Property vs deposit: costs, liquidity and break-even time

A deposit can be withdrawn in days, often with no cost. A property cannot. It takes weeks or months to sell, and each end of the transaction has a price. Those two facts set a minimum holding period before property can come out ahead, and they are the reason a good market does not always make a good investment for a given saver. This article puts numbers on the idea with a hypothetical calculation. The numbers are assumptions, not market data or a forecast.

What buying costs, by country

Our own country guides give the cost of buying on top of the price. The figures are indicative and change with rules and prices.

• Germany: roughly 9% to 12% on top of the price (see Germany prices and buying costs).
• Spain: roughly 10% to 13%, more in high-tax regions (see Spain).
• Portugal: about 10% for a non-resident, in the worked example in our guide (see Portugal).
• Italy: roughly 10% to 15% (see Italy).
• Austria: roughly 10% to 12% (see Austria).
• France: roughly 7% to 8.5% for an older home (see France).
• Greece: roughly 7% to 12% (see Greece).
• Dubai: about 7%, mostly the 4% Land Department fee and agent commission (see Dubai).
• Cyprus: about 4% of the price on a resale in our worked example, before agent commission, much lower than elsewhere because transfer fees are halved on a resale (see Cyprus).

A deposit has no such entry cost. This is the first hurdle: with costs of 10%, the property has to gain about 10% in value, or earn it in rent, just to put you level with where you started.

What selling costs

Selling has its own costs: agent commission, notary or lawyer, and in many countries a tax on the gain, plus any mortgage early-repayment charge. We have not found a reliable cross-country statistic for the selling commission, so we do not give one. For tax on the sale see taxes when selling property abroad by country and our capital gains guides for individual countries, and for the process see how to sell property abroad. In the example below we assume selling costs of 4% of the price. Check your own market.

How long does it take to sell?

We found no reliable official cross-country figure for time to sell, and it depends on the city, price band and cycle. A well-priced flat in a liquid market can sell within a few months. A property in a thin market, an off-plan unit, a resort villa or a high-price listing can take considerably longer, and in a falling market the choice is to wait or to cut the price. Plan for months, not days, and for a sale that may need a power of attorney if you are abroad. This is the main practical difference from a deposit.

A hypothetical break-even calculation

This is an illustration with round numbers, not a forecast. A saver in Poland has EUR 110,000.

• Option A: the whole sum on a deposit paying 3% a year. After the Polish 19% tax on interest, the net rate is 3% times 0.81, or 2.43%.
• Option B: a property priced at EUR 100,000, with buying costs of EUR 10,000 (10%). The property is assumed to rise 2% a year in price and to produce a net rent, after costs and tax, of EUR 2,000 a year (2% of the price, kept flat and not reinvested). On sale, selling costs are 4% of the then price.

After 5 years the deposit is worth about EUR 124,000. The property is worth EUR 110,408 less 4% selling costs, or about EUR 105,990, plus EUR 10,000 of rent, about EUR 116,000. The deposit is ahead.

After 10 years the deposit is about EUR 139,900. The property is EUR 121,899 less 4%, about EUR 117,000, plus EUR 20,000 of rent, about EUR 137,000. The deposit is still slightly ahead.

After 13 years it is nearly level, about EUR 150,300 for the deposit and EUR 150,200 for the property. After 14 years the property is just ahead, about EUR 154,700 against EUR 153,900. In this illustration the break-even is about 14 years.

The result is very sensitive to the assumptions:

• If the price rises 3% a year instead of 2%, the break-even falls to about 7 years.
• If it rises 4% a year, to about 5 years.
• If it rises 1% a year or stays flat, the property does not catch the deposit within 40 years in this example.
• Higher net rent, a lower deposit rate or lower costs shorten the break-even. The reverse lengthens it.

The point is not the number 14. The point is that with high costs and modest growth, the time to break-even is long, and a short holding period is rarely rational. You can test your own inputs in the calculators.

Partial liquidity: what you can do with a property

Illiquid does not mean unusable.

• Rent it out, which produces income without selling.
• Borrow against it, subject to the lender and costs. See mortgages for non-residents.
• Sell a share to a co-owner, where the law allows.
• Use it yourself, which gives non-financial value but not cash.

Each option has a cost, a delay or a condition. A deposit is liquid in a way none of these are. Our article on total cost of ownership abroad lists the running costs that continue while you hold.

Forced-sale risk

The real danger of illiquidity is a forced sale: needing the cash at the wrong time. Job loss, a family emergency, a mortgage reset, or a margin of safety that is too thin can make you sell in a weak market, at a discount and with the costs above. A deposit as an emergency reserve is how many households avoid this. As a rule of thumb that is not advice, keep reserves in cash that cover the period you could be without income, and put into property only money you will not need for the minimum holding period.

When a deposit is the better choice

A deposit is the better choice for money you may need within roughly the break-even period, for the emergency reserve, when entry and exit costs are high, when local rent and price growth are weak, when the deposit rate is high, or when you cannot keep paying the property's costs through a vacancy. A deposit also offers the protection of a deposit guarantee scheme. EU rules set a minimum guarantee level per depositor per bank, which we recommend you check for your bank and country. Property has no equivalent.

FAQ

How long should I hold property before it beats a deposit? There is no fixed number. In our hypothetical example it was about 14 years with 2% price growth, 7 with 3%. It depends on costs, rent, price growth and the deposit rate.

Are buying costs the main hurdle? Often, yes. Costs of 7% to 15% of the price in many countries mean the property must gain that much before you are level with a deposit.

How long does it take to sell? It varies. We found no reliable cross-country statistic. Plan for months, and more in thin markets.

Can I get cash out of a property without selling? Sometimes, through renting, borrowing against it or selling a share, each with conditions.

Does a higher rent change the answer? Yes. More net rent shortens the break-even, but check what is left after vacancy, management, service charges and tax.

How we help

We are a trilingual platform that finds properties and coordinates independent local lawyers and tax advisers. This text is informational and is not investment, legal or tax advice. All figures in the example are hypothetical, and past performance does not guarantee future results. Verify costs and rules for your country before you decide.