Bavaria and the real estate bubble

321 posts in this topic

23 hours ago, karin_brenig said:

 wow - sorry to hear that.

 

Maybe I just got lucky so far?

 

I love looking at places, meeting people, discussing my goals/prerequisites with family... securing financing... and waiting for that "heureka"-moment that always comes when you see "the one". My current house buying project is no exception, even though my situation has changed a lot from when I bought my first condo, back in 1985.

Hi Karin, we have actually been in the market since 2012. I thought that €450k was too much back then, and I think that 800k is too much now. We have looked at about 12 places, but there has been no Eureka moment, since most places were just too expensive. I mean back when they cost €450k the banks wouldn't give us a loan, even though we had 100k Eigenkapital. Now, we have less EK, and the banks will finance 100%, but I do not think that is prudent. I don't think I can live with €800k debt, with no chance in my lifetime of paying it off...

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2 hours ago, dmbartender said:

Hi Karin, we have actually been in the market since 2012. I thought that €450k was too much back then, and I think that 800k is too much now. We have looked at about 12 places, but there has been no Eureka moment, since most places were just too expensive. I mean back when they cost €450k the banks wouldn't give us a loan, even though we had 100k Eigenkapital. Now, we have less EK, and the banks will finance 100%, but I do not think that is prudent. I don't think I can live with €800k debt, with no chance in my lifetime of paying it off...

I see your point.

 

The first place I bought, after renting small apartments for 8 years, was a maisonette/condo 80m², for 300.000,- DM in 1986. For me, this was a huge stretch - scary, almost. I sold that place in 2005 for 170.000,- €. It wasn't paid off, but I wasn't upside down on it either.

 

In 1995 I bought a small apartment, 49m², wich cost 240.000,- DM back then. The sole purpose was to save on taxes by renting it out. Today I could sell this apartment for around 200.000,- €, but I don't think  I'll do that. My monthly payment to the bank (lender) is about as much as my rental income - so it doesn't cost me anything to have that piece of real estate. It will eventually be paid of, and then I'll have some income to supplement my retirement.

 

When we moved to th US, we bought a house as soon as possible - after renting for 4 months - in 2006. It is a 2.300 sq ft. single family home on an acre land with old trees, in a nice neighborhood. Back when we bought it, it cost 147.000,- $. Today it is valued at 205.000,- $. We still owe money on it, but we aren't thinking about selling. We don't rent it out either - tenants in the US are hard to deal with from that far away. Part of our family isn't as fortunate, so we let them stay there.

 

Now, back in Germany, we have absolutely no desire to go back to living in a small place - and we don't want to "throw away" big chunks of our income to rent a big house. So we started looking for something to buy as soon as we got settled in, early this year. Online research is fun, and easy to do. We only really looked at two houses, and are currently buying number two :) it is "expensive" - but not really, because research shows that the seller is giving it away for far less than what it is worth (given the current market conditions). It gave us the "Heureka" moment, as soon as we saw that it has an "Einliegerwohnung", which we'll rent out to somebody - thus making our tenant help with payments. Of course there is a plan, to pay back the debt - well within our lifetimes (God willing).

 

 

 

 

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On 4/25/2020, 5:34:50, karin_brenig said:

I see your point.

 

The first place I bought, after renting small apartments for 8 years, was a maisonette/condo 80m², for 300.000,- DM in 1986. For me, this was a huge stretch - scary, almost. I sold that place in 2005 for 170.000,- €. It wasn't paid off, but I wasn't upside down on it either.

 

In 1995 I bought a small apartment, 49m², wich cost 240.000,- DM back then. The sole purpose was to save on taxes by renting it out. Today I could sell this apartment for around 200.000,- €, but I don't think  I'll do that. My monthly payment to the bank (lender) is about as much as my rental income - so it doesn't cost me anything to have that piece of real estate. It will eventually be paid of, and then I'll have some income to supplement my retirement.

 

When we moved to th US, we bought a house as soon as possible - after renting for 4 months - in 2006. It is a 2.300 sq ft. single family home on an acre land with old trees, in a nice neighborhood. Back when we bought it, it cost 147.000,- $. Today it is valued at 205.000,- $. We still owe money on it, but we aren't thinking about selling. We don't rent it out either - tenants in the US are hard to deal with from that far away. Part of our family isn't as fortunate, so we let them stay there.

