Multi-family house as a capital investment in an aging city

And what about vacancy?

Vacancy can be taken into account as a percentage; depending on the area and rental situation, one can expect 11-11.5 months of rental per year - which is ultimately a theoretical value.

However, 300€ is not sufficient here, but the amount that needs to be supplemented is about 7,400€ as shown, including realistic maintenance. With 3,300€, there is a creeping depreciation due to backlog of repairs.

If the money is invested and one projects a stable income value after the loan is paid off, then one achieves a "proud" net return of 8,500€ with an investment of 290,000€ plus the 15*7,500€ that has been pumped in each year, resulting in about 2.1%. This value can be improved by increasing the asset price and rent, but it still takes quite a lot of Amaretto to make this look good at 6%.

So it is only interesting if you massively reduce the purchase price, squeeze the property dry and/or use it as a tax-saving model.

q.e.d.
Dirk Grafe

it's still quite a lot of Amaretto to drink oneself nicely to 6%.

Or leverage

If the money is invested and a constant yield value is forecasted after the loan is paid off, then you achieve a "proud" €8,500 net return on an investment of then €290,000 plus the 15*€7,500 you have poured in every year, resulting in about 2.1%. This value can still be improved by increasing the material price and rent, but it still takes quite a lot of Amaretto to convince yourself of 6%.

Ok Dirk, I can understand that you would prudently increase the maintenance reserve. But I think you should calculate your figures differently. When I calculate the final yield, I do not relate it to the total price of €290,000 plus the invested money, but to my equity plus invested money, that is €60,000 + 15*€7,500 = €172,500. The difference to the €290,000 was paid by my tenants over the 15 years. Then, since I am still diligently building up a maintenance reserve, as you correctly wrote, I come to €8,500 net return from the day the loan is paid off and thus about 5% on my total capital employed.

And if I had invested the €60,000 for 15 years for example in an index fund and added €7,500 each year as a kind of savings plan, I would need about 6% interest annually to reach €290,000 at the end, says my compound interest calculator, which also takes compound interest effects into account. At least currently, you only get 6% with at least medium risk. And then I would have the €290,000 after 15 years only as a sum and not even adjusted for inflation. On the other hand, the building value should approximately increase with inflation if all other factors (demand, building condition...) remain roughly the same.

Of course, it may be that in 5 years you can easily get 5% on a savings account again and all stocks boom. But buying a house is something where many political risks etc. can arise in the future that can break your neck, but are hard to predict.

Ok Dirk, I understand that the maintenance reserve can cautiously still be increased. But your calculation, I think, you should correctly do differently. When I calculate the final yield, I do not relate it to the total price of €290,000 plus money poured in, but to my equity plus money poured in, that is €60,000 + 15*€7,500 = €172,500. The difference to the €290,000 has been paid by my tenants over the 15 years.

Yes, of course you are completely right. Therefore, I am joining the project. You buy the house and grant me a pre-emption right for the day your tenants have paid off the loan. I will then pay you the €60k equity plus maintenance costs for 15 years and then the house belongs to me. Strictly speaking, I wouldn't even have to pay you the full maintenance costs, because your tenants have partly already paid that, but I don't want to be mean.

So - should I take care of a notary appointment or will you do it?

Best regards
Dirk Grafe

I will then pay you the €60,000 equity plus maintenance costs for 15 years, and then the house will belong to me. Strictly speaking, I wouldn’t even have to pay you the full maintenance costs, since your tenants have partially already paid some of that, but I don't want to be like that. Dirk Grafe

I do not agree that you then transfer me the €60,000 plus 15x €7,500, because you will have been able to use the money for 15 years. So you transfer me the €60,000 now and €7,500 each year, but you also have to show me an investment opportunity for 15 years where I get at least 6% p.a.

No, seriously, please explain where my thinking might be wrong. I have thought it through as well as possible and believe that my calculation is correct.