ᐅ Is Buying a House a Wise Decision in the Current Market Situation?
Created on: 23 Sep 2020 14:32
A
Alibert87
Good day and hello everyone,
Some time ago, I joined this forum to gather information and read experience reports.
I would like to get your neutral opinion on whether buying property at this time would be advisable. We currently rent in a "very good location" and would like to purchase a home here. Many properties are sold "off-market" or only available at very high prices (I’m talking well over 500,000). There is no land available for development; if there is, a property is demolished and rebuilt. I want to gather some input on whether this whole situation is crazy or if such a project is feasible.
Since we don’t have a specific property in view yet but have been monitoring the market for about 1.5 years and have already done quite a few viewings, I assume the median price for homes or condominiums that suit us would be around 600,000.
He, 33 years old, permanently employed in the public sector, net income 2,600 euros (plus 14 monthly payments plus bonus, around 5,000) – from 2021 about 3,000 net (fixed)
She, 32 years old, permanently employed part-time, 25 hours per week, net income 2,300 (plus additional payments around 2,000)
1 child (child benefit) – possibly a second child within the next 3–5 years
Married, tax class 4
Equity around 110,000 (plus 30,000 as a buffer)
Regarding equity, I have a question: Are bank conditions tiered, so that having, for example, 10,000 more in equity results in a better loan offer (how does this tiering work)?
We are really torn whether or not to take this step. It feels very surreal to spend so much money on housing.
I am grateful for any advice
Regards
Some time ago, I joined this forum to gather information and read experience reports.
I would like to get your neutral opinion on whether buying property at this time would be advisable. We currently rent in a "very good location" and would like to purchase a home here. Many properties are sold "off-market" or only available at very high prices (I’m talking well over 500,000). There is no land available for development; if there is, a property is demolished and rebuilt. I want to gather some input on whether this whole situation is crazy or if such a project is feasible.
Since we don’t have a specific property in view yet but have been monitoring the market for about 1.5 years and have already done quite a few viewings, I assume the median price for homes or condominiums that suit us would be around 600,000.
He, 33 years old, permanently employed in the public sector, net income 2,600 euros (plus 14 monthly payments plus bonus, around 5,000) – from 2021 about 3,000 net (fixed)
She, 32 years old, permanently employed part-time, 25 hours per week, net income 2,300 (plus additional payments around 2,000)
1 child (child benefit) – possibly a second child within the next 3–5 years
Married, tax class 4
Equity around 110,000 (plus 30,000 as a buffer)
Regarding equity, I have a question: Are bank conditions tiered, so that having, for example, 10,000 more in equity results in a better loan offer (how does this tiering work)?
We are really torn whether or not to take this step. It feels very surreal to spend so much money on housing.
I am grateful for any advice
Regards
A
Alibert871 Dec 2020 11:42Scout schrieb:
Topic: "Getting your money back in 15 years." Assume you pay 500,000 including renovations, financed as a loan. You use equity for additional costs and as a cash reserve during the renovation. This is not a recommended approach for financial planning but more for a better "moral understanding":
In 15 years, you should have roughly paid off the additional costs plus at least (roughly) half of your loan. So, you would own about 250,000 of the house by then.
If you can sell the property for at least that 250,000 (meaning with a purchase price of 500,000 in 2020, you'd still get 250,000 when selling), you break even. Just like with a rental apartment—1,200 rent per month (cold rent) times 15 years equals at least 250,000, assuming minimal rent increases, which is money you really lose—but you’ve lived in both cases.
The point: If you get more than 250,000 for the house after 15 years, that’s your profit. Even tax-free. You don’t have to worry about eviction for personal use, no rent increase, and you can freely renovate the interior without asking a landlord. And if you didn’t have a garden so far, you’ve had one all that time.