 

Now, back in Germany, we have absolutely no desire to go back to living in a small place - and we don't want to "throw away" big chunks of our income to rent a big house. So we started looking for something to buy as soon as we got settled in, early this year. Online research is fun, and easy to do. We only really looked at two houses, and are currently buying number two :) it is "expensive" - but not really, because research shows that the seller is giving it away for far less than what it is worth (given the current market conditions). It gave us the "Heureka" moment, as soon as we saw that it has an "Einliegerwohnung", which we'll rent out to somebody - thus making our tenant help with payments. Of course there is a plan, to pay back the debt - well within our lifetimes (God willing).

 

 

 

 

Hi Karin,

 

That sounds very reasonable. If we were able to get a duplex, or a house with an extra room to rent, we would do the same thing. You may be able to even rent it out on AirBnB for much more than a normal rate, depending on the current situation in Munich. I know they have banned most AirBnB listings, but if you are far enough away from the center, maybe that would be a lucrative option for you.

 

As for us, certainly we could have found something within a 30 km radius, but we want to stay in Großkarolinenfeld, a village of 6,000 because we are integrated here, and the kids go to school here. 

 

Recently, there was a DHH put online for 24 hours, here in our village. That was only the second house so far this year in Großkaro. It is from 1940, has no heater, except for a fireplace in the Stubn. It has 265m2 yard, and needs renovating. The cost of €420k sounds low, but actually I do not even know if a heating system can be added to this house, and if so that would be expensive. It has an old roof, old windows, it really needs a full renovation. Likely the costs would be around €600-650k after renovation, which I am not willing to do on a house 80 years old. 

 

Just have to keep waiting...

 

On 4/24/2020, 2:39:44, karin_brenig said:

 wow - sorry to hear that.

 

Maybe I just got lucky so far?

 

I love looking at places, meeting people, discussing my goals/prerequisites with family... securing financing... and waiting for that "heureka"-moment that always comes when you see "the one". My current house buying project is no exception, even though my situation has changed a lot from when I bought my first condo, back in 1985.

Hi Karin, we have actually been in the market since 2012. I thought that €450k was too much back then, and I think that 800k is too much now. We have looked at about 12 places, but there has been no Eureka moment, since most places were just too expensive. I mean back when they cost €450k the banks wouldn't give us a loan, even though we had 100k Eigenkapital. Now, we have less EK, and the banks will finance 100%, but I do not think that is prudent. I don't think I can live with €800k debt, with no chance in my lifetime of paying it off...

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Wow, now we even have Corona to deal with since March, and the prices are climbing even higher - about the mid 800s for a Doppelhaushälfte or Reihenhaus. Long gone are the days where a payoff of a home within a lifetime was possible.

 

What I don't get is, how in the heck are people doing this? Ok, if you earn €4.500 a month after taxes like some teachers do, than I guess it may be possible. But for me as an engineer these prices are too high. I recently found out our Kindergartenerzieherin and her policeman husband just bought a house for $850k. I don't get it. I suppose it doesn't matter anymore what job you have in Germany, everyone is buying houses, I just don't know how.

 

How are the prices looking in Munich?

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1 hour ago, dmbartender said:

 

How are the prices looking in Munich?

 

 

- I guess it depends upon what you are looking for, but "low" would not be the answer to your question!

 

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2 hours ago, dmbartender said:

Wow, now we even have Corona to deal with since March, and the prices are climbing even higher - about the mid 800s for a Doppelhaushälfte or Reihenhaus. Long gone are the days where a payoff of a home within a lifetime was possible.

 

What I don't get is, how in the heck are people doing this? Ok, if you earn €4.500 a month after taxes like some teachers do, than I guess it may be possible. But for me as an engineer these prices are too high. I recently found out our Kindergartenerzieherin and her policeman husband just bought a house for $850k. I don't get it. I suppose it doesn't matter anymore what job you have in Germany, everyone is buying houses, I just don't know how.

 

How are the prices looking in Munich?

Munich and surrounding areas - anything within reach of S-Bahn - is expensive to buy, but still even more expensive to rent.

Which is why people with a stable income prefer to buy. With the current interest rates being really, really low even "regular folks" can do it.

 

It's very simple: you have to live somewhere. So, you either pay a landlord - and never own anything - or you pay a bank - and eventually own (at least part of) your house. If you decide to move out later, as the owner of your house, you have two options: either sell your house (and get back part of your money, or even make a profit) or rent it out (and have a steady stream of future income).

 

Everybody buys a house and pays for it over the course of their lifetime.

 

Some people just chose to buy their own - while others buy a house for their landlord ;)

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3 hours ago, dmbartender said:

Wow, now we even have Corona to deal with since March, and the prices are climbing even higher - about the mid 800s for a Doppelhaushälfte or Reihenhaus. Long gone are the days where a payoff of a home within a lifetime was possible.

