A quite important topic: Renting or buying/building? How did you decide, and what were your reasons?
Living rent-free in old age isn’t really the case even with owner-occupied property when you look closely (ongoing costs for maintenance, renovations, etc.).
Living rent-free in old age isn’t really the case even with owner-occupied property when you look closely (ongoing costs for maintenance, renovations, etc.).
I am a fan of real estate investment: I bought a condominium in 1995 for 245,000 DM (!) and recently sold it for 295,000 €, so the return was over 100%. Works for me.
We want to build because then we can live according to our own ideas, instead of constantly having to chase the landlord because maintenance is not done (the balcony of the apartment above us is at risk of collapsing onto our terrace someday—I’ve been complaining about this for over two years), the heating breaks down again (and then we’re the ones freezing, not the landlord), and I also landscaped the garden myself because I want to live nicely (and if we move out, that’s a gain for the landlord, while I lose out). When I do something to my own property, I do it for myself.
Another argument for living rent-free in retirement: money I don’t pay increases my available capital. So, for example, if I rent an apartment but own a condominium as an investment and rent it out, I have to pay tax on the rental income. The unpaid rent of my own property is effectively “income” that is not taxed. Considering the challenges with pensions, I personally fear we will face much greater cutbacks, and then those who manage to reduce their expenses will be the ones who are better off, while those with higher income will be taxed more heavily.
Maintenance: I’m 51 now and will be 52 when our house (hopefully!!!) is finished, and I don’t expect any major maintenance tasks for the rest of my life. But of course, we will still keep a few emergency funds aside. Still, the key point is: I do it for myself and exactly as I want. That alone is invaluable to me.
I agree with those who say that having some handy skills is helpful if you want to build or eventually own a house. Absolutely. With two left hands and no understanding of the subject, you’re better off as a renter because then you just have to call the landlord when something goes wrong (in my case, unfortunately, not always successful). Or you have the money to always hire a professional. That works too.
And then there’s the location: we are in the outskirts of Munich, where you simply can’t find anything suitable or anything at all, and if you do, the rents are exorbitant and without any certainty about how they will develop. We can only build because we already own the land; otherwise, there is hardly any land available for construction here.
We are a couple without children and want to live with enough space and a bit of luxury. Single-family rental homes are usually designed for families with children. What would we do with two kids’ rooms? We prefer a large bathroom with a sauna. We would have to search for a long time to find a rental home that suits us, and the rent would likely far exceed our monthly mortgage payment.
Assets??? As I said: we have no children and you can’t take it with you when you die. If I kick the bucket, I’m fine with my account being empty. My heirs can decide what they want to do with the house. I DON’T CARE. My pension must be enough for me, and if I don’t have to pay about 1,200 euros or more per month for rent, I will easily get by. And in 25 years, I’ll be over 75—I’ll only do maintenance if the heating doesn’t work or the roof leaks (and if I can fix it cheaply, that will be enough). I don’t have to leave the house in perfect condition when I go.
We want to build because then we can live according to our own ideas, instead of constantly having to chase the landlord because maintenance is not done (the balcony of the apartment above us is at risk of collapsing onto our terrace someday—I’ve been complaining about this for over two years), the heating breaks down again (and then we’re the ones freezing, not the landlord), and I also landscaped the garden myself because I want to live nicely (and if we move out, that’s a gain for the landlord, while I lose out). When I do something to my own property, I do it for myself.
Another argument for living rent-free in retirement: money I don’t pay increases my available capital. So, for example, if I rent an apartment but own a condominium as an investment and rent it out, I have to pay tax on the rental income. The unpaid rent of my own property is effectively “income” that is not taxed. Considering the challenges with pensions, I personally fear we will face much greater cutbacks, and then those who manage to reduce their expenses will be the ones who are better off, while those with higher income will be taxed more heavily.
Maintenance: I’m 51 now and will be 52 when our house (hopefully!!!) is finished, and I don’t expect any major maintenance tasks for the rest of my life. But of course, we will still keep a few emergency funds aside. Still, the key point is: I do it for myself and exactly as I want. That alone is invaluable to me.
I agree with those who say that having some handy skills is helpful if you want to build or eventually own a house. Absolutely. With two left hands and no understanding of the subject, you’re better off as a renter because then you just have to call the landlord when something goes wrong (in my case, unfortunately, not always successful). Or you have the money to always hire a professional. That works too.
