5 ms·
It makes very little sense to buy a home in major German cities. Say you put away 1% of the value in depreciation + 3% as cost of capital + 1% in running costs
by johngladtj 3y ago
It makes very little sense to buy a home in major German cities.
Say you put away 1% of the value in depreciation + 3% as cost of capital + 1% in running costs a year. That's around 5% of the homes value in costs that you're having every year, so you need a return on that just to break even.
If you're looking to live somewhere, and you can choose to buy or rent the exact same house, it's simple to do the math. If your yearly rent is 12k, then just divide that by the 5% required return and you get the value of that house.
So 12k/0.05 = 240K
If that house costs more than 240K to buy, you're better off just renting it and saving the difference.
For me the difference in the apartment I'm renting and the price is ridiculous. The landlord is taking about 1.5% of the house value from me yearly, and using that to pay all those costs, so they are losing about 3.5% per year by renting it to me.
Thank you Mr. Landlord
- onlyrealcuzzo 3y agoYour landlord is getting ~0% interest and leveraged 4:1. The leveraged appreciation is definitely not -1%. Over the last ~15 years, it's closer to +10%.
- johngladtj 3y agoClose, their cost of debt was 2% a couple of years ago. The waac last I checked was around 3 or 4 %. Whatever the case once you account for costs they are not making money
- FirmwareBurner 3y ago>you're better off just renting it and saving the difference Saving significant amounts of money while renting it's a luxury many people don't have. Owning your own property is also an insurance against old age poverty. You can pay current market rent with your salary, but you won't be able to with a state pension. If you pay off your property by the time you retire, it's basically free rent after that. Meanwhile you're paying your landlord's mortgage and owning no asset at the end. Your math works if you "win the lottery" and get some rent controlled apartment way below market rates, then it makes sense to keep renting and investing the difference somewhere else instead of owning.
- j7ake 3y agoIs it free rent? Property taxes and maintenance of a large house in can cost as much as renting an apartment.
- FirmwareBurner 3y agoWe're talking about apartments here. Most (European) people can't afford to buy houses. Only Brits and Americans seem to default to houses, but in Europe apartments are more popular.
- hef19898 3y agoNot in Germany. Unless your house is a castle or something, I hear those are a money sink.
- rokhayakebe 3y agoIf you pay off your property by the time you retire, it's basically free rent. Until property tax in some states.
- FirmwareBurner 3y ago>Until property tax in some states. In most EU countries, property taxes on apartments are laughably small compared to the benefits of full ownership.
- trgn 3y agoA lot of old people can't afford the upkeep of a house though.
- FirmwareBurner 3y agoAn apartment is not a house. Upkeep for an apartment is reasonable. You're paying for the upkeep if you rent anyway since it's included in the rent, except you're paying to upkeep something you don't own..
- 3y ago
- rtkwe 3y agoAre houses actually depreciating 1% per year in Germany? Most places houses are continuously increasing in price.
- dukeyukey 3y agoGermany builds about 250,000 net houses annually, but the German population is either stagnant or declining. So it wouldn't surprise me if German house prices are falling, or are definitely expected to over the coming decades. The median German is aged 48. In France it's about 42, in the UK 41, and in the US it's 38. And Germany's fertility rate is lower than all of them.
- hcurtiss 3y ago> the German population is either stagnant or declining Is that true? If yes, is that hurting government pension/retirement systems? That sounds like a disaster to me. That also means Germany is excluding immmigrants more than is popularly understood. * seems it’s a known problem: https://www.cnbc.com/2022/10/31/germanys-pension-system-will-collapse-without-reform-influential-lobby-group-says.html https://www.cnbc.com/2022/10/31/germanys-pension-system-will...
- soco 3y agoFrom what I understand (please correct me if I'm wrong) one of the points of Merkel's politics when encouraging immigration was exactly this - getting a younger workforce in, to restore the pyramid. Now some people say "immigration bad" but I didn't see any alternate solutions for fixing the pension system. I mean, there might be, but I haven't seen them.
