Bavaria and the real estate bubble

257 posts in this topic

On 9/13/2019, 10:23:19, MikeMelga said:

But buying in Munich is just stupid. 

 

Your ideas might get a better reception if you didn't feel the need to disparage people who have a different view or plan of action.

 

 

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2 hours ago, Krieg said:

 

With the current rates, basically you pay whatever you want to pay.   I have the feeling you do not understand German mortgages.   In your example 20 years doesn't mean you will pay the whole debt in 20 years, it means you fix the interest rate for that period.   So you have to pay at least the interest, which at the moment is extremely low and it might become negative soon, and then you decide how much you want to pay back to the original debt. 

From my personal perspective, irrelevant to the discussion, I assume I have the house paid in "x" years, because unfortunately I don´t live forever, despite my attempts. Fixed rate comes on top, to reduce risk.

I understand the concept, but that is not how I would make my decision. I come from a family with strong aversion to debt. If we have debt, we always try to clean it ASAP. Personally I never owned money to no entity.

 

 

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55 minutes ago, MikeMelga said:

From my personal perspective, irrelevant to the discussion, I assume I have the house paid in "x" years, because unfortunately I don´t live forever, despite my attempts. Fixed rate comes on top, to reduce risk.

I understand the concept, but that is not how I would make my decision. I come from a family with strong aversion to debt. If we have debt, we always try to clean it ASAP. Personally I never owned money to no entity.

 

 

 

I as well have aversion to debt, I buy whenever possible in cash.   However, in these cases they are investments, not a personal item.   I think for a financial expert as you claim to be, you do not even understand the difference between asset and liability, you seem to only focus in the liability part.     If everyone thought small like you no one would start any big business, because big businesses most times start by taking some debt.

 

You buy a property with a mortgage, you still have a property.   You are only taking the risk that the price of the property goes down.  Just like ... when you buy shares.   And if the price of the property goes down badly, well, you still have a property, ride it until it gets better or jump and cut loses.   Just like with shares.   And that's why you should never bite more than you can afford to lose.   Just like with shares.   Or go wild and risk it all.   Just like with shares.

 

 

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7 hours ago, Krieg said:

 

I as well have aversion to debt, I buy whenever possible in cash.   However, in these cases they are investments, not a personal item.   I think for a financial expert as you claim to be, you do not even understand the difference between asset and liability, you seem to only focus in the liability part.     If everyone thought small like you no one would start any big business, because big businesses most times start by taking some debt.

 

You buy a property with a mortgage, you still have a property.   You are only taking the risk that the price of the property goes down.  Just like ... when you buy shares.   And if the price of the property goes down badly, well, you still have a property, ride it until it gets better or jump and cut loses.   Just like with shares.   And that's why you should never bite more than you can afford to lose.   Just like with shares.   Or go wild and risk it all.   Just like with shares.

 

 

Stop "schooling" me. You keep comparing it with shares, but shares is only a small part of my investments. I invest mostly directly in companies. Stock trading is just a game for me.

 

I did start my own business, we did invest money, but we invested our own money, because liability goes beyond what you invest.

TBD, big business are easier to invest, as it's not your money that you put in.

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22 hours ago, mtbiking said:

 

?? No, I know that Mikemelga just rented it, and I know that you can sell an empty house for market prices. If the landlord still proceeds to rent if for a lot less than he  could to a complete stranger  and not even for social reasons then he is, I repeat, an idiot.

 

In other words, It doesn’t matter for what price and when  I bought the apartment. If the market value is x and I get y monthly rent, then my rental dividend is 12y/x.

 

huh?  what the heck are you talking about?

 

His actual current rendite (which has nothing whatsoever to do with current "market" prices, let alone current prices for *empty* units) might be just fine for his purposes and plans in which case his choice to not sell is not idiotic, it's just not what you would choose to do.   You don't even know where the property is located so I don't know how you can determine what the going rate should be for rentals in that area.  There are legal aspects to rental pricing too, of course, as the rental price is legally limited by the customary pricing, eg the mietspiegel.  You'd drive yourself mad to calculate your expected "dividend" against the current price of empty housing - seriously, wtf?  That is not how rendite works!

