There are different ways to get an apartment or a house. The most common are rental and purchase. A new offer for private customers is now being launched: real estate leasing. Similar to a car, real estate can initially be leased before the customer decides whether or not to buy the house or apartment later. Overall, there are so far only very few providers that operate in this niche.
Installments instead of a loan for the house
Leasing is a way to purchase a property without traditional construction financing. The future user of the property does not have to take out a loan, but rather pays fixed monthly installments. He has the same rights as an owner, but must also pay for insurance, maintenance and repairs.
“Real estate leasing works in a similar way to vehicle leasing,” says Michael Neumann, CEO of the financing service provider Dr. Small. The lessor, usually a subsidiary of a bank, gives the lessee a property for a contractually agreed period of time. This pays a monthly leasing rate for the duration of the contract.
After the end of the contract term, the property either remains in the possession of the lessor or the property becomes the property of the lessee. “In principle, it is similar to renting, but with an additional purchase option,” says Michael Neumann. “Since it is usually impossible for tenants to buy the rental property later, interested parties can afford this flexibility with the leasing model.”
Living on trial
One advantage of leasing is that customers do not need any equity. “It’s something for people with high incomes who can’t or don’t want to contribute any equity,” says the construction financing expert. “However, something like this doesn’t happen often. The market segment is correspondingly small.”
The offer is aimed at customers who are potentially willing to buy but do not yet know whether the property is really right for them. Or those who are planning to move in the coming years. As a rule, the recipients are young people who want to live in their own property on a trial basis without having to make a final decision.
“The model would be conceivable for a young couple who are just starting their careers and earn above average,” says Dirk Scobel, construction financing expert at the Hamburg Consumer Center. However, you shouldn’t be tied to the lessor for too long, because there are many uncertainties in this phase of life: Will you stay in place, are you planning to have children, do you have to change jobs? “It is advisable to conclude the leasing contract with as short a term as possible and to ensure that it can be terminated.”
Leasing is more expensive than classic purchase
And: Leasing is usually more expensive than buying a traditional property. “It’s a simple calculation,” says Dirk Scobel. “After all, there is another partner on board, namely the lessor who purchased the property. And he wants to be paid.” As a rule, the future purchase price for the property is agreed upon at the start of the contract. In most cases this is above the current price because it is assumed that the value of the property will increase.
“The assumed increase in value is the lessor’s return,” explains Michael Neumann. Of course, today no one knows how the real estate market is developing. Customers can be lucky and the agreed price at the time of purchase is lower than the then current market price. But in most cases the purchase price will be higher because the lessors build in financial buffers.
Hardly worth it for private customers
Real estate leasing is hardly attractive for private customers – in contrast to companies that can derive business benefits from it. With this model, companies save their equity and can use it for other investments. You can also deduct the leasing payment from taxes as a business expense. “These classic advantages of leasing models do not apply in the private sector,” says Dirk Scobel.
Michael Neumann recommends that interested parties do their math carefully before deciding for or against real estate leasing. “Especially high earners with a high credit rating can finance their dream property 100 percent through the bank, plus, if necessary, part of the additional acquisition costs. The bottom line is that this is usually cheaper.”
Dirk Scobel also advises against it. “If the lack of equity is the only argument for opting for a leasing contract, it is better to ask the family whether someone can advance the money.” With two good incomes, you should be able to build up your own financial cushion in a few years to finance the property in the traditional way and pay off the family loan.
