Construction financing is a matter that should be thought through seriously. At some point along the way, the question arises as to whether your own property should be a house or an apartment. But are there differences in financing, and which option is better? This article provides clarity.
Houses: Often (but not always) more expensive
In many cases, the acquisition costs of a house are higher than those of an apartment. Of course, exceptions prove the rule here, as a large, luxuriously maintained loft can easily cost more. The location also determines the actual price in all cases:
- House in a rural location – a house in a more rural area that is not in high demand can be quite cheap. However, the low purchase price also implies a rather low value for the house. If demand does not change, the property can only be resold under poor conditions.
- Apartment in a sought-after location – an apartment in Vienna, Salzburg, or even in German metropolitan areas has a purchase price at least equivalent to a house in less popular locations. In some cities, 70-square-meter condominiums are not available for less than 300,000 euros.
- Size – it also determines the price. Although prices decrease as the number of square meters increases, the total costs must still be met.
The required financing amount is often much higher for a house purchase than for an apartment purchase. This is independent of whether one is investing in an existing property or planning a new build. For existing properties, renovation costs often have to be factored in, as hardly any home buyer changes nothing about the property.
Adapting financing to the framework conditions
Basically, the pure financing process for houses and condominiums is very similar. Apartments often involve more documents because the respective object must be precisely named for the registration of a land charge as loan security. Otherwise, however, it is primarily a matter of comparing offers to keep interest rates low. At smava there are real estate loans for various objects, so that the search for suitable financing is not difficult. In addition, the following aspects are important:
- Choose an initial repayment rate that is high but manageable (at least 2%)
- Choose a rather long interest rate lock-in period when rates are low (at least 10 years, preferably more)
- If there is a realistic possibility of use, choose financing with free unscheduled repayments (at least 5% of the remaining debt per year)
- Contribute sufficient equity (at least the incidental purchase costs)
Plan living space precisely
In general, it is advisable not to be too stuck in your own wishes when financing real estate, but to think outside the box. Those who only focus on single-family homes might overlook the quite affordable, yet perfect, terraced house. The same applies to buying an apartment instead of a house. Anyone taking this step should, however, consider a few things in advance, which also apply in a modified form to buying a house:
- Need – what is really needed? The size of the apartment or property is probably the most important factor here. It also depends on how the apartment is to be used. Is it for personal use or is it to be rented out? If it is rented out: What does the market look like and what is actually in demand? The market for a 120-square-meter apartment is significantly smaller than for standard 70-80-square-meter apartments.
- Size – real estate financing is usually used by relatively young people. And as everyone knows, life can change rapidly in one's younger years. For example, what about family planning if you are living in the apartment yourself? Does the apartment still offer enough space if children arrive?
- Layout – in houses, life is usually spread over two floors and many rooms. In apartments, life is more compressed. The layout is sometimes even more important than one square meter or another, because what good is a huge living room to a family, for example, if the third room is so small that neither a desk nor a nursery fits in it?
- Think about the future – certainly, many properties are resold. However, most people finance their own home for their own life. It is the dream to live in the property until old age and, if possible, to be carried out at a very late point in time. However, not all apartments offer this opportunity. The premises should be as age-appropriate and barrier-free as possible even today. Narrow hallways with narrow doors are a nightmare in old age, as a rollator can hardly get around the corner. And what about the accessibility of the apartment? Not all houses have elevators. If it doesn't bother you in your mid-thirties to haul groceries up to the third floor, the situation looks very different thirty years later.
The living space must suit the person. However, for a real estate buyer to find something suitable, it is necessary to deal with their own wishes, ideas, and future visions in advance. These must finally be reconciled with the financial possibilities, and then a corresponding apartment – or house – can be found.
Keep an eye on running costs
If you inform yourself about buying real estate, a 'piece of wisdom' will always appear: Pay installments instead of rent.
This wisdom sounds pleasant, but it is fundamentally wrong. It implies that the previous rent is completely absorbed into the installments and that no further costs are incurred. That is exactly the weak point of this concept:
- Rent – the rent for houses and apartments consists of the cold rent plus. There may be an additional payment for utilities, but a good part of the costs incurred is paid.
