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
Well, I’ve already calculated for you that if you move into a comparable apartment within 15 years, you can expect to spend around 320,000 euros (approximately $350,000). Compare that to the 550,000 euro (about $600,000) purchase price.
So, 1,500 euros (about $1,650) monthly rent excluding utilities.
Or the 1,400 euros (around $1,540) every month you pay for your "small house," which probably offers even more usable space than your apartment. The only real costs are roughly 600 euros (about $660) in loan interest – but this amount will gradually decrease over time. Mathematically, you might risk the sale price being lower than your purchase price, but as long as you live there, that really doesn’t matter, right? And since one of you is a civil servant, this scenario is unlikely. Even if prices fall and you want to move, the replacement apartments will have decreased in price as well, so you will relatively(!) lose little or nothing. If prices rise and you move, your house value should have increased as well, allowing you to get something of equivalent value again.
The only costs lost each time you move are the additional purchase fees (such as closing costs or transfer taxes).
So, 1,500 euros (about $1,650) monthly rent excluding utilities.
Or the 1,400 euros (around $1,540) every month you pay for your "small house," which probably offers even more usable space than your apartment. The only real costs are roughly 600 euros (about $660) in loan interest – but this amount will gradually decrease over time. Mathematically, you might risk the sale price being lower than your purchase price, but as long as you live there, that really doesn’t matter, right? And since one of you is a civil servant, this scenario is unlikely. Even if prices fall and you want to move, the replacement apartments will have decreased in price as well, so you will relatively(!) lose little or nothing. If prices rise and you move, your house value should have increased as well, allowing you to get something of equivalent value again.
The only costs lost each time you move are the additional purchase fees (such as closing costs or transfer taxes).
A
Alibert871 Dec 2020 12:06When it comes to such a large amount of money, you naturally want to see a clear added value. And you don’t want to be forced to make compromises. No offense to your idea, but hanging a stroller from the ceiling...? I wouldn’t spend half a million euros on that...
Let’s look at the next 30 years: you will probably spend at least half a million euros on your apartment.
Either way.
In one case, it still belongs to the landlord afterward (a new owner is unlikely to buy your current apartment just for fun and not raise your rent), in the other case, it belongs to you (a townhouse).
But either way, you will pay that half million.
Still, as a retiree (after those 30 years), you will likely have a hard time renting an apartment in that price range if you don’t own it. Owning it, however, is a different story. In a worst-case scenario, you could sell the townhouse and get a small age-appropriate condominium. At least then you have the choice and ownership — the asset! Not as a tenant, though; then you have nothing.
I also strongly suspect that the value of the townhouse will exceed the total value of your apartment. Right now, you have to go down to the basement to get your bike or stroller. You might want a garage right at the door, which is understandable. But a bike storage box is still better than having to carry a bike up several flights of stairs. And leaving a stroller in the hallway is a lesser inconvenience than bringing it up from the basement. If you enjoy that, you can still carry these items to the basement — that freedom remains yours.
If all this is really important to you and you want a detached house close to the city with a small garden, then we’re no longer talking about half a million but more like three-quarters of a million or so... and that’s something you probably won’t be able to manage.
You know, I don’t know anyone who has been able to buy a house or apartment without making compromises. Really, no one! You would be the first to succeed at that 😉
Either way.
In one case, it still belongs to the landlord afterward (a new owner is unlikely to buy your current apartment just for fun and not raise your rent), in the other case, it belongs to you (a townhouse).
But either way, you will pay that half million.
Still, as a retiree (after those 30 years), you will likely have a hard time renting an apartment in that price range if you don’t own it. Owning it, however, is a different story. In a worst-case scenario, you could sell the townhouse and get a small age-appropriate condominium. At least then you have the choice and ownership — the asset! Not as a tenant, though; then you have nothing.
I also strongly suspect that the value of the townhouse will exceed the total value of your apartment. Right now, you have to go down to the basement to get your bike or stroller. You might want a garage right at the door, which is understandable. But a bike storage box is still better than having to carry a bike up several flights of stairs. And leaving a stroller in the hallway is a lesser inconvenience than bringing it up from the basement. If you enjoy that, you can still carry these items to the basement — that freedom remains yours.
If all this is really important to you and you want a detached house close to the city with a small garden, then we’re no longer talking about half a million but more like three-quarters of a million or so... and that’s something you probably won’t be able to manage.
You know, I don’t know anyone who has been able to buy a house or apartment without making compromises. Really, no one! You would be the first to succeed at that 😉
Alibert87 schrieb:
When it comes to such a large amount of money, you naturally want to see clear added value. And you don’t just want to have to make compromises. Nothing against your idea, but hanging a stroller from the ceiling…?! I wouldn’t spend half a million euros on that...Very interesting. I have one of my best friends, also born in ’87, who now lives in Osnabrück. I’m guessing you grew up in a rural area? I’ve been having this exact same discussion with him for years.
What would half a million be worth to you? Ask yourself that and see where you can get it. Definitely not in Osnabrück—more likely in places like Bad Essen, Dissen, or somewhere similar. That’s simply the price to pay for living in the city. In rural areas, there are really great houses for around 500,000 euros (about 550,000 USD). But you probably don’t want to move there and just have to accept that. Either buy or don’t.
No one can make this decision for you. What is hard to argue against is that even with absolutely stable prices over the next several years, you’re building equity through repayment by necessity due to saving constraints.
A
Alibert871 Dec 2020 12:47OWLer schrieb:
Very interesting. I have one of my best friends, also born in ’87, who now lives in Osna. I’m guessing you grew up in a rural area? Because I’ve been having exactly the same discussion with him for years.
What would half a million be worth to you? Ask yourself that question and see where you can get it. Definitely not in Osna—more likely towards Bad Essen, Dissen, or somewhere like that. That’s simply the price you have to pay for the city. In rural areas, you can get really nice houses for 500,000 (five hundred thousand) euros. But you probably don’t want to move there and just have to swallow that bitter pill. Either buy or leave it.
No one can make the decision for you. What’s hard to argue against is that even if prices remain completely stable over the next few years, you’re still building equity through repayments because of the forced savings effect. No, I grew up near the city. Moving to the countryside is not an option for now (who knows what will happen in 3-5 years). I want a property with a garden for around 500,000 (five hundred thousand), right? (and in a prime location—you can still dream, maybe you get lucky).
For an almost dream house (with very few compromises), I’m willing to pay 600,000–700,000 (six to seven hundred thousand) euros. I think the financial ratio compared to a mid-terrace house (500,000 / five hundred thousand) is unfavorable.
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WilderSueden1 Dec 2020 13:03Alibert87 schrieb:
When so much money is involved, you naturally want to feel a tangible added value. And you don’t want to have to settle for compromises all the time. Nothing against your idea, but hanging a stroller from the ceiling...? I wouldn’t spend half a million euros on that... Compromises are always necessary unless you have unlimited funds. For us, the compromise is moving farther away, working a lot from home (which in turn means compromises in the floor plan), and anticipating many rides for our child. In return, we get a modern house with a garden, some distance from the neighbors, and on the edge of town at a price where here I would barely get a three-room apartment in a block of flats.
If you can afford the 600,000–700,000 euros and are willing to make long and large payments for it... go ahead. Then you shouldn’t settle for a mid-terrace house. But you should be realistic about whether the homes you envision are actually within your budget and available on the market. Relying on luck is a poor basis for decisions of this scale.
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