Buy or rent?
Compare two paths in Germany: buy a flat, or rent and invest the same money. Each year, whichever path costs less invests the difference. Purchase taxes, running costs, moves and tax on investment gains are included.
Here all growth rates move together: price growth 0.5–2.5%, investment return 4.5–7.5%, market rent growth 1.5–2.5%. When price growth and return move apart, the spread is much wider, see “What would flip the result”.
Wealth over time
BuyRentMarket up/downNet wealth if you sold the flat or cashed out that year, after selling costs, the remaining loan and tax. Bands: whole market up or down. Dashed line: buying pulls ahead for good.
What would flip the result
Break-even after 30 years, with your other inputs unchanged:
- Price growth
- 1.2% per year (you entered 1.5%)
- Investment return
- 6.3% per year (you entered 6.0%)
| 0.5% | 1.5% | 2.5% | |
|---|---|---|---|
| 7.5% | −281 | −166 | −13 |
| 6.0% | −82 | +33 | +186 |
| 4.5% | +57 | +172 | +325 |
Line: break-even. Dot: your inputs. Dashed box: scenario range, detailed in the table. Click the chart to try other values.
Where the money goes
SpentStays yoursAt purchase Both start with €40,000
Renting keeps all €40,000 invested. Buying spends €34,710 on purchase costs. Sold the next day, the flat would not cover the loan and selling costs: you would still owe €8,210. So buying starts €48,210 behind.
Spent each month: €1,420 when buying, €1,298 when renting. Buying also repays €501 of the loan, which stays yours as equity. In total, buying needs €623 more per month. Renting invests €623 of it.
Yearly spending
- Buy: renovations in year 12 (≈ 25 k€), year 24 (≈ 32 k€). Loan paid off in year 27.
- Rent: you move in year 8, 15, 22, 29. Each move costs about €4,000 plus inflation and resets rent to the market level. Rent in year 30: €2,209/mo, or €1,925 without moving.
How it's calculated
- Both paths start with your own cash (Eigenkapital). Buying pays the purchase costs from it first, since banks don't finance them; the rest goes into the flat as down payment. Renting invests all of it.
- Each year, the cheaper path invests the difference, in the share you choose. Loan repayment is always paid. So the less you invest, the better buying does: repayment is forced saving, investing is optional.
- Investment gains are taxed at about 18.5%: 26.375% Abgeltungsteuer (with solidarity surcharge) on 70% of gains, after the 30% Teilfreistellung for equity funds. Part of the tax is due every year as Vorabpauschale: on 70% of a Basiszins return (assumed 2.5%) on the portfolio, capped at the year's gain. The rest is due when you cash out.
- Loan repayment is not a cost: the money becomes your equity. The monthly comparison therefore sets interest, running costs and renovation reserve against cold rent and moving reserve.
- Running costs are what the owner pays on top: the building reserve, the rest of the Hausgeld a landlord can't pass on, property tax, repairs and other owner-only costs. Heating, water and other service charges (Nebenkosten) are paid on both sides alike and left out, so total Hausgeld is higher than what you enter here.
- Selling a home you lived in during the year of sale and the two years before is tax-free. The 10-year Spekulationsfrist applies only to rented-out property.
- The interest rate is fixed for the fixed-rate period (Zinsbindung). After that the loan runs at today's rate plus your rate change. The monthly payment stays the same, or rises if needed to keep repaying at least your repayment rate on what's left. With the default change of 0, the rate is in effect fixed for the whole loan. Early repayment fees (Vorfälligkeitsentschädigung) are not modelled.
- While you stay in a flat, rent rises at the rate for staying. When you move, it jumps to the market level and you pay moving costs. The Mietpreisbremse is not modelled.
- Only the renter moves. The owner stays for the whole time frame. If you would move anyway, for a job or family, the owner would also pay selling costs and a new round of purchase costs.
- Price growth should describe this flat as it ages. Price indices track homes of constant quality, so they overstate what an ageing flat gains; here, the reserve and renovations keep the flat up. Asking-price indices and the boom of the 2010s, driven by falling interest rates, are weak guides to the next 30 years.
- Renovations add a share of their cost to the flat's value. This extra value fades to zero over 15 years, so don't count it again in price growth. Running, renovation and moving costs rise with cost inflation.
- “Whole market up or down” moves price growth and investment return by your ranges, market rent growth by ±0.5 pp and rent growth for staying by ±0.25 pp, all in the same direction. The table under “What would flip the result” varies price growth and return separately, so its spread is wider.
- All amounts are nominal, not adjusted for inflation. Not included: interest on the rental deposit, the Sparer-Pauschbetrag.