 

And what do you propose he do with the net profits if he sold?  He can't reinvest the  proceeds in another property in Munich and get a screamin' deal so "best" case if he sticks with real estate is that he makes a lateral move to a new property at similar price/qm that he sold at, and he loses on the costs of buying and selling the properties.  THAT would be idiotic in my view.  He has other investment options of course but which ones are best for a big old cash injection at this moment in time when everyone seems to have the jitters about a downturn already?  According to most opinions here real estate is going to keep going up in value so why not wait for a bigger payout? 

 

plus you have no earthly idea why he bought it in the first place.  He may plan to live there someday - who the hell knows.  I have a neighbor whose apartment has been stone cold empty for 2 years as he wants to be sure it's always available for his kids to live in should the need arise.  It's paid off but he's still losing money on the hauskosten + utilities + random unexpected repairs (of which there have been several recently).  Idiotic? Maybe. But it depends on what his goals are, and his kids are a driving factor - he's happy so who is anyone to judge that?  One thing is certain: he can't replace that apartment with the money he'd gain by selling it and he can afford to maintain it.  Life could be a lot worse.

 

a bird in hand...

 

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8 hours ago, lisa13 said:

I have a neighbor whose apartment has been stone cold empty for 2 years as he wants to be sure it's always available for his kids to live in should the need arise.

 

Are you allowed to do that? I understood (through rumour) that places can't be left empty in Munich.

 

ETA. Found the info here...if I am understanding it correctly.

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I don't know the loopholes for the misappropriation laws. I'd guess he just needs to claim it as a second home? No idea.

 

my other neighbor who rents his apartment out as a workspace would be in a tougher position but someone would have to turn him in. He's been doing it as long as I've lived here, and when he was still living here he was living in his sister's place. Both of them have exclaimed they will *never* sell... it's hamstering on another level :)

 

I really don't know how they enforce those laws in practice. But it doesn't seem very effective.

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9 hours ago, lisa13 said:

 

huh?  what the heck are you talking about?

 

His actual current rendite (which has nothing whatsoever to do with current "market" prices, let alone current prices for *empty* units) might be just fine for his purposes and plans in which case his choice to not sell is not idiotic, it's just not what you would choose to do.   You don't even know where the property is located so I don't know how you can determine what the going rate should be for rentals in that area.  There are legal aspects to rental pricing too, of course, as the rental price is legally limited by the customary pricing, eg the mietspiegel.  You'd drive yourself mad to calculate your expected "dividend" against the current price of empty housing - seriously, wtf?  That is not how rendite works!

 

And what do you propose he do with the net profits if he sold?  He can't reinvest the  proceeds in another property in Munich and get a screamin' deal so "best" case if he sticks with real estate is that he makes a lateral move to a new property at similar price/qm that he sold at, and he loses on the costs of buying and selling the properties.  THAT would be idiotic in my view.  He has other investment options of course but which ones are best for a big old cash injection at this moment in time when everyone seems to have the jitters about a downturn already?  According to most opinions here real estate is going to keep going up in value so why not wait for a bigger payout? 

 

plus you have no earthly idea why he bought it in the first place.  He may plan to live there someday - who the hell knows.  I have a neighbor whose apartment has been stone cold empty for 2 years as he wants to be sure it's always available for his kids to live in should the need arise.  It's paid off but he's still losing money on the hauskosten + utilities + random unexpected repairs (of which there have been several recently).  Idiotic? Maybe. But it depends on what his goals are, and his kids are a driving factor - he's happy so who is anyone to judge that?  One thing is certain: he can't replace that apartment with the money he'd gain by selling it and he can afford to maintain it.  Life could be a lot worse.

 

a bird in hand...

 

 

Nobody newly rents an Apartment/house worth 1.5 - 2 million for €2100/month in Munich unless he/she has no clue:

- The Mietspiegel is irrelevant if you sell.

 - The 2.5 to 3% Rendite is the free market pricing in Munich in 2019. Keep in mind that 10 years ago was different, an apartment bought back then would likely have generated 5-6% Bruttorendite (interest rates where 4-5% back then), the same apartment has doubled in value and is now generating 2-3% with the same Rental contract.

