Use of Credit vs. Equity

Hello everyone,

I am 41 years old and have an offer to purchase the rental apartment I currently live in myself in Stuttgart (98 sqm in the best location) from the owner.
We have currently agreed on a purchase price of 620,000 EUR, which should be a normal price for the location.
Only the usual additional purchase costs would be added, but no broker fees or the like.
The monthly homeowner’s association fee is about 100 EUR – each owner forms their own reserves.

The rent is currently 1250 EUR plus gas and electricity.
This is relatively low; a rent of 1750 EUR (18 EUR/sqm) would certainly also be conceivable.

However, the situation is such that I/we will certainly not live in this apartment much longer (rather 2-3 years).
After that, we would like to move to a larger property (larger condominium, semi-detached house, or single-family home).
This new project would certainly cost >1 million, rather 1.5 million EUR in the Stuttgart area.

My sole monthly basic annual salary is currently in the five-digit range (net); a significant annual bonus is added.

At the moment, my equity would be enough to buy the above-mentioned apartment directly – but then the equity would also be "used up."

The question is:
What is the smartest approach given the fact that a change is imminent?

1. Buy the above-mentioned apartment at all?
2. Then sell or rent out the above-mentioned apartment when moving to a larger property? How can it then be incorporated into the next project?
3. Finance with the entire equity or via credit or a mixture of both so that the installment possibly equals the future rent or similar?

Any other tips?

Thank you very much.

Best regards,

Whether you want to buy the apartment is up to you. Buying the apartment with a loan and renting it out would be the best option financially. Your tax advisor can tell you more.

I would also finance more than I put in as equity. Later, your equity counts more for the house financing than a "rent" that could disappear. In case of emergency, you can always sell again… because no one knows what will happen later.

Will it still cost 620k in 3 years? Interest rates are rising at the moment.

The purchase price amounts to 41 annual rents (current rent) without consideration of the service charges or purchase incidental costs. Can one really demand much more than €1250? I always find it strange when a significantly higher rent could be charged, but it is not done. In the worst case, the rent control law interferes. Caution is advised.

So before you just let the money waste under the mattress, paying in cash is certainly the better option. If the money is invested and generates a good net return, financing is probably better. I recommend consulting an advisor regarding financing. Then you can calculate at what amount of equity the best still reasonable interest rate is achieved. The decision whether or not remains up to you. Depending on which life plan you follow.