Bavaria and the real estate bubble

321 posts in this topic

One of the many things I don't get in this kind of discussion is:

why should the maths end when the mortgage end? the need for housing continue after that...

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Good point..

 

And after retirement, you often have to continue paying a rent... with a purchased house its only utillities and maintenance costs..

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dw, how can a responsible bank lend you 100% of the price and four times your salary? I think a piece of information is missing (winning lotto ticket, rich grandmother about to pass away, etc).

 

would you lend money under such conditions? normally the schwabs, well, you should know by now.

 

No, no info missing. I did have some money as a deposit, but never understood the makler/notar/tax at the time and this wiped it out. I was really clueless at the time, and as someone else said probably paid for it in interest rate.

 

 

Good point..

 

And after retirement, you often have to continue paying a rent... with a purchased house its only utillities and maintenance costs..

 

Yes, so from that point housing is free, but as someone with opposing viewpoint will no doubt mention, if you have saved the potential tilgung amount while renting you would have enough money to buy a house outright. It isn't an either or. Both are valid methods of getting there, and it depends on interest rates, returns on investment, income and timing. The last one is hard to influence.

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But the thing is.. no one would ever save the "Tilgung" as they have a rent to pay!!

 

BTW.. I did buy my place "outright"... as I made sufficient proffit from the sales of my other properties!

 

If I hadnt have bought the properties, I wouldnt have enough to buy this place!

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sp, I at least did not say one should not consider real estate as an investment. However, if you buy in expecting large returns, then 1. you could be disappointed at great cost 2. you will have the propensity to overpay. After all, you expect the price to go up. People speculating drive bubbles (which is great now that I own, at least part of an apartment). It is a good investment, but to speculate at the cost of housing in Germany could be dangerous (things can go wrong).

 

Also, SP, I want to invent a new word here in TT where people assume their experiences are everyones experiences. You provide a great example (nothing wrong with it, but it is all too common to assume what happened to you should happen or does happen to all). Internetsolipsism? We all do it, so no shame in it.

 

dmbartender, think in terms of the overall price (all fees). You don't spend six years just paying fees, you spend ~8-10% of your payments to fees (that maybe makes it more palatable). It just gets rolled into the payments. (Common in the US was (and maybe still is) to add a few extra thousand to the mortgage and go get a new car).

 

You can also buy places without a makler and that saves a few percent, but limits choices somewhat. But their no little joy in knowing you are not paying a Makler.

 

We bought ours without a Makler but in the end, the fee that would have gone to the Makler was the increase in price we had to agree to, in order to get the place (München, so ist). We had out budget (ever increasing) and we knew the basic rates from a bank (but they won't commit obviously until you have a specific place and some documentation). Trying to keep the budget is difficult (hence, it increases). So with a Makler we had a list price range and without slightly different. Even without you pay all sorts of other fees, but in the end we had a pretty good idea of the monthly payment and length of mortgage we wanted (+/-).

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Yeah but a REIT or any other stock market based investment vehicle can also tank on you, but they are still investments. You can't say an investment is only an investment if it turns out to offer a return.

 

if you buy a property with the intention to earn rental income, then yes, it is an investment. but a home where you live in, you don't get any return from it, in fact you only incur cost after cost. therefore it is not an investment.

the word 'investment' is overused nowadays. everything is an investment. let's invest in a good book. a nice car. a beautiful furniture. well unless you expect monetary returns from it, it's not an investment.

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Saying that a home is a luxury consumption is like saying that having enough food to eat is certainly nice, but not strictly necessary. Who do you think pays the maintenance costs if you're renting? Hint: unless you're renting from Opa and Oma, it's still you, as those costs are covered by the rent.

 

the comparison is off the mark. now would you consider renting an investment? exactly. same logic applied here as owning your own home.

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if you buy a property with the intention to earn rental income, then yes, it is an investment. but a home where you live in, you don't get any return from it, in fact you only incur cost after cost. therefore it is not an investment.

the word 'investment' is overused nowadays. everything is an investment. let's invest in a good book. a nice car. a beautiful furniture. well unless you expect monetary returns from it, it's not an investment.

 

It depends very much how you want to look at it I suppose.

 

A (low interest) mortgage in your 30's is very much comparable in real terms with a pension plan. Paying in now, means you will have more money in retirement (assuming you buy something that isn't a total money pit-modern properties actually don't require masses of maintenance, as long as they are treated normally).

 

If you don't buy now, you will rent and continue renting into retirement, so you'll need to put the money you didn't put into a mortgage into a pension plan or ETFs or whatever floats your boat. Would you consider the pension plan or ETF and investment but not the mortgage payment? Both have the same result in retirement: providing the roof over your head.

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Dont forget that your landlord has the rights to increase your rent at certain times... But once you sign a contract with the bank.. They cant legally increase re-payments..

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I know I'm not in Bavaria, but since the thread has got more general...

 

My landlord would have to virtually double my rent to put it anywhere near what my mortgage payments on the same flat would be (judging by what the flat across the road sold for). For me there are medical factors complicating what it would make sense for me to purchase (non-driver, and the reasons for that make me a bad candidate for extensive DIY) but the bottom line is, taking all the numbers into account:

 

Rent = 24% of take-home pay

15 year mortgage = 48% of take-home pay if I wanted it to be paid off at the end. Frankly, no matter the benefits of owning for the future, that would be beyond idiotic. (Even if it worked out, I'd have a flat and virtually no savings.)

