Renting or buying – for whom is it worthwhile??

Renting or buying? This question is asked by many as rents continue to rise. In recent years in particular, interest rates have ensured that real estate has immediately come to mind when thinking about old-age provision. However, times have changed and the interest rate has been raised to 1.25%, which also increases the cost of a property. Still, it may make sense to buy a property instead of wiring the landlord the money every month. Whether it is worthwhile for you to buy a property depends on many different factors. We would like to show you here.

Renting or buying – for whom is it worthwhile?

Decisive parameters are above all the interest on the loan. But the increase in the value of the property or the return on your savings also play a major role. The lower the amount borrowed, the more favorable the interest rate. In addition, a rapid increase in value favors asset development.

As a rule, buyers of real estate are better positioned in terms of asset growth. Tenants, on the other hand, only come close to this asset growth if the savings deposit generates a high return.

Let's look at the development of the property's value, which of course also depends on its location. In recent years, real estate has been in high demand and the value of almost all real estate has increased. Even if it looks as if this will not change in the next few years, you should not forget that the energy costs are currently rising immeasurably. Nevertheless, it can make sense to buy a house or apartment, as you can increase the value of the property even if demand remains high.

Unfortunately, it is still the case that there are too few apartments and houses and more and more people are looking for. Therefore, the demand will probably also be high in the next few years, which will then lead to the fact that the high demand will remain. Interest rates as well as high energy costs, however, could cause demand to drop a bit. Therefore, they should carefully consider and calculate whether it is better for them personally to buy or to rent.

Are you the buying or renting type?

Before you ask yourself whether you want to rent or buy, you should first ask yourself what type of person you actually are.

1. Do you see yourself in the next decades as an owner or rather as a tenant??
   In particular, tenants who live in a multi-family house and have owners as neighbors can very quickly see the difference. While owners always have to take care of their property, tenants are quite carefree. Damage that occurs is usually covered by the landlords, the tenants do not have a bank breathing down their necks that wants the monthly loan installments, and the tenant can also turn to the manager or landlord for repairs.
2. Do you want to permanently reduce costs or accept further rent increases?
   Tenants must expect annual rent increases. Money they don't actually have much of. Owners, on the other hand, usually pay more for the loan installments in the beginning, but receive ownership in return. In addition, the costs become lower and lower towards old age, and in the case of a debt-free property, owners have costs of around 400 euros per month in old age. Tenants, on the other hand, often pay double.
3. Flexible or tied?
   If you own a house or an apartment, you are no longer as flexible as with a rented apartment. If you find a job at a different place of residence, you are much more flexible than if you own your own home. Whereby it must also be said that due to the high rents they are no longer as flexible as they were years ago.
4. Did they want to be carefree or have to take care of?
   You should also consider this question carefully. Because an owner must constantly take care of his property. Tenants, on the other hand, do not have these obligations, but are exposed to the benevolence of the landlord.

How expensive is renting or buying?

Real estate prices have risen significantly in recent years. Between 2010 and 2021 alone, prices for apartments and houses have more than doubled. This also means, of course, that you will have to provide some equity capital. Only in smaller towns or in the countryside have prices not risen so much. Nevertheless, you must ask yourself whether the purchase of property is still worthwhile. For many middle- and upper-income consumers, the prices are simply too high and the dream of owning a home is no longer so easy to realize.

Whether renting or buying is better depends on the one hand on the current monthly rent and on the other hand on the level of real estate interest rates. At the same time, it depends on how much equity you have available and, of course, on your preferences and long-term life decisions.

Brief overview buy or rent

You should buy when you..	You should rent if you are..
Would like to stay in the same place	want to be flexible about where they live
be able to bear the burden of owning a property well	having sleepless nights due to debt
have found an exceptionally good offer	you can hardly find a rented apartment without becoming poor
easily meet unexpected expenses, such as repairs	not being able to meet unexpected expenses
want to take care of your property	only need a roof over their heads

Beware of rent and purchase comparisons

Many people make a big mistake when they think about buying a house or apartment. They compare the rent with the bank rate and assume that if the bank rate is not higher than the monthly rent, it is worth buying a property.

But this is not correct, because the rent as well as the rate at the bank are only snapshots. For one thing, rents are rising almost every year, and for another, construction financing runs for several decades. Which option is the better one thus depends on the current purchase prices or rents, on the interest rates and also on their development in the coming years and decades.

If interest rates rise, demand falls

At the beginning of september, the ECB raised the lending rate from 0.75% to 1.25%. This means that demand falls because a property becomes so expensive. Nevertheless, you have to assume that rents will keep rising. Not only because of the extremely high energy costs, but also because of inflation. Landlords try to pass this on to the tenants and in the next few months many tenants will have their monthly rent increased. In this case, it may actually be worth considering a purchase if demand declines.

To calculate correctly, however, you should not compare rent payments with loan installments, but rent and purchase prices. The ratio of annual cold rents to purchase prices offered is an excellent gauge to filter out the price level for the region. This buy-price-rent ratio can be very helpful in getting an overview of prices and whether or not it is worth buying.

Here it is of course recommended that you look for a house that is similar to the apartment you want to compare. Here is a small example:

An apartment with a living area of 100 m² costs 240.000 euro. The cold rent, on the other hand, costs 10 euros per m². Thus it would be a cold rent of 1.000 euros a month and an annual cold rent of 12.000 euro. Converted this means that the purchase price is 20 times the rent. As a rule of thumb, the purchase price up to a factor of 20 is quite cheap compared to the rent. From a factor of 25, on the other hand, buying is expensive compared to renting.

Advantages and disadvantages of home ownership

Of course, there are advantages and disadvantages to buying a home. To give you an overview, here is a brief summary of the advantages and disadvantages of home ownership.

• You have a long-term asset accumulation for old-age provision, from which your children will also benefit.
• The stable value of assets is not diminished by inflation.
• There is a steady increase in value.
• You have a financial advantage because you live rent-free in old age.
• Since no landlord can terminate your lease, you have social security when you own a home.
• You also have tax advantages when renting out your property.
• If you sell the property, you will have the right to a refund after you have used it for your own purposes. If the property was rented out for ten years, tax-free proceeds.

• You must be prepared for many years of indebtedness.
• Costs for repairs and maintenance will be incurred.
• The assets are inflexible, as they are tied to the property.
• In the event of unemployment, illness or divorce, there is a high risk of having to sell the home and a loss of assets.

Conclusion

Whether you buy or rent depends on many different factors that you need to be aware of. It is especially important that you think carefully about whether you are the type to be able to sleep soundly with high debts or whether you are more likely to have many sleepless years. Because this is often a problem when consumers decide to buy a residential property. The emotional stress caused by high debts is not to be underestimated.

At the same time, you should have sufficient equity capital so that the loan installments are not too high and you don't have to turn over every cent several times over. After all, they also have to pay for all repairs and maintenance. If you then live at the minimum due to high monthly installments, you will have difficulties to raise the additional costs.