Financing without equity with security?

Do not pit rent against financing. Banks have been telling this fairy tale for decades! For very few people, owning a home is ultimately cheaper than paying rent for life. You have to compare everything: interest, additional costs, insurance, maintenance and repairs, and the residual/sale value at the end of the term. Due to demographic changes, it fails just because most people build "in the village." It already takes a prime location to come out "without loss" after 30 or 40 years. Here in the East, this is already very clearly visible. Prices in cities (close outskirts!) are exploding, and in the village you get houses "hInterhyprgeworfen."

We have dealt intensively with the following question: paying rent for life, max. flexibility, and a "schickes Aktiendepot" that I can always turn into cash "short-term," or ownership? We have decided on the luxury option -> ownership. It is nothing else. It is luxury and increases quality of life (at least I hope so). Paying rent is not bad and I have always enjoyed paying rent and even now, despite rent increases, I gladly pay my rent every month. I cannot imagine ever gladly paying my interest to the bank. I neither like banks nor interest.

Regards, Steffen

You forget that in retirement you have a lower income but still have to pay rent – with homeownership, if calculated correctly, you no longer do. Maintenance aside – even larger repairs can be covered with a relatively small loan and/or savings.

Putting aside the quality of life you mentioned – I certainly wouldn’t call it a fairy tale because it only becomes a fairy tale if you speculate on selling. If you don’t sell and exclude this factor, paying rent for a comparable property is certainly more expensive...

Ultimately, it also comes down to rentable properties – at least here you can find a few houses with the appropriate standard that are almost equivalent to my monthly cold rent. For us, it quickly became clear that we would build – although we categorically ruled it out until about 1.5 years ago (and accordingly didn’t save much).

I am 100% with Steffen80.

Additionally:

A good example to illustrate to, let’s say, mathematically less proficient people, that a property is usually not the better financial choice:

The average return from renting out property is long-term below 5% (larger complexes above average, single-family houses usually significantly below; there are a bunch of studies on this topic). If you buy a property, logically you can at most “save” this return. The bank also wants its share... what remains is obvious. For a single-family house, you can be glad if the return is positive in the end.

For comparison: A globally diversified stock portfolio yields long-term > 5%.

The mistake mostly made is to understand a property as a safe investment and compare it with investments like instant access savings accounts. However, the risk profiles differ significantly. A single property carries enormous risk, which is rather comparable to a stock portfolio.

Nevertheless, there are factors that also drive us toward homeownership -> quality of life. But we do not fool ourselves into thinking it is a good financial decision.

Edit: :
You have the typical “but in retirement I can then live cheaper” misinterpretation. As a thought experiment: Assume your property is paid off at age 55. At exactly this point, you compare your assets, once for the case with the bought house, once for the case of a rented house. In one case your asset is the house, in the other the stock portfolio. Now you have the free choice... in the case that the portfolio yielded more return than the house (which it did in recent decades), you can simply buy an equivalent house with the money and still have a remainder left in the portfolio.
You can then do the same thought experiment at 55 again... which shows that this “living rent-free in retirement” argument simply does not hold. Why not? Quite simply because by then you have a stock portfolio so large that it generates returns that easily cover the rent for an equivalent house...

Quality of life is of course ignored, but everyone defines that differently anyway.

Tego12 was quicker and got straight to the point

Take any interest calculator -> Our current balance of 340,000 EUR yields, at 3% (minus inflation), just over one million euros in 40 years. That should be enough for us to live on cruise ships all-inclusive for at least 10-15 years

Seriously: I am quite sure that without building a house we would be better off in old age than we are now. Purely economically. But you have to consider... our rents are not that high. For 7-8 EUR cold rent per sqm you can already get really great apartments in very good locations. 200 sqm for 1400 EUR cold... you wouldn’t build a 200 sqm house including land in an even remotely as good location for that.

Or put it another way: We’re at 850,000 EUR including a very good location. With interest around 1 million euros. For that, we could pay 1400 EUR monthly rent for 59 years Inflation not taken into account.

Regards, Steffen

Thank you very much for your thoughts!

For me personally, the point of quality of life is, of course, at the top of the list: We currently live in an ~110sqm apartment on the 1st floor and, of course, we are doing quite well. However, not in the place where I want to live long-term, without a garden and without a garage/carport, which is important to me in the long run. Furthermore, home cinema is a big topic for us, which we cannot fully enjoy with our landlord in this house at the moment.

The next step (to the "own" house with a garden and garage in the desired location) would mean a rent increase from €530 to about €1000 - €1200. The real estate market here, in the commuter belt around Osnabrück, where I am quite restricted in my preferred area (concerning a radius of <10km), is, to put it mildly, a mess. For a house that qualifies, there are about 30 applicant parties. Among them, of course, there are significantly more solvent competitors than us, who can also pay higher rents if necessary. The landlords here know that as well. Therefore, the rent index has increased significantly in the last 5 years (since we have been looking). The same applies, of course, to existing properties for purchase. The demanded price no longer remotely matches the value assessed by banks.

The plot we are currently planning would be a bargain with an investment of about €300,000 (roughly rounded) compared to other options. There are practically no alternatives on the plot market. We currently still have the offer to get the sqm for €140 (since we enquired early) - in weaker neighboring communities, the prices are rather around €170/sqm - with an upward trend. In my desired location, there are currently no alternative purchase plots available to choose from.

I am not 100% with Steffen80 either: I don’t really calculate that the property must yield more on day X than my saving possibilities. I also do not like paying rent. I no longer value flexibility. I have become settled, as they say: family, friends, job, sports, hobbies - all in the immediate vicinity and with the possibility of achieving my dream property in my desired location.

But I even assume that real estate prices will develop in the next (at least 10) years as they have in the last 20 years. The land prices here have risen in 20 years from 100,-DM/sqm to about €150/sqm. I would not even worry much about a resale value.

The average return from renting is long-term under 5% (larger complexes above average, single-family houses usually well below; there are a bunch of studies on this topic). If you buy a property, logically at most this return can be "saved." The bank also wants its share... what remains, everyone can imagine. For a single-family house, you can be glad if the return is positive in the end.

In my opinion, you have a crucial flaw in your thinking. The 5% refers to the capital employed. However, an investor will hardly use only equity but as much debt as possible. As long as the interest rates are <5%, he even leverages his return with it. The same applies to the homeowner. He finances his house. So he effectively has the same return as the investor and does not have to subtract the interest from the 5%.

The advantage of owning a house is that, as long as you pay your installments, you cannot be thrown out (unless by the wife ). In addition, I can design my house/land as I want and not like the landlord wants. Another advantage is that the installments are pretty fixed. How rents will develop due to the new energy regulations can hardly be predicted by anyone. I recently saw a report on Arte or 3Sat where rents doubled after renovation, and that was even legally okay.

The problem I see is that many build bigger than they would rent. That is exactly why the single-family house is rather not worth it.