-  If you rent it with a standard rental contract for such little money you're shooting yourself in the foot as the apartment's market value drops like a stone - it's not easy or cheap to get rid of tenants in Germany, specially tenants who know they've lucked out, and your apartment if suddenly not so interesting for potential buyers. As a rule, the lower the rent is, the older the rental contract, the cheaper the apartment.

 - Keeping an apartment empty is a strategy followed by some property owners in Munich/Germany, precisely because an empty apartment is worth more and because it's hard and expensive to cancel a rental contract with  tenants in Germany when the need arises.

 

So basically you need a landlord rich and with no clue/no wish to make more money, and at the same time willing to put up with tenants which can expect a good degree of confort from such an expensive place, and other owners with certain expensive renovation ideas for the building -> they're likely to be wealthy after all, for comparatively very little money. Please tell me if you find such a landlord, I'll move in myself.

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10 hours ago, lisa13 said:

I have a neighbor whose apartment has been stone cold empty for 2 years as he wants to be sure it's always available for his kids to live in should the need arise.  It's paid off but he's still losing money on the hauskosten + utilities + random unexpected repairs (of which there have been several recently).  Idiotic? Maybe.

 

 

It is indeed pretty idiotic because one way to easily kick renters out is to claim "Eigennutzung", which would be completely valid if your kids wanted to move in.

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If a Newbie would land on TT and lay out specs for housing in Munich:

 

House, 50 m from station, 150 qm, yard, new construction, 2600€ budget

 

(S)he would be politely advised to rethink.

 

 

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2 hours ago, Hutcho said:

 

It is indeed pretty idiotic because one way to easily kick renters out is to claim "Eigennutzung", which would be completely valid if your kids wanted to move in.

 

I wouldn't say "easily". I know of cases in which it was "easy", but I also know of cases in which the tenants decided to fight and it was anything but easy. You also have to consider that Eigennutzung is not an absolute right. In cases of tenants who would find it very difficult to find alternative accommodation or could suffer significant hardship from moving because of old age, limited income, disability, etc. the rights of the tenant to adequate accommodation trump the right of the owner to Eigennutzung. I presume that court decisions that  considered Eigennutzung inadmissible were influenced by, or maybe based on, this paragraph in Article 14 of the German constitution:

 

Quote

(2) Eigentum verpflichtet. Sein Gebrauch soll zugleich dem Wohle der Allgemeinheit dienen.

 

 

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3 hours ago, balticus said:

If a Newbie would land on TT and lay out specs for housing in Munich:

 

House, 50 m from station, 150 qm, yard, new construction, 2600€ budget

 

(S)he would be politely advised to rethink.

You are not that knowledgeable of the market. Took me 7 months to find this place, but they exist.

Interestingly, on the same neighborhood we visited 3 other houses with similar area and prices, so it is not that uncommon.

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4 minutes ago, MikeMelga said:

You are not that knowledgeable of the market.

If a newbie landed on TT and laid out specs for housing in Munich...

 

...it will probably be another balticus alt trying to establish forum cred.

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1 hour ago, Smaug said:

 

I wouldn't say "easily". I know of cases in which it was "easy", but I also know of cases in which the tenants decided to fight and it was anything but easy. You also have to consider that Eigennutzung is not an absolute right. In cases of tenants who would find it very difficult to find alternative accommodation or could suffer significant hardship from moving because of old age, limited income, disability, etc. the rights of the tenant to adequate accommodation trump the right of the owner to Eigennutzung. I presume that court decisions that  considered Eigennutzung inadmissible were influenced by, or maybe based on, this paragraph in Article 14 of the German constitution:

 

Just another reason I think you'd be crazy to be a landlord in Munich or Germany for that matter.

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18 minutes ago, MikeMelga said:

You are not that knowledgeable of the market. Took me 7 months to find this place, but they exist.

Interestingly, on the same neighborhood we visited 3 other houses with similar area and prices, so it is not that uncommon.

 

Please prove otherwise then.

 

Currently there is only a single house in Freimann for rent - it costs 3100 euros cold, and was built in 1988, so it's certainly not new and the U-Bahn is still 2km away!