- dukeyukey 3y agoThing is, immigration to Germany is quite high. It's just Germany is a populous country (more people than all of the US in and west of the Rockies!) with a _very_ low birth rate. So even when 17% of the German population are immigrants, the population is _still_ falling.
- 3y ago
- hef19898 3y agoI somehow feel that your landlord is better at maths and fincial numbers than you are.
- deleted 3y ago[deleted]
- johngladtj 3y agoI'm an equity analyst on the side and my landlord is publicly traded. I know their numbers. Their cost of debt was under 2% when they purchased the property, but it's jumped significantly in the past year or so as their debt schedule has rolled over. These costs will only increase over the next few years as long as rates remain as they are. For now it's fine in terms of Cashflow since they had a major renovation in 2019, so their cash outflows aren't as big as they could be, but there are more costs than cash. They are 100% losing money on the property they are renting to me.
- miroljub 3y agoTypical German explanation :) Germans will go a long way explaining that not owning a house will make you rich, while owning a house will make you poor. I will not go into discussion why the math is wrong, the others already did that. I'll just note that that's the reason the median net worth of Germans is below the European average. Even poor(er) countries like Poland or Greece have bigger net worth than Germany. Rant: Now tell me that net worth number is not correct, since the state retirement system is not considered, while ignoring the fact that Germany is not the only country in the world with a retirement system.
- FirmwareBurner 3y agoGermany is the perfect example of how a country being very wealthy doesn't necessarily mean the people are equally wealthy as well. Someone else here called it "a rich country of poor people". You might have high salaries, but if all those high salaries get eaten up by various rent-seeking schemes and businesses along the way leaving you with no wealth to your name and only making the country and businesses rich.
- soco 3y agoSome time ago making businesses rich could have mean making also the people richer, trickling down might have been happening to some extent. Nowadays though with Bahamas and all the fancy financial tricks, those two things have been definitely decoupled.
- FirmwareBurner 3y agoIt stops trickling down when all the wealth and productivity gains of workers end up in the pockets of shareholders instead of workers. And since German companies don't usually reward all their workers with stocks/RSUs, the purchasing power of the average German has been on the decline for the past 30 years.
- johngladtj 3y agoI'm not German, I just live here
- Borealid 3y agoIf you think about this for a moment, you'll see that one or more of three things must be true: 1. You and your potential landlord have access to significantly different investment opportunities (ie, they have a lower interest rate than you would be able to get) 2. Your landlord is losing money (or potential money) by renting to you 3. You would be better off buying than renting This is an obvious derivative of the common-sense "the landlord's profit must come from somewhere". If you buy, the profit that would go to the landlord goes to you. So any financial argument saying that you're better off renting is really either an argument for #1 or #2 above. In other words, your maths are wrong.
- jstummbillig 3y agoWhy could #2 not be true? (The generous interpretation here would be, that costs around a building are complex, running costs and depreciation are often invisible for long periods of time, factoring them in correctly is hard, and foresight is not our strong suite)
- hef19898 3y agoBecause all those other costs are calculated into the rent? And if not, they quite often allow a landlord to simply increase the rent.
- jstummbillig 3y agoSure, if done correctly. I tried to make a case for why that might not be trivial. All it requires is a reasonably incompetent owners, that are as bad with foresight, as most humans, companies and even states are. The point is: It's easy to ignore costs that might get you in 50 years, because it makes stuff simpler now, and making stuff simple now is our thing.
- hef19898 3y agoYou probably find one idiot landlord, sure. In general so, landlords are in the business of being a landlord for making money. And guess what, they do! Because the only people stupid enough to get maths behind renting and real estate ownership are those who try tell you that renting instead of buyong makea you rich one day.
- yungporko 3y agoi might not be german or know anything about how housing works in germany, but i am 100% certain that german landlords are not willingly losing money en masse. either the government is forcing them to do this and fucking them over, they are recouping the money in some way, or your numbers are wrong.
- hef19898 3y agoI am German, know landlords, own property and rented previously, I tell you the answer is option three: his numbers are wrong.