 

What I don't get is, how in the heck are people doing this? Ok, if you earn €4.500 a month after taxes like some teachers do, than I guess it may be possible. But for me as an engineer these prices are too high. I recently found out our Kindergartenerzieherin and her policeman husband just bought a house for $850k. I don't get it. I suppose it doesn't matter anymore what job you have in Germany, everyone is buying houses, I just don't know how.

 

How are the prices looking in Munich?

 

How is it possible to pay a 850k house with an income of 4500€ Net/month? 

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How is it possible to pay a 850k house with an income of 4500€ Net/month? 

 

For a very quick and simple calculation:

Assume interest rate of 1% (possible nowadays)

Assume Tilgung (yearly repayment) of 2% (quite low but also possible)

 

You get 3% per year, which is ~ 25k. A bit over €2.100 monthly. Possible if you earn €4.500 after taxes...

 

Of course the numbers get better if you bring some money up in front (10-20%?)

 

Cheers,

krakp

 

Edit: as TurMech mentioned below, this does not include the side costs (which will amount to ~9% in Munich), so you would need to have another €75k saved....

 

 

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10 minutes ago, TurMech said:

 

How is it possible to pay a 850k house with an income of 4500€ Net/month? 

Start early, say around 30. Now if it's possible to get a job paying that at 30, that's a different issue.

 

Banks have changed their lending practices in the past to align themselves with house prices/wages etc. they have to. This can be different in some areas due to lack of property on the market.

I've often thought that in the future the concept of a one lifetime mortgage will be a thing of the past. You will buy and your kids will inherit the property and hat's left on the mortgage.

And you know they scary thing, that will still be better for them then buying their own first property..

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1 hour ago, karin_brenig said:

Munich and surrounding areas - anything within reach of S-Bahn - is expensive to buy, but still even more expensive to rent.

 

That is absolutely wrong, I cannot afford the house I am renting, by a factor of 2.

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That is absolutely wrong, I cannot afford the house I am renting, by a factor of 2.

 

This depends on how quickly you assume you will pay it back (the Tilgung - yearly repayment rate). You can easily make it a factor of 4 if you say: I want to be done in 10-15 years... But I doubt that it is really 2x if you plan the credit for 40 years, let's say.

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42 minutes ago, TurMech said:

 

How is it possible to pay a 850k house with an income of 4500€ Net/month? 

Simple, you ask your parents to sell their house and take the money as a downpayment.

Houses in Germany tend to have a cellar. The cellar is changed to an apartment.

Your parents move to this apartment and pay a rent of 1000€.

Both of you work and your parents take care of your children.

Problem solved.

Don't say, I am cynical. I have seen this.

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56 minutes ago, krakp said:

 

For a very quick and simple calculation:

Assume interest rate of 1% (possible nowadays)

Assume Tilgung (yearly repayment) of 2% (quite low but also possible)

 

You get 3% per year, which is ~ 25k. A bit over €2.100 monthly. Possible if you earn €4.500 after taxes...

 

Of course the numbers get better if you bring some money up in front (10-20%?)

 

Cheers,

krakp

 

 

 

Is there a direct ratio to this? Can one pay a house costing half of this (425k), with an income of half of it (2.25k) ?

In addition, there are side costs accounting for 13% here in Hamburg (Munich 9%). This is not included in this calculation, is it?

 

54 minutes ago, cb6dba said:

Start early, say around 30. Now if it's possible to get a job paying that at 30, that's a different issue.

 

Banks have changed their lending practices in the past to align themselves with house prices/wages etc. they have to. This can be different in some areas due to lack of property on the market.

I've often thought that in the future the concept of a one lifetime mortgage will be a thing of the past. You will buy and your kids will inherit the property and hat's left on the mortgage.

And you know they scary thing, that will still be better for them then buying their own first property..

 

What if i have a period of job loss, sickness, etc. during this period of 35 years?

If i moved to Germany in my mid/late thirties, do i lose my chance of owning my propoerty completely?

 

Would it not be an equal option, if i keep my money in investment tools, and move to my home country after retirement (at the latest)? In this scenario, all the rent i will have paid will be gone, but my flexibility and peace of mind will remain. This  is not something quantitative, but doesn't it have a value also?

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@TurMech these are all valid points. The buying vs renting discussion is a never-ending story (and covered in quite a few older lengthy threads already like https://www.toytowngermany.com/forum/topic/130886-renting-vs-buying-an-apartmenthttps://www.toytowngermany.com/forum/topic/223825-house-prices-in-germanyhttps://www.toytowngermany.com/forum/topic/218836-renting-vs-buying-a-house-in-southern-germany). Everyone's life situation is different, so there will not be a perfect answer for all. 

