Buying a house in Germany

76 posts in this topic

interesting twist this thread has taken... from "buying a house" to "cost of maintenance". 

My parents had to replace the 30 year old gas furnace/boiler in one of their houses (it's rented out) recently. The old machine quit working, and it wasn't very efficient anyways. So they invested in a modern, state-of-the-art piece of equipment that will (hopefully) last another 30 years. The whole project cost 18,000 €.

 

It makes no difference, whether you own the place, or you just rent the place - living in the house you eventually pay for maintenance (either with your monthly rent, or out of your savings/income). 

 

Believing that you "don't have to deal with the cost of maintenance" as a tenant is simply wishful thinking. The owner/landlord (if it is not a tax-subsidized entity) will calculate rent payments to include expected maintenance cost, and still make a profit on the investment.


 

1

Share this post


Link to post
Share on other sites
18 hours ago, Gambatte said:

Servicing my current gas boiler, 2yr old, costed about HALF our yearly gas bill. Bloody expensive 😟.

 

With gas prices already tripled, maybe getting unit serviced wasn't such a bad idea. Also won't be half the bill pretty soon. Just saying.

0

Share this post


Link to post
Share on other sites
5 minutes ago, Metall said:

With gas prices already tripled

Since when tripled?

0

Share this post


Link to post
Share on other sites
On 10/29/2021, 2:49:32, karin_brenig said:

My tax advisor gave me the parameters for the kind of rental apartment that I should go for: it should be located close enough to where I live (so that I can manage it personally); it should cost less than  2.5 times my annual salary (so that the tax savings could be maximized). I found the perfect place, got it financed, and made sure the numbers added up - between rental income and tax savings it cost me nothing to own that apartment. Tenant and Finanzamt are paying it off for me,

Hi Karin

 

Any chance of elaborating on the tax savings? 

 

thanks

0

Share this post


Link to post
Share on other sites
3 hours ago, penchanski said:

Hi Karin

 

Any chance of elaborating on the tax savings? 

 

thanks

 

ok, I'll try - I'm not a tax advisor, so take this with a grain of salt.

 

In Germany (and very similarly in the US) when you have rental income, you can offset part of your "losses" out of the rental property against your income tax. You lower your taxable income. If you are in a high tax bracket (called progression) with your marginal tax rate (like it is my case in Germany) being close to the maximum - around 45% - those (really fictitious) losses can lower your taxes to the point where your payments for the mortgage loan, plus your tax savings, are the same amount as your rental income. Makes owning real estate a zero-sum game. You build wealth at no cost to yourself, financed by your tenant and income tax savings. 

 

So, what are the "losses" you can subtract from your income to lower the tax?

There is depreciation,
interest paid for the mortgage loan (only in Germany, though),
insurance premiums,
maintenance cost,

management and services,

travel expenses when you have to go check on your property,

the cost of advertizing to find new tenants...

 

While most of these expenses are "real" (as in actual money leaving your pockets), the biggest factor is depreciation, which is "fictitious". This is no tangible loss, that you actually incur - because it just happens "on the books". In Germany, if you sell that property after holding it for ten years or more, you don't have to pay taxes on your (potential) profit from the sale. US citizens have to be a little more careful - even if the property isn't located in the US - because there is what IRS calls "depreciation recapture", and then the capital gains tax. 

 

My little tax savings "piggy bank" rental apartment is just now starting to turn a real taxable profit (of about 10€ per month) - after owning it for almost 30 years. I will keep it to supplement my retirement income, when that day comes. By then it will be fully paid off and the profit will be noticeable.
 

1

Share this post


Link to post
Share on other sites

You have been paying a mortgage on your piggy bank apartment for 30 years and it isn't paid off? We paid ours off in 8 yrs. (10 yr. loan) and, since then, the rent we get is profit although taxed at a much lower rate since we are retired. As you said, it is just a supplement to our retirement income.

 

 

2

Share this post


Link to post
Share on other sites
On 10/30/2021, 1:04:59, karin_brenig said:

 

you're right, I'll shut up, keep my wisdom to myself, and just quietly enjoy the results of proper planning (and a lot of good luck).


After all, I can't tell people how to live their lives. Even the ones that actively asked for my input often times simply nod, say "thank you" and then do whatever. Human nature. 

No, don't keep to yourself your wisdom. I agree with your opinion.

 

On 10/30/2021, 1:04:59, karin_brenig said:

 

0

Share this post


Link to post
Share on other sites

Thanks Karin, very helpful.

