60 posts in this topic

Hello Guys

Help me here on a real estate question.

|I live in Freising in a city center 136 m2 rental house, with warm rent approx. 1700. Its a slightly old house but very nice in terms of location and space.

Looking at the real estate prices. I zeroed down to a new apartment of 86 m2, costing 628000 EUR (exclusing Notar, etc.). I am really interested in buying this apartment as real state prices are rising up pretty quickly.
But I dont want to move in this apartment myself and want to put it on rent. I am looking at 100% bank loan. My thinking is, I will get some rental income out of this apartment and will put some money from my pocket to pay the loan EMIs.

I also know that, since, I will not live in the apartment, I can only sell the apartment after 10 years to exempt from Capital gain tax.

I would like to hold his apartment for 10 years and then sell it. I believe, the apartment price may be double in 10 years and I can earn some money here.

I know its a lot of hassle to rent an apartment, finding good tenants, paying tax on rental income, maintaining apartment and then reselling it?

I believe, I need to pay 20% to 40% tax on rental income?

Whats are the pros and cons of doing this?

Please advise.

Thanks, 
Sanjay

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Why do you think it will double price in 10 years? Don´t you realize that Munich has the largest real estate bubble in the world right now? This is about to implode (next 2 years) and you are going to invest?

Want to invest? Hold off for a few years, then buy when everyone is selling.

 

You do realize that house prices cannot go up above inflation and above salary raises forever, do you?

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Hi Sanjay,

I do not have specific knowledge about the Freising real estate market, but 7300 Euro/m^2 sounds pretty steep to me. Also, financing 100% is not really usual in Germany. Typically, you finance 80% and you need to come up with the remaining 20% and all the fees and taxes by yourself. If you do not have enough capital to do this, you will have a hard time getting a bank loan.

 

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1 hour ago, MikeMelga said:

Why do you think it will double price in 10 years? Don´t you realize that Munich has the largest real estate bubble in the world right now? This is about to implode (next 2 years) and you are going to invest?

Want to invest? Hold off for a few years, then buy when everyone is selling.

 

You do realize that house prices cannot go up above inflation and above salary raises forever, do you?

Hi Mike

This is why I need expert advise. prices are crazy here near by Munich as well. Even rental apartment are like 16 EUR per square meter.

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1 hour ago, gaijin said:

Hi Sanjay,

I do not have specific knowledge about the Freising real estate market, but 7300 Euro/m^2 sounds pretty steep to me. Also, financing 100% is not really usual in Germany. Typically, you finance 80% and you need to come up with the remaining 20% and all the fees and taxes by yourself. If you do not have enough capital to do this, you will have a hard time getting a bank loan.

 

Hi Gaijin

 

I already spoke to Interhyp and my house bank. They are ready to provide 100% loan.

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Just now, Akash3apr said:

Hi Gaijin

 

I already spoke to Interhyp and my house bank. They are ready to provide 100% loan.

 

At what APR?

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While I don't necessarily share Mikemelga's pessimism/optimist about the real estate in Munich imploding, you're being naively optimistic:

- The prices will most likely not go up 7% per year for the next 10 years (which you need to meet your expectation of doubling your gains..), much more likely they'll stagnate or there'll be a price correction.  Whether 10%, 20% or more and whether the prices recover afterwards slowly or quickly nobody knows. However, for quick gains you're late to the party.

- You'll rent the place. Rented Apartments are usually worth less than empty ones, and in 10 years the rental income will not be as high as an empty place would -> your apartment will be even less desirable

- Your apartment will be 10 years older than now with the corresponding loss in value.

- God help you if there are renovations to be done or you get a Mietnomad. From what you write you don't seem prepared for it.

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Depends on your funding otherwise. If you can afford extra payment in case a tenant does not pay even if only for some time then investing in a flat is ok. If you can't afford that its pretty tricky.

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If it's just purely an investment, why bother with all the hassle?  You'd probably be just as likely (if not more so) to make gains in index funds, plus be more liquid in case of emergency needs.  Also, you're not paying 1.3% as an investment penalty.

This whole notion of "no money down, someone else pays my mortgage and I sell it at a profit" is a tale told by the few who succeeded and not by the many who failed.