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4 hours ago, mtbiking said:

 

Nobody newly rents an Apartment/house worth 1.5 - 2 million for €2100/month in Munich unless he/she has no clue:

- The Mietspiegel is irrelevant if you sell.

 - The 2.5 to 3% Rendite is the free market pricing in Munich in 2019. Keep in mind that 10 years ago was different, an apartment bought back then would likely have generated 5-6% Bruttorendite (interest rates where 4-5% back then), the same apartment has doubled in value and is now generating 2-3% with the same Rental contract.

-  If you rent it with a standard rental contract for such little money you're shooting yourself in the foot as the apartment's market value drops like a stone - it's not easy or cheap to get rid of tenants in Germany, specially tenants who know they've lucked out, and your apartment if suddenly not so interesting for potential buyers. As a rule, the lower the rent is, the older the rental contract, the cheaper the apartment.

 - Keeping an apartment empty is a strategy followed by some property owners in Munich/Germany, precisely because an empty apartment is worth more and because it's hard and expensive to cancel a rental contract with  tenants in Germany when the need arises.

 

So basically you need a landlord rich and with no clue/no wish to make more money, and at the same time willing to put up with tenants which can expect a good degree of confort from such an expensive place, and other owners with certain expensive renovation ideas for the building -> they're likely to be wealthy after all, for comparatively very little money. Please tell me if you find such a landlord, I'll move in myself.

 

Buying to rent is something different to buying to live in.

 

A friend of mine invests in a lot of property and explained how he calculates his Rendite:

Buys property for €1,000,000
Costs @ 5.5% = €55,000
Own capital = €100,000

Total loan = €955,000
Mortgage @ 1% = €795.83 Interest per month

Cold rent of €2,000 per month
Cold rent minus interest = €1,204,17 per month = €14,450 per year

 

He has a return of €14,450 per year on his investment of €100,000 = Rendite of 14.45%

 

The €14,450 per year either is invested in Tilgung or is building towards the next purchase.

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4 minutes ago, Eric7 said:

Buying to rent is something different to buying to live in.

 

It is more or less the same, at least when talking about the primitive calculations you posted.   Just imagine you are renting it to yourself.

 

Where you can find a real difference is in taxes.   You can write off renovations and interest from mortgages.

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23 minutes ago, Eric7 said:

He has a return of €14,450 per year on his investment of €100,000 = Rendite of 14.45%

 

The €14,450 per year either is invested in Tilgung or is building towards the next purchase.

 

It's not really a 14% return though, because he is taking on a lot of risk.  If things go well, he multiplies his win, but if things go bad, he gets really screwed.  If conditions go back to how they were 10 years ago, the house price could be cut in half.  It's of course unlikely, but if that happens not only does he lose all of his 100k, but owes the bank another half a million as well.

 

He's basically like the guy that goes to the casino and places a $1 chip on every number except number 1 on the roulette board.  He'll win almost all of the time, but the one time in 35 that it lands on that 1, it wipes him out completely.

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41 minutes ago, Hutcho said:

 

It's not really a 14% return though, because he is taking on a lot of risk.  If things go well, he multiplies his win, but if things go bad, he gets really screwed.  If conditions go back to how they were 10 years ago, the house price could be cut in half.  It's of course unlikely, but if that happens not only does he lose all of his 100k, but owes the bank another half a million as well.

 

He's basically like the guy that goes to the casino and places a $1 chip on every number except number 1 on the roulette board.  He'll win almost all of the time, but the one time in 35 that it lands on that 1, it wipes him out completely.

 

The house price doesn't really interest him, he's in it for the rental income.

Even if the house prices crash, rents aren't going to suddenly fall through the floor.

The only risk is when it comes to the time where the fixed interest finishes. If interest rates have exploded then there could be trouble.

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58 minutes ago, Krieg said:

 

It is more or less the same, at least when talking about the primitive calculations you posted.   Just imagine you are renting it to yourself.

 

Where you can find a real difference is in taxes.   You can write off renovations and interest from mortgages.

 

Well the difference is that I don't expect to turn a profit on the place I live in.

I always looked at that as: if the interest per month is no more than paying rent for the same property then it's a good deal.

Yes, there are associated costs but that's just maintaining your investment.

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