Leasing instead of Buying: 7 Financial and Strategic Advantages for Real Estate Owners and Investors
Is buying a property always the best decision? Leasing often offers superior financial flexibility and can increase your return on investment by up to 5%. Discover how you can leverage the strategic advantages of leasing for your portfolio.
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The topic briefly and concisely
Leasing preserves liquidity, as high acquisition costs are eliminated and lease interest is tax-deductible as business expenses.
Landlords secure stable, predictable income through long-term contracts while simultaneously benefiting from the increase in the value of their property.
Unlike renting, leasing allows the lessee to 'derive benefits', i.e., to generate profits from the leased property (§ 581 BGB).
Wondering how to maximise the value of your properties without selling them? Leasing is an often underestimated alternative that represents much more than just granting usage rights. Unlike renting, leasing allows the lessee to generate economic returns – the so-called 'usufruct' under § 581 BGB. For owners and investors, this means a world of strategic opportunities: from securing long-term income and increasing the value of their own portfolios to significant tax benefits. This article shows you how lease agreements can help you achieve your financial goals faster.
Financial Flexibility: Lower Capital Commitment for Tenants
One of the biggest advantages of leasing is the significantly lower initial investment compared to buying. Instead of spending six or seven-figure sums on acquisition, only the lease payment is due, which can preserve liquidity by over 90%. These released funds can be directly channeled into the core business or other high-yield investments. Leasing enables start-ups and expanding companies to access prime locations that would otherwise be unattainable. The legal foundations for this are clearly laid out in the Bürgerliches Gesetzbuch (BGB). This financial agility is a decisive competitive advantage in a volatile market environment.
Stable and predictable income for lessors
For property owners, leasing unused property transforms it into a steady income source. Lease agreements are often concluded for several years, sometimes even decades, ensuring a high degree of planning security. This long-term commitment secures a continuous cash flow, which often amounts to 3-5% of the property's value per year. In contrast to short-term rental agreements, long lease terms significantly reduce the administrative burden and the risk of vacancies. This way, the owner retains possession of a valuable asset that generates stable returns without active involvement. The exact conditions can be detailed in a lease agreement regarding usage options.
Tax benefits: Deduct lease interest as a business expense
A key advantage of leasing lies in the tax treatment of the payments. For the lessee, the lease payments are fully deductible as operating expenses. This reduces the taxable profit and directly lowers the tax burden, which can cut the net cost of usage by up to 30%. In contrast, a buyer can only claim depreciation (AfA) on the building, but not on the land. Here is a list of typically deductible costs:
Ongoing lease payments
Possible advance payments
Maintenance costs (depending on the contract)
Insurance for the leased asset
This tax deductibility makes leasing an extremely efficient tool for cost optimisation. The exact structuring of the lease agreement is crucial for maximising these potentials.
Legal certainty and contractual freedom of design
Unlike fixed-term rental agreements, lease agreements offer a wide range of flexibility. Sections 581 et seq. of the German Civil Code (BGB) provide the framework, but details such as duration, rent adjustments, and maintenance obligations can be individually negotiated. This allows for tailored solutions that meet the interests of both parties. A clearly formulated contract minimizes the risk of disputes regarding "proper management." A leasehold right registered in the land register even protects the lessee in the event of a sale of the property. This security is particularly important for long-term investments, as is common with a hereditary building right property.
Risk minimisation and strategic utilisation of prime locations
Leasing enables companies to utilise locations without bearing the full entrepreneurial risk of acquiring property ownership. This is particularly advantageous in the hospitality industry or for specialised agricultural businesses, where success heavily depends on location. Instead of tying up capital in a property whose value may fluctuate, the lessee remains flexible. The following points illustrate the risk diversification:
Market Risk: The lessee is not affected by the property's value development.
Flexibility: At the end of the contract, the location can be changed without sales losses.
Focus: Capital is used for operational business rather than invested in bricks and mortar.
No Maintenance Burden: Major repairs to the building usually remain the responsibility of the owner.
This strategic risk distribution makes leasing a smart tool for sustainable growth. The advantage is particularly evident with tiny houses on leased plots.
Increase in property value without the pressure to sell
For landlords, leasing offers an elegant way to benefit from the long-term appreciation of land and property, while simultaneously generating income. A property in a promising location can double its value over a period of 20 years, without the owner needing to take any active steps. The tenant often contributes indirectly to the attractiveness and hence the value of the property through their investments in operations and maintenance. This way, the landlord benefits twice: through the lease payments and the increase in value. This is a key aspect when deciding between buying or leasing from an owner's perspective. Unsure of what your property is worth? A professional valuation by Auctoa or a conversation with our ImmoGPT can quickly provide clarity here.
vorteile-pacht
The decision between leasing and buying is not merely a matter of preference, but a strategic choice with significant financial implications. The advantages of leasing – from conserving liquidity and tax optimisation to risk minimisation – make it the superior choice for many tenants and landlords. It allows for flexible responses to market changes and the deployment of capital where it promises the highest return. Careful contract design is the key to unlocking its full potential. Thus, leasing is far more than just an alternative to buying; it is an intelligent tool for forward-looking property management.
Additional useful links
Wikipedia offers a comprehensive overview of leasehold law.
The Federal Statistical Office (Destatis) explains leasehold law in the context of earnings and professions.
The Federal Statistical Office (Destatis) provides a downloadable PDF publication on earnings indices and leasehold interest rates.
The Federal Statistical Office (Destatis) provides information on the consumer price index and its methodology.
The Federal Statistical Office (Destatis) offers explanations about earnings indices and contracts.
Haufe examines leasehold rights from an investor's perspective.
The NWB Verlag provides a database entry on leasehold law covering legal or tax aspects.
The PSD Bank Rhein-Ruhr provides information about leasehold law from a banking perspective.
FAQ
What are the advantages of leasing for me as a tenant?
As a lessee, you benefit from a low capital commitment since you don't have to purchase the property. Additionally, lease payments are often tax-deductible as operating expenses. This provides you with financial flexibility and enables investments in your core business.
What advantages do I have as a lessor?
As a landlord, you generate regular and long-term secure income without having to give up ownership of your property. You continue to benefit from the appreciation of the land and have low administrative costs due to long contract durations.
Is a lease agreement legally secure?
Yes, lease agreements are regulated in the German Civil Code (§§ 581 ff. BGB) and offer high legal security when carefully structured. For maximum protection, especially in the event of a change of ownership, lease rights can be registered in the land register.
What happens if the leased property is sold?
As a general rule: Purchase does not break lease. The lease agreement is transferred to the new owner, who is bound by the existing agreements. A leasehold right registered in the land registry offers the highest security for the leaseholder in this case.
How can Auctoa assist with leasing?
Auctoa can assist you in determining a market-based and fair rental price with a data-driven property evaluation. Additionally, our ImmoGPT chat can quickly and impartially answer initial questions about the potential and risks of your specific property.
Can I build on leased land?
Yes, this is the essence of the right to build, a special form of leasehold. You lease the land and construct your building on it. You become the owner of the building, while the land remains in the possession of the lessor (the building rights grantor).