 

However, the current extremely low interest rates make it possible for many people to afford buying which drives the prices up. And you earlier asked if it is possible to afford a given loan value with a given income, to which the answer is yes. Whether this is a good idea?: it depends... :-)

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14 minutes ago, krakp said:

@TurMech these are all valid points. The buying vs renting discussion is a never-ending story (and covered in quite a few older lengthy threads already like https://www.toytowngermany.com/forum/topic/130886-renting-vs-buying-an-apartmenthttps://www.toytowngermany.com/forum/topic/223825-house-prices-in-germanyhttps://www.toytowngermany.com/forum/topic/218836-renting-vs-buying-a-house-in-southern-germany). Everyone's life situation is different, so there will not be a perfect answer for all. 

 

However, the current extremely low interest rates make it possible for many people to afford buying which drives the prices up. And you earlier asked if it is possible to afford a given loan value with a given income, to which the answer is yes. Whether this is a good idea?: it depends... :-)

 

Thanks @krakp. I will read them all. I have sort of just settled my life after 3.5 years in Germany, and very recently gotten into this research to find out, if it makes sense for me ot not! Hope to find it out quickly :)

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2 hours ago, TurMech said:

Would it not be an equal option, if i keep my money in investment tools, and move to my home country after retirement (at the latest)? In this scenario, all the rent i will have paid will be gone, but my flexibility and peace of mind will remain. This  is not something quantitative, but doesn't it have a value also?

Realistically, you will marry and have children. 30 years from now you will even have grandchildren. I doubt, that you (and espcially) your wife will than return to your (will it be her?) home country. All the people you know are in Germany and most of the people you know from your home county will dead or have moved to other places.

I doubt, that you will move after you have been her for 30 years.

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24 minutes ago, AnswerToLife42 said:

Realistically, you will marry and have children. 30 years from now you will even have grandchildren. I doubt, that you (and espcially) your wife will than return to your (will it be her?) home country. All the people you know are in Germany and most of the people you know from your home county will dead or have moved to other places.

I doubt, that you will move after you have been her for 30 years.

 

I hope it won't turn out like this scenario :-). 

 

We came to Germany as a family 3 years ago, so my wife will not object to returning. But the rest can likely happen. 

 

I am more thinking about a situation, where it will be a must for us to return, as it won't be possible for us to sustain a living here, at the time i am retired. Very briefly, at the time i reached retirement age, i will have ~12 years less pension insurance payments made, compared to someone who started his working life here, thus a lower pension. If i go for buying a property here, i will have spent an amount equal to 4 properties in the home country. 

 

Currently i am putting everything on the table to see what really makes sense. I believe i will come to a conclusion in a few months :-).

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5 hours ago, krakp said:

 

This depends on how quickly you assume you will pay it back (the Tilgung - yearly repayment rate). You can easily make it a factor of 4 if you say: I want to be done in 10-15 years... But I doubt that it is really 2x if you plan the credit for 40 years, let's say.

40 year loan is idiotic. The world will rotate 40x around the sun by then. Countries will go to war, economies will collapse, much faster than before. I would not commit to a 40 year anchor.

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42 minutes ago, MikeMelga said:

N year loan is idiotic. The world will rotate Nx around the sun by then. Countries will go to war, economies will collapse, much faster than before. I would not commit to a N year anchor.

 

As I wrote to TurMech earlier: 

5 hours ago, krakp said:

Everyone's life situation is different, so there will not be a perfect answer for all. 

 

Everyone can insert a different value of N into your sentence and it will still make sense (for some) or be idiotic (for the others)…

 

The (confusing) thing about German loans is that even though they are 'modelled' for 40 years or even more if you want (and are young enough - the bank may not trust you to continue paying in 40 years if you are 65...), the actual 'commitment' (which is called Zinsbindung - 'the period of constant agreed interest rate') is much shorter - typically 10 to 20 years.

What this means is that you can get a house worth €850k for a €2.100 monthly rate (see my earlier calculation) fixed for 15 years, let's say. After 15 years you are left with a big part of the debt (in my previous example it would be about €575k) and you can decide: continue with a new loan, sell the house and pay back, rent out the house etc. So it basically goes down to whether the house value will grow or not. It is not quite the anchor you are describing. And maybe in 15 years the economies will not collapse just yet...

 

But of course I have no idea of your life situation and I am by no means suggesting that it would be a good idea for you. Just showing the high level math behind it …

 

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