And then there’s the location: we are in the outskirts of Munich, where you simply can’t find anything suitable or anything at all, and if you do, the rents are exorbitant and without any certainty about how they will develop. We can only build because we already own the land; otherwise, there is hardly any land available for construction here.
We are a couple without children and want to live with enough space and a bit of luxury. Single-family rental homes are usually designed for families with children. What would we do with two kids’ rooms? We prefer a large bathroom with a sauna. We would have to search for a long time to find a rental home that suits us, and the rent would likely far exceed our monthly mortgage payment.
Assets??? As I said: we have no children and you can’t take it with you when you die. If I kick the bucket, I’m fine with my account being empty. My heirs can decide what they want to do with the house. I DON’T CARE. My pension must be enough for me, and if I don’t have to pay about 1,200 euros or more per month for rent, I will easily get by. And in 25 years, I’ll be over 75—I’ll only do maintenance if the heating doesn’t work or the roof leaks (and if I can fix it cheaply, that will be enough). I don’t have to leave the house in perfect condition when I go.
C
chand19865 Jun 2018 14:04Climbee schrieb:
I’m a fan of “betongold”: I bought a condominium in 1995 for 245,000DM (!) and recently sold it for 295,000€, so a yield of over 100%. For me, that’s fine.No, that is an annual return of about 3.75% p.a. (compound interest recalculated over 22 years). WITHOUT (!) inflation factored in during that period, which still needs to be deducted. So your real return is 3.75% minus the annual loss of purchasing power from 1995 to 2017. You end up under 2% p.a.
And here’s more: that would only be the case if the apartment had been paid for entirely with equity from the start. The interest on your loan must be deducted from that less than 2%, as well as any repairs over the 22 years…
My point is just to raise awareness of how easy it is to fall for oversimplified calculations (100% yield). In reality, you can’t just compare purchase and sale prices directly if a loan was paid off in between.
Of course, you would need to calculate how the equity you invested in 1995 would have grown until 2017 with an alternative investment – and that is a complicated task if you consider annual increases in equity through loan repayments amid changing inflation rates each year. Especially since you have to compare it with hypothetical rent, otherwise the comparison is meaningless. Of course, the yield of your apartment could also look better through such a comparison, no doubt about that.
But without such a calculation, talking about “betongold” is meaningless, sorry.
Moreover, you are extremely lucky to be able to sell in a bubble, while others have to sell at a certain point in time. And if the market price is not good at that time, property owners lose money. You already don’t make as much profit in a boom phase as you think, and in a downturn it easily becomes negative and people become poorer. Yes, poorer through property ownership. Hard to believe because not many people can figure it out…
That’s why I consider the talk about homeownership as retirement provision risky for many people, sorry again.
Climbee schrieb:
Another argument for rent-free living in retirement: money I don’t pay out increases my available capital.With that argument, you’d have to become a landlord, because then someone else is paying down your loan, and in the end, everything belongs to you. That creates capital. Otherwise, see above!
Climbee schrieb:
Maintenance: I am now 51, will be 52 when our house (hopefully!!!) is finished and don’t expect any major maintenance in my lifetime.Define “major.” I wish you good health, but unfortunately that conflicts with your hope…
Climbee schrieb:
We want to build because then we can live according to our own ideas.
Wealth??? As I said: we have no children and you can’t take it with you. If I kick the bucket, my account can be empty.That actually sounds very sympathetic and is a good argument for building a house. Just please don’t see gold where there is none.
chand1986 schrieb:
With this argument, you would have to become a landlord because someone else pays off your loan and afterwards everything belongs to you. That’s how capital works. Otherwise, see above!Never again a landlord; I did that for almost 20 years. I don’t want that trouble anymore. And as a landlord, you hardly have any rights nowadays.
chand1986 schrieb:
No, that is a return of about 3.75% per year (compound interest calculated backward over 22 years).You’re right, that was my mistake. What’s more accurate is that I have roughly quadrupled my equity (I started with relatively little) without any significant hardship.
C
chand19865 Jun 2018 15:22I’m roughly estimating around 50k, since I actually see the apartment as an investment that should pay off from the final price over 22 years. That would mean a good multiple of the initial equity.
Minus interest costs, minus inflation, calculated as compound interest over 22 years.
But it worked out for you and made you happy, so more power to you. As the fresh young generation says today: "Treat yourself!"
Minus interest costs, minus inflation, calculated as compound interest over 22 years.
But it worked out for you and made you happy, so more power to you. As the fresh young generation says today: "Treat yourself!"