ᐅ Renting a house or buying/building one? How did you decide?

chand1986 schrieb:
No, that is a return of about 3.75% per year ...

Unqualified follow-up question: Shouldn't you also consider that Climbee saved around 105,000 euros in rent over 20 years? It’s not like she used the house as a vacant investment property while still paying living expenses elsewhere, like an old car sitting unused in a garage. She also (ab)used it. It’s similar to buying a Golf in 1995, driving it for 20 years, and then selling it for double the original price.

Knallkörper schrieb:
Shouldn’t you also consider that Climbee saved around 105,000 euros in rent over 20 years?

However, she still paid for living through principal and interest – how long and how much exactly, I don’t know; you’d need too many parameters, many of which are probably no longer precisely known after such a long time.

Assuming she wouldn’t have been homeless and definitely would have lived somewhere, for comparison you need to look at the difference between rent and loan repayments during the repayment period. To do this, you need to use a hypothetical rent if you own property, or a hypothetical loan repayment if you are renting. She would have had to spend the money either way.

In the case of ownership, the money goes into equity, with which she can later calculate her annual return. In reality, you don’t calculate x% p.a. on the equity available at purchase; that’s just a rough simplification. With each installment paid, your equity increases while the time period for your calculation shortens.

There should be Excel sheets available online for savings plans over a set number of years, which are regularly funded and already apply interest from the first euro deposited at a certain rate, growing exponentially through compound interest but also having a linear component from the regular contributions. This is how the property should be viewed during the repayment period. Only after that do you get a “rent-free” period, which you can fully compare against rent you would otherwise be paying.

Then there is the appreciation on sale, which over 22 years isn’t actually that high in % p.a., as I have calculated. Minus repairs, minus inflation, minus interest costs. Plus rent savings compared to a hypothetical rent (previously you use the difference here) after the last payment.

That results in a figure allowing you to calculate an annualized return % after sale. This can then be compared with alternative investments. And you should keep in mind that Climbee was able to sell strongly during a boom period, which by no means is granted for everyone.

Knallkörper schrieb:
It’s like buying a Golf in 1995, driving it for 20 years, and selling it for double the original price.

Here is a logical error: For that Golf, you would first have had to save equity, ideally as liquid funds like a high-yield savings account. Your savings plan would have been smaller but starting earlier, if you simply bought a different car you could sell after 20 years at its original purchase price (this would be equivalent to renting an apartment). Repairs and interest don’t need to be deducted in that scenario.

With the Golf, you would also have occasionally had to pay for repairs yourself over 20 years, so your net resale price isn’t really double, as you have to subtract those costs. Then minus interest costs because you likely financed the car (equivalent to the apartment loan). Then minus inflation.

All these deductions are already included in the hypothetical rent—that is, the comparison value already includes these(!!), so they should not be subtracted again.

To keep with your car example: With a price doubling after 20 years, after subtracting the costs mentioned above, you might be left with about 1.4 times the original amount—so +40% over 20 years. As an annual rate, that’s not very impressive, really not. Just 2% inflation p.a. eats up 30% of your “doubling” over 20 years, before you even deduct anything else.

Climbee schrieb:
1995 a condominium for 245,000 DM

That turned out pretty badly. If you had invested in the DAX index in 1995, it would be worth over 1 million euros now. If you had invested in Apple in 1995... well, let's not go there.

Edit: even with a fixed-term deposit back in 1995 and the same duration, you would have more than 295,000 EUR today!!!

Steffen80 schrieb:
That turned out pretty badly. If you had invested in the DAX in 1995... it would be worth over 1 million EUR now. If you had invested in Apple in 1995... well, let’s not go there.

Edit: even with a fixed-term deposit back in 1995 and holding it until now, you would have more than 295,000 EUR !!!

Woulda, coulda, shoulda

@Steffen80
You’ve never been able to take money with you to the afterlife. Why give up the comfort and luxury of a self-built detached house just to eventually have a full bank account through speculation or extreme saving?
Maybe you miss out on something that’s good enough for the next show, and then the same cycle repeats? Money provides security, but just having it doesn’t guarantee happiness.

@Climbee is in the same situation as I am and is making the most of it: living!
We don’t care about returns; we live our lives well!
But some people probably have to be over 50 to understand that.
A young person like you will eventually realize that money isn’t everything.

You’re absolutely right....sitting in the garden, admiring my new lawn, cheers.