October 13, 2024, 4:19 am | Read time: 4 minutes
It’s well-known that you can lease cars. But did you know it’s also possible to lease real estate? This model offers a kind of “try-before-you-buy” living arrangement with the option to purchase the property later. What does this mean in practice, and what should potential buyers be aware of?
You can not only rent or buy real estate–you can now also acquire it through leasing. This model works similarly to car leasing: Customers can lease a house or apartment for a certain period and decide later whether they want to buy the property. Currently, the offer for private customers is still quite limited, with only a few providers in the market. However, the model offers some advantages for specific target groups.
How Real Estate Leasing Works
Real estate leasing allows you to acquire a house without taking out a traditional construction loan. Instead, the lessee pays monthly installments to the lessor, usually a bank subsidiary or financial service provider. During the contract period, the lessee has similar rights to an owner but must also cover ongoing costs such as insurance, maintenance, and repairs.
“Real estate leasing works similarly to car leasing,” says Michael Neumann, CEO of the financial service provider Dr. Klein. The lessor, usually a bank subsidiary, provides the lessee with a property for a contractually agreed period. The lessee pays a monthly leasing rate during the contract term.
At the end of the contract term, the property either remains with the lessor or transfers to the lessee’s ownership. “It’s essentially similar to renting, but with an additional purchase option,” says Neumann. “Since it’s usually not possible for renters to buy the rental property later, this leasing model offers that flexibility to interested parties.”
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Who Is Real Estate Leasing For?
A major advantage of real estate leasing is that no equity is required. According to Neumann, this model is particularly suitable for people with high incomes who cannot or do not want to contribute equity. However, Neumann notes that this is a relatively small market segment, as this situation does not occur often.
The offer is particularly interesting for young people or couples who are unsure if they want to stay in the property long-term. “The model could be conceivable for a young couple just starting their careers and earning above average,” says Dirk Scobel, a mortgage expert at the Hamburg Consumer Center. But he also knows the risks, as there are many uncertainties in this phase of life. The expert advises ensuring that the lease contract has the shortest possible term and can be terminated flexibly.
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Leasing Is Often More Expensive Than Buying
An important point potential lessees should consider: Real estate leasing is generally more expensive than a traditional purchase. “After all, there’s another partner involved, namely the lessor, who has acquired the property. And they want to be paid too,” explains Scobel. Additionally, the future purchase price of the property is usually set at the beginning of the contract. Often, the price is above the current market value, as an increase in the property’s value is expected.
“The assumed increase in value is the lessor’s return,” says Neumann. However, whether the property actually appreciates is uncertain. While the agreed price for the buyer at the end of the lease contract could be cheaper than the market value, it is usually higher.
Is Real Estate Leasing Worth It for Private Customers?
For private customers, real estate leasing is rarely worthwhile, as experts unanimously emphasize. Companies, on the other hand, can benefit from economic advantages, such as preserving equity and the ability to deduct leasing rates for tax purposes. “These classic advantages of leasing models do not apply in the private sector,” says Scobel.
Neumann advises private customers to calculate carefully in advance. “Especially high earners with good credit can finance their desired property one hundred percent through the bank, plus, if necessary, parts of the ancillary acquisition costs. This is usually cheaper in the end.”
Scobel also points out that it is often more sensible to seek support from family in the absence of equity rather than entering into a lease contract. With two good incomes, it is often possible to build up a financial cushion over a few years to finance the property traditionally.
With material from dpa