 

A 25 year mortgage would give me affordable payments (35% of take home, give or take), but that's a rather risky proposition for a single person who isn't sure they want to live in their current city forever - no guarantee of selling at a profit given the market here, and in a crisis - or more prosaically, if I moved somewhere for work where rents are higher - rental income wouldn't cover the mortgage and I'd still need another place to live.

 

What I do find somewhat alarming is the fact that my income is (supposed to be) statistically speaking, comfortably middle class for a single person. Either all the statistics are wrong, it's OK to spend 50% of your take-home pay on housing, or the question of buy vs rent is academic for a lot of people.

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the word 'investment' is overused nowadays. everything is an investment. let's invest in a good book. a nice car. a beautiful furniture. well unless you expect monetary returns from it, it's not an investment.

 

What do you call the money you save by not having to pay rent anymore? Monopoly money?

 

Let's put it this way:

- Nice car: nobody needs one

- beautiful furniture: nice to have, but nobody needs it.

- roof over the head: hmm..

 

It's an investment. Whether it's a good investment or not depends of many factors, and there's also risk involved that should be managed like in any other investment.

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if you buy a property with the intention to earn rental income, then yes, it is an investment.

This statement alone is enough to prove you are talking dribble. Cleary the ONLY difference in the above scenario is that YOU are acting as the tenant - otherwise everything is identical.

 

And frankly I cannot imagine a more trustworthy and reliable tenant than myself....thus making my "investment" more secure.

 

No idea why you should think sticking a 3rd party stranger into the house to pay the mortgage *suddenly* switches into an investment?

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Flavia, if you have a good rental situation then there is often no reason to buy. Some folks simply want to own something and some financial arguments can be made for both cases.

 

The simple formula for comparison is you give money to your landlord or you give money to the bank to borrow money from the bank. Since the principal (money you pay that is not interest) essentially is yours, you are simply saving money (by owning the house). Like many investments the return is if you decide to sell (like most stocks that don't pay dividends).

 

The amount of income it takes to buy a place in Germany is absurd from US standards, but then again most employees have a pretty solid contract and won't be fired here in Germany. So if you have less risk of losing your salary then you can up the % you pay for a mortgage. Doesn't make it pretty, but it might be the reason. Also, German houses are pretty bomber when compared to some US houses, standards are well, applied here. Not so often in the US (my mom owns a 2 story farmhouse, close the door to any room and the entire house shakes).

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Its seems the "pro" renters are the ones that cant afford to buy...

 

I wonder if TTs financial advisors rent or have bought their current property... And why...

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Its seems the "pro" renters are the ones that cant afford to buy...

To some extent, of course. But it's very hard to talk about 'always' or 'everyone' when it comes to this sort of topic. People have different priorities. I simply posted my figures because a lot of the previous posts seemed to assume that buying and renting cost roughly the same per month. I could actually afford to buy something - it just wouldn't be a place I would want to live in for the duration of the mortgage. And getting into a place of my own isn't important enough for me to spend the next decade trying to achieve it and sacrificing quality of life to the extent that would be required. It's also a personality thing - I can't think of anything worse than having to be responsible for mowing the lawn or making sure the boiler is running. And I have no children and no particular need to fund a dynasty - as long as I can save enough while renting to keep paying rent into old age or find an alternative, that's fine with me. (Renting and not saving is indeed ridiculously risky if there's enough disposable income for it to be a choice.)

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Well I went to our local village bank today to get some real facts and figures, instead of just assuming that I knew the conditions of a house mortgage. We had a long, 2.5 hour discussion, and the banker explained a lot to me regarding conditions of mortgage loans they provide.

 

The most important thing for me is that this bank is willing to do a 30 year, fixed rate mortgage. The rate would be around 2.14% right now. The average house around here costs around €450k, and I could get by paying €1200 per month and €2000 Sondertilgung per year to have the debt fully amoritized by the end of the 30 year periond. What is not true however, is that the closing costs such as Markler and Notar and Grundbucheintrag can be rolled into the mortgage. These must be paid out of pocket, which drastically reduces Eigenkapital (not to mention buying a kitchen or furniture that fits).

 

The main problem is, that the bank will only lend up to 72% of the sale price. That means that if we can gather up €100k between us and our families, that we can only get a house up to a value of €280k. That is the difficulty, because there are no houses here for that price. We would have to get creative in finding a way to get more Eigenkapital through family, or just wait and hope that someone needs to quickly sell a house and does not hold out for the highest possible price.

 

So in summary, I found out that although we could afford the monthly payment, we will not have the necessary down payment after paying closing costs to obtain financing. Sucks.

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Please get in touch with Starshollow and firm - you never know whet better offer just might be available which your local bank has no access to. Whilst the property landscape is utterly different up here and our situations are not comparable, using the broker meant that we had a better shot at landing the best deal, and that part is true anywhere.

 

Hope you find something suitable, with the mortgage to match.

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The population of Munich has nearly doubled since the 1950s

An additional 210,000 are expected in the next 15 years.

More at http://www.abendzeitung-muenchen.de/inhalt.einwohnerzahl-muenchen-waechst-bald-sind-wir-1-72-millionen.836093ad-ab59-494c-b273-dc31d78c425c.html.

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