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Not even calculating the IRR, this looks like a losing investment purely betting on the multiple increase in the property price. If the inflation rises in the upcoming years, interest rate rises, the rise in property price will at least remain stagnant or decrease. I think it’s too late in the bubble now to start betting. Germany has a budget surplus of 13,5 billion last year, the third in five years, i think they’ll raise interest rate soon.  
but who cares what I think, right :) go get your investment!

 

PS: I forgot to add that given the low property yield here, the IRR will be positive after you hold the property for about 30 years. That’s excluding the possibility of sale, of course. If you can sell it at cost, then the IRR will be positive in whatever number of years you hold the property. I’m talking very roughly without any calculations here.

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The big advantage to being a landlord here is the bulk of the costs are passed on to the tenant. Also, in theory, you can raise the rent 15/20% every three years. Disadvantage tenants stay forever, rarely move. 

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On 13/01/2020, 18:15:53, catjones said:

IfAlso, you're not paying 1.3% as an investment penalty.

 

For an ETF you have to pay a fee, ranging anywhere for .33% to a nose bleed 2.75% depending on the fund.

 

i believe the break even point on rent is around a 4% yield. Than 100% of your costs are covered by the tenant. Also capital gains are tax free after something like 10 years

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2 hours ago, Rushrush said:

For an ETF you have to pay a fee, ranging anywhere for .33% to a nose bleed 2.75% depending on the fund.

 

Actually, that's not true.  Not all brokers charge a fee for ETFs.

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8 hours ago, catjones said:

 

Actually, that's not true.  Not all brokers charge a fee for ETFs.

 

Very few ETFs are free. The broker charges about 10 euros per trade (depending on how much stock u buy), but the ETF provider charges a running cost for the ETF.

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On 1/13/2020, 1:24:00, MikeMelga said:

Why do you think it will double price in 10 years? Don´t you realize that Munich has the largest real estate bubble in the world right now? This is about to implode (next 2 years) and you are going to invest?

Want to invest? Hold off for a few years, then buy when everyone is selling.

 

You do realize that house prices cannot go up above inflation and above salary raises forever, do you?

 

Why not? 

 

Banks are now charging customers money to keep the money in the bank. Savers will eventually have to park their money elsewhere to avoid being charged by the banks. Property or stocks.

 

With Central Banks talking about more quantitative easing and lower interest rates their is nothing stopping property and stock bubbles continuing.   

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53 minutes ago, RenegadeFurther said:

 

Very few ETFs are free. The broker charges about 10 euros per trade (depending on how much stock u buy), but the ETF provider charges a running cost for the ETF.

 

Only half-true. You can get a SP500 ETF from an excellent company like Vanguard with 0.07% p.a. costs. €1000 k€ invested in it will only cost €700/year. For my purposes that's as good as free. There are even cheaper ETFs out there, but I like Vanguard.

 

An online Broker like Onvista will charge you €1,5 per transaction through a Sparplan, or €5-6 in a straightforward purchase independent of the values envolved. For comparison, you pay 8.5% in taxes, Makler and Notar when buying property in Munich. That's €85000 gone for the same 1000 k€ invested. And afterward you need to pay for the property's upkeep, those are costs you can't pass to your Mieter and can easily exceed €700/year.

 

Now, I like real estate and by consistently studying the market in Munich in the last 15 years I think we got some good deals. But I'm planning to sell sometime between retirement and never, which offsets the high initial costs and makes me somewhat indifferent to market fluctuations. However, if I wasn't so settled down in Munich and didn't have children I'd  have kept investing all my savings in stock and index fonds. And like Mikemelga I'm counting with a price correction before I'll want to buy anything else in Munich.

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1 hour ago, mtbiking said:

And like Mikemelga I'm counting with a price correction before I'll want to buy anything else in Munich.

 

The whole situation is a actually bit depressing not just in Munich but in a lot of major cities.

 

The only thing in my opinion that will cause a price correction is higher interest rates.I can`t see central banks raising interest rates anytime soon.

 

The era of cheap money is unfortunately here to stay.

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The thing that ticks me off is that there are people who see real estate as a place to live, not just an investment.  Those of us who want to buy because we want to live there are being driven out by people who see real estate as nothing more than a substitute for a stock or bond.  It is particularly annoying to see buildable land  sitting around and seeing nothing on the market for sale at any price.  

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