So depreciation is used to lower your taxable income. So we can say that the maximum tax benefit for depreciation is 45% of 2%, or 0.9%.
Right?

 

What is this based on? Is it tied to the price you paid or can you get a valuation done as a basis? 

 

For instance, our apartment cost €400k but might be worth €500k now. That would increase the max annual tax-saving by €900 if you're allowed to use this valuation.

0

Share this post


Link to post
Share on other sites

It's based on what you paid for it, plus all the costs associated with buying it like Makler, surveyor, Notary. If repairs are required soon after purchasing, these can also be considered Anschaffungskosten.

 

The 2% is for "newer" properties. It's 2.5% over 40 years for properties built before 1925.

1

Share this post


Link to post
Share on other sites
13 hours ago, fraufruit said:

You have been paying a mortgage on your piggy bank apartment for 30 years and it isn't paid off? We paid ours off in 8 yrs. (10 yr. loan) and, since then, the rent we get is profit although taxed at a much lower rate since we are retired. As you said, it is just a supplement to our retirement income.

 

 

 

my plan is (was from the date I bought this apartment) to pay it off by the time I retire. It all depends on your personal circumstances, and how you calculate your investment. Mortgage interest and depreciation should align with your income for maximum impact. If you are closer to retirement, and expect to make less, you'd want to pay off your mortgage earlier, of course. 

0

Share this post


Link to post
Share on other sites

With current mortgage rates most people are better off NOT paying the loan off rapidly, that cash better go into some other stuff.

 

Mortgages today are 1%. The SP500 is up 34% since a 1yr ago.

4

Share this post


Link to post
Share on other sites

Yes, I had assumed we would pay ours off at 10 years with a lump sum, but if we can arrange a follow on mortage at similar rates to the current ones, we'll probably do that .

1

Share this post


Link to post
Share on other sites
14 hours ago, Gambatte said:

With current mortgage rates most people are better off NOT paying the loan off rapidly, that cash better go into some other stuff.

 

Mortgages today are 1%. The SP500 is up 34% since a 1yr ago.

It went down even faster though in 2008. I´m still feeling the pain.

0

Share this post


Link to post
Share on other sites
4 hours ago, jeba said:

It went down even faster though in 2008. I´m still feeling the pain.

 

What do you mean? 

Did you buy SP500 at at its 1500 maximum of Sept 2007 and sold at its 770 minimum of Feb 2009?

If you did, that's probably the worst you could have done and I'm sorry.

 

But if you still hold it, it went up x6 in the 13yr since the 2009 minimum, average yearly return of 15% .

 

Do not go into the stock market unless you are prepared to stay there long. And if you do stay long, it's almost impossible to lose.

4

Share this post


Link to post
Share on other sites

Interesting than only 10% of professional in finances and economics predict stock market crashes (remember this number next time you pay someone for advising you on the market). No better if you restrict yourself to Nobel laureate economists. But AFTER the crashes occurred, everybody agreed on "we didn't see it coming, but in hindsight we should actually have because all the historical elements indicating a crash was imminent were there".

 

 

0

Share this post


Link to post
Share on other sites
13 minutes ago, Gambatte said:

Interesting than only 10% of professional in finances and economics predict stock market crashes (remember this number next time you pay someone for advising you on the market). No better if you restrict yourself to Nobel laureate economists. But AFTER the crashes occurred, everybody agreed on "we didn't see it coming, but in hindsight we should actually have because all the historical elements indicating a crash was imminent were there".

Because anyone who could predict a stock market crash would have better things to do than advising others.  And prize winning economists are academics with tenured positions and nothing to lose by doling out opinions.  What do people expect?  🤷‍♀️

0

Share this post


Link to post
Share on other sites

I've survived a few crashes without losing anything in the end. It's pretty easy. If you are living/living partially from your investments, keep enough cash on your account to survive a couple of years. 

 

Main thing - DON'T SELL ANYTHING.

 

ETA - OK, back to home ownership. There is another thread for stocks, etc.

3

Share this post


Link to post
Share on other sites
2 hours ago, Gambatte said:

What do you mean? 

Did you buy SP500 at at its 1500 maximum of Sept 2007 and sold at its 770 minimum of Feb 2009?

My portfolio at the time was leveraged and the bank decided to sell. Google margin call for details.

0

Share this post


Link to post
Share on other sites

That's what happens when you buy stock with money you don't have. I've never done it. I think there were more investors in their margins than there was credit card debt back in 2008. They had to sell which drove the market down further.

5

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now