PS: What’s your problem with the garden? Do you currently have any that can be accessed from outside? Do you even have a garage now? Why would you miss it in the single-family house then? Regarding your calculation: we pay about 800 per month rent (cold rent), which is 144,000 over 15 years. No matter how you look at it, we’ll pay 550,000 for this property.
The main reason for buying a property is the garden (we have a small child and possibly another on the way in two years). Currently, we have no garden or garage, and I have to take the bikes down from the basement every day, which is a hassle. That’s the added value we expect: garden plus garage or parking/storage space.
So let’s assume your landlord passes away, the apartment is sold, and owner-occupation is declared. Then, when you rent again, you face a base rent of 1500 (cold rent), with additional charges of 18,000 annually.
That amounts to 200,000 over 10 years and 320,000 over 15 years with only moderate rent increases. You can be almost certain that money will be lost — you won’t see a penny of it back!
I would conservatively consider a townhouse as price-stable. That means you would at least get your nominal purchase price back when you sell (which, even in this case, would amount to a real loss due to inflation).
If you take out a 500,000 loan for 30 years, that means repayments of 1400 plus around 600 interest.
In my example above, after 10 years, you would have paid off 170,000 of your loan principal, which then belongs to you! Even if the house price falls by that amount, you break even.
After 15 years, that break-even point would be around 250,000.
That amounts to 200,000 over 10 years and 320,000 over 15 years with only moderate rent increases. You can be almost certain that money will be lost — you won’t see a penny of it back!
I would conservatively consider a townhouse as price-stable. That means you would at least get your nominal purchase price back when you sell (which, even in this case, would amount to a real loss due to inflation).
If you take out a 500,000 loan for 30 years, that means repayments of 1400 plus around 600 interest.
In my example above, after 10 years, you would have paid off 170,000 of your loan principal, which then belongs to you! Even if the house price falls by that amount, you break even.
After 15 years, that break-even point would be around 250,000.
You might be able to rent a garage nearby or place a bike locker for bicycles and strollers in the front yard. A covered bike rack is usually sufficient, and a folding stroller can also be stored in the hallway. That means you might spend a few hundred more on a good stroller or a ceiling-mounted lift in the hallway, but I wouldn’t let that be a deal-breaker.
Are you completely sure that the garden can’t be accessed from the back by bike or wheelbarrow? And why exactly is that such a problem for you?
Are you completely sure that the garden can’t be accessed from the back by bike or wheelbarrow? And why exactly is that such a problem for you?
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Alibert871 Dec 2020 11:55What will happen after the death of our landlords (an elderly couple) is uncertain (this question, diplomatically phrased, we still want to address to the landlords).
Yes, you are right about the appraisal and calculation; we simply do not want to buy because we want to be the "owners." And I am struggling with the idea of spending over 500,000 euros (about $540,000) on a small house (it's definitely a lot of money).
Yes, you are right about the appraisal and calculation; we simply do not want to buy because we want to be the "owners." And I am struggling with the idea of spending over 500,000 euros (about $540,000) on a small house (it's definitely a lot of money).
A
Alibert871 Dec 2020 11:57Scout schrieb:
And are you completely sure there’s no access to the garden from the back for bicycles or wheelbarrows? And why is that such a problem for you? Yes, it’s built up. No backyard access either. Well, carrying all garden waste and such through the house is not ideal.
hampshire schrieb:
What’s going on with you all? Have the "old-timers" become so inflexible?In my parents-in-law’s row of houses, Turkish and Iranian families have moved in. If you didn’t know we’re currently in a pandemic, you wouldn’t suspect it from the large gatherings inside the houses and in the gardens. Not to mention the noise levels. Last summer, the Iranian family had no problem lighting a fire barrel next to completely dried-out shrubs. Only when the local authorities threatened to intervene was the fire put out. There are also many small children running around and making noise outside as late as 11 p.m. (23:00). Pistachio shells line the sidewalk, cigarette butts are left uncollected, and so on — all of this is clearly a strain on a tightly packed townhouse community that has generally worked well for 50 years.
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