- Installment – it concerns the repayment agreed with the bank. So, anyone who previously paid 700.00 euros in rent and now invests these 700.00 euros in the installments will still lack utility costs.
Costs are incurred for all types of homes. They are fixed, because no homeowner in Austria will get water or gas delivered for free. Fees are charged for sewage, insurance must be taken out, and taxes must be paid. All these costs are the incidental costs of the house. So, anyone who uses the pure calculation of installment = rent will have a negative monthly amount. In addition:
- Reserve – even with a new build, owners should set aside a monthly amount intended for repairs. It is a buffer amount that can also help with installment payments if necessary. If the amount is not needed, it forms the base amount for later modernizations or renovations.
- House money (Hausgeld) – with condominiums, it is often the case that every owner also transfers a fixed amount to the account of the owners' association. This payment is due monthly and is mandatory. The money also serves to finance repairs to common property: heating system, roof, facade.
- Ancillary costs – apart from the house money, the typical utility costs that are also listed in a rental agreement naturally apply to condominiums. Apartment owners should also set aside an additional monthly amount for themselves so that they can finance renovations in their apartment more easily.
Basically, house and apartment owners can expect monthly running costs of approximately their old rent. Certainly, a good part of the amount is set aside independently and is therefore always available if necessary, but it should be listed as a fixed expense in the cost planning.
Pros and cons of both options
Houses and apartments both have their pros and cons. Even homeowners do not necessarily have absolute freedom. This is because terraced houses can also form an owners' association, so that the regulations for condominiums apply. As a rule, the following applies:
Advantages of a house
- Scope – special owners' associations aside, a house naturally offers more room for design and development.
- Family-friendly – houses are usually very suitable for families due to their size. The children get their own room and a garden often invites them to play.
- Prizes – in rural areas, houses can be cheaper than apartments in very popular cities.
Disadvantages of a house
- Acquisition costs – the financing amount is usually higher, which, however, also reflects on the value and the possible resale proceeds.
- Costs – the monthly costs are higher than those of apartments.
- Labor-intensive – if the house has open space, it must be maintained. If the property borders sidewalks or streets, it is the owner's responsibility to ensure good accessibility and traffic safety.
Advantages of an apartment
- Clear – if no children are desired, the apartment can be perfect. In old age, it is easier to live in, as apartments are often on one level.
- Inexpensive – with the exception of apartments in sought-after cities or very large properties, the purchase costs are often lower than those of a house.
Disadvantages of an apartment
- Owners' association – in many cases, the apartment is only part of a whole. Owners can only decide on the area behind their apartment door, but must bow to the opinion of the house even when designing the balcony. If the community is not homogeneous, disputes are not uncommon.
- Co-determination – the owner only has one vote in associations, but the majority of votes counts.
- Influence – whether with an association or just as the owner of an apartment in a two-party house: the apartment owner does not have influence on external aspects of the house. If the front garden decays, he can often only look for a solution through legal channels.
As already mentioned, interested parties should keep all options open on the way to a real estate loan. With owners' associations, it is always worth doing a little research before buying. What is the mood in the community, is there a maverick? What exactly does the house rules allow? It can also prohibit certain animals or not allow the famous cat net on the balcony. When buying a house, it is advisable to check in the neighborhood and with the authorities whether road construction measures are planned soon. Especially owners of corner plots must otherwise expect high fees.
Conclusion – apartment or house?
This question can actually only be answered by everyone for themselves, whereby the financial possibilities naturally play a role in the answer. Both property types have their pros and cons, with the house purchase often being more expensive, but leaving the freedoms open subsequently. Condominiums can also prove to be suitable, especially since not all are maintained by associations. It is always important to think about the future at a younger age and to choose an object that will still be habitable in old age. A maisonette apartment with a beautiful spiral staircase to the bedroom is a dream in young years, but at 65, the spiral staircase no longer seems so attractive.
