Ancillary acquisition costs
The other costs you need to consider when buying real estate
Ancillary purchase costs: Can't go without
Sure. Buying real estate as an investment is a good thing. But there are several other expenses besides the initial purchase costs known as "ancillary purchase costs." And you need to remember to include these when calculating your financing requirements. If you forget, you'll have to increase your financing later on or get the money for them some other way.
With the help of a calculator for ancillary acquisition costs, you can get a quick overview of what you'll have to pay. Once you've crunched the numbers, you can use these calculations to work out how much you can cover with your funds — and how much you'll have to borrow. Top tip: The higher your equity ratio, the better your terms will get.
By the way — If you rent out your apartment or house, you can write off some of the ancillary acquisition costs. So, it's worth taking a closer look at the purchase and ancillary costs. We explain why in our podcast "Immobilien einfach machen" (audio available only in German)
Purchase costs vs. ancillary acquisition costs
If you want to buy a property, there's no question that you'll pay the agreed purchase price. However, there is much more to the purchase cost than first meets the eye.
If you've bought a plot of land and want to build on it, you'll have to pay the purchase price and all costs related to the construction.
So, something like:
Development costs for electricity, water, internet
Fees for permits
Costs for soil testing
Fees for expert opinions
Costs for building materials
Wages for developers/builders
Demolition costs
Costs for removing rubble
Costs for outside facilities such as garden, terrace, carport
But, if you can build part of the house yourself, you also reduce labor costs. So, that's something!
You can also add renovation, modernization, and refurbishment costs to the purchase costs. A property with a leaky roof, an outdated heating system, or a neglected home will be hard to rent out. So, it's best to add the cost of a new bathroom or fitted kitchen to the purchase price.
Tip
If you know that you'll need to spend money on renovation or modernization after you've bought the property, you should consider these costs when negotiating the purchase price of the property — and pay a lower price.
If you don't want to rent out your apartment but move in yourself, the moving costs are also part of the purchase cost.
OK, that's quite a list for simply buying the property, isn't it? Unfortunately, that's not the end of it. On top of all that, there are the ancillary acquisition costs. These are the costs incurred for everything that goes with the property purchase. And just when you thought this was boring enough, there is another distinction to consider: direct and indirect ancillary acquisition costs. But don't worry, it's less complicated than it sounds
Direct and indirect ancillary acquisition costs
Let's keep it quick and easy. When it comes to ancillary acquisition costs, there are two types of expenses to think about:
| Direct | Indirect |
|---|---|
| ---------- | ---------- |
| Real estate transfer tax (3.5 % - 6.5 % of the purchase price — depending on the state you live in) | Creation of liens on real property by a notary |
| Broker's fee | Registration of the liens on the property by the land registry office |
| Land register (transfer of ownership) | Registration of the priority notice of conveyance in the land register |
| Notary fees for notarization | Commitment interest |
| Interest for the construction period | |
| Interest on interim financing | |
| Bank processing fees |
Unsurprisingly, the direct incidental acquisition costs are directly related to the purchase. You can write those off on your next tax return if you rent out the property. The indirect ancillary acquisition costs, on the other hand, are all related to the financing. By the way, if you have a property in mind and want to get a quick overview of all the purchase costs, we have something for you here. 👇
Purchase & ancillary acquisition costs: Check! Now what?
Once you have run all the acquisition and ancillary acquisition costs through the calculator, you can subtract the equity you want to contribute. Then you know how much money you'll have to borrow from the bank — at least for an existing property.
You can deduct the so-called muscle mortgage if you are building the property yourself. Muscle mortgage doesn't ring a bell? That's all the work you personally do on the building — and save on the related labor costs. But just remember: If you're not a pro, you can't guarantee that you'll do a good job.
Apart from your labor, you can deduct everything you want to bring in as collateral from the purchase cost. So, your savings, life and pension insurance, or other real estate, for example.
Got some more questions about this? No problem at all! Just ask our community.