 50 to 99 years. A so-called leasehold rent must be paid for this. It usually amounts to about 2.5% to 5% of the land value annually. For a land value of 100,000 euros, this could be 2,500 to 5,000 euros annually. An advantage is the lower initial capital requirement, as the land purchase price is omitted. It is important to carefully review the terms in the lease agreement and its usage possibilities. The costs of buying or leasing differ here mainly in the initial investment amount. Long-term planning is particularly relevant in leasing models.
An important aspect of leasehold is the potential adjustment of the ground rent. Many contracts include value protection clauses that link the rent to general price developments. Legally, an increase is possible every 3 years after the contract is signed and thereafter every 3 years following the last increase. The increase must not be "unreasonable" and should not exceed general economic development. However, in old contracts without clear clauses or where rents have not been adjusted for a long time, significant increases, in extreme cases by a factor of 10 or more, can occur. These potential cost increases are a key point when weighing up the costs of buying or leasing. A thorough examination of the risks and opportunities of leasehold properties is essential. This can influence long-term financial planning.
The decision between buying and leasing heavily depends on the individual situation and the time horizon. Purchasing involves high initial costs, but once the loan is repaid, the monthly burden is limited to ancillary costs and maintenance. Leasing has lower initial costs, but lease interest accumulates over the entire period. For example, a property priced at €391,000 (purchase price) plus €48,000 in ancillary costs could incur total expenses of around €730,000 over 27 years. A comparable rental property (similar to leasing) with a monthly rent of €1,231 and an annual increase of 1% would reach the same total amount in approximately 41 years. In the long run, buying can be cheaper if you remain at the same place for a long time. Weighing the costs of buying or leasing requires careful calculation of all factors. Special considerations apply to specific uses such as leisure plots for lease.
Here is a comparison of the main aspects:
Buying: High initial investment, asset building, greater flexibility in design, and potentially lower long-term housing costs.
Leasing/Hereditary Lease: Lower initial investment, ongoing lease interest costs, less responsibility for the land, commitment to the lease contract.
Purchasing ancillary costs: Real estate transfer tax (varies, e.g., 3.5% - 6.5%), notary (approx. 1.5%), land registry entry (approx. 0.5%), broker (often 3.57% - 7.14%).
Ongoing purchasing costs: Maintenance (approx. 1-2% of property value per annum), property tax (municipality-dependent), financing costs.
Leasing costs: Hereditary lease interest (often 2.5-5% of land value per annum), possible adjustments, ancillary costs for the land.
These points illustrate that the decision is very individual.
The costs of land vary significantly in Germany and greatly influence the purchase or lease costs. On average, a square metre of land cost about €254 in 2023. This represents an increase of almost 90% compared to 2013, when the price was €134/m². In major cities like Hamburg, prices can exceed €1,000/m², while in more rural areas like Thuringia, they can start at less than €100/m². Munich shows peak values with an average of €2,900/m². These price differences directly affect the level of ground rent or purchase price. Anyone considering leasing a property should closely examine the local standard land values. The development of land prices is an important indicator of the profitability of your decision.
When comparing the purchase or lease costs, the aspect of wealth creation plays an important role. Purchased properties represent an asset that can increase in value. Even though renting or leasing may initially seem cheaper, the money goes to the landlord or lessor without building your own assets. With a moderate increase in property value of only 1% per year and rising rents, a buyer's financial position may already be better than that of a renter/lessee after about 10 years. Therefore, buying a property is often a long-term investment in your own financial future. The decision on whether to rent or lease a plot of land or purchase it should take this aspect into account. Special considerations regarding value stability apply to specific living arrangements such as tiny houses on leased land.
The decision between buying and leasing is complex and depends on many individual factors. There is no universally correct answer to the question of the optimal buying or leasing costs. A thorough analysis of your financial situation, your long-term plans, and local market conditions is essential. Consider both the one-off acquisition costs and the ongoing expenses, as well as potential value developments. A professional, data-driven evaluation by Auctoa or advice from our ImmoGPT chat can help you gain clarity and develop the strategy that suits you. This way, you make an informed decision for your future.
Statistisches Bundesamt offers data on construction prices and the real estate price index.
Deutsche Bundesbank provides an indicator system for the residential property market.
Statistisches Bundesamt offers tables on house and land prices.
Sparkasse provides information on the additional costs involved in purchasing property.
Immowelt provides information on lease agreements.
Dr. Klein compares renting and buying properties.
ZIA presents a forward-looking study.
What are the one-time costs involved when buying real estate?
When purchasing real estate, additional costs arise besides the purchase price, such as property transfer tax (depending on the federal state, 3.5% - 6.5%), notary fees (approx. 1.5%), land registry fees (approx. 0.5%), and potentially broker commission (often between 3.57% and 7.14% including VAT).
What are the ongoing costs for a leased property/plot of land?
The main costs are the lease or ground rent. Additional costs may include property tax (often included in the lease), insurance for the property, and possibly maintenance costs for the property, depending on the contract arrangement.
How long do leases for plots of land usually run?
Long-term lease contracts often have very long durations, typically between 50 and 99 years. Shorter lease contracts are common for other types of leases (e.g., agricultural leases, recreational land) and vary significantly.
Can the lease rent be increased during the contract term?
Yes, in long-term lease contracts, adjustments to the lease rent are common, often linked to price indices (value protection clause). Legally, adjustments are possible every 3 years, provided they are contractually agreed and not unreasonable.
What advantages does leasing offer compared to buying?
The main advantage of leasing is the lower initial capital requirement, as the high purchase price for the land is eliminated. This can make access to a property easier, especially in expensive areas.
What advantages does buying offer compared to leasing?
Purchasing leads to ownership and allows wealth accumulation through appreciation and amortization. Owners have full creative freedom and are independent of a lessor. In the long term, living costs can decrease once the loan is repaid.
