Take more credit or sell?

: Thanks for this thought. I'll talk to an acquaintance from the tax office. She audits businesses and income mil. and should know about that

Hello,

basically you have both options. If you want to make a purely mathematical decision, you have to calculate the real net income of the apartment including the interest advantage through a burden on the condominium against the costs of financing. On top of that, the expected increase in value of the apartment after x years.

But I believe you would be better off selling. With a €270,000 loan, you would have a burden of roughly €1,350 (2.7*€500). Minus €400 net rental income, that leaves €950 pure burden.

It’s possible, but I find it tight for 4 people.

In addition, the net return of the apartment is only 2.4% (12*400 / €200,000). That is completely normal – but it is not 5% or 7%, rather under 3%.

My approach would therefore be a short-term loan with a 5-year term and about €150,000-175,000 and a second loan with a 10-15 year term for the remaining amount. After a sale of the apartment following construction and moving, possibly with temporary re-letting, I would pay off the first loan completely and then have about €25,000-50,000 free capital with a residual burden of about €100,000.

With that I could sleep quite peacefully.

Best regards Dirk Grafe

wow, the input here is really great!

I did some research. Unfortunately, the loan split mentioned by Musketier is not possible, because the loan for the apartment was completely paid off back then and you can’t just deduct interest as WK again (but I’m happy to be corrected by the tax officer or a tax advisor )

Just a quick note on the net yield: the apartment should bring in about €800 cold, of which €200 go away as Hausgeld, as mentioned. Probably max. €100 tax due to high depreciation (2% of almost €200,000)

You can play with the numbers, ultimately it remains a trade-off between two good, practical solutions.

But reverse the consideration about the net return:

Let's assume you get a home loan at 2% and you want to achieve a net return of 4% on the condominium (due to higher risk and additional effort). With the numbers as above:

12 * €500 net return => €6,000 p.a.

Break-even value of the condominium => €6,000 * 1/0.04 => €150,000.

That means the net return decreases when the value of the apartment is above €150,000 (if the rent cannot be increased accordingly). The question now is what buyers are actually willing to pay within, for example, 3 months for the condominium. According to the calculation, you would have to seriously reconsider or raise the rent at the latest at €175,000. If you are actually offered €200,000, the net return on the capital employed drops to 3%, barely more than what the bank wants from you – then the interest rate swap is no longer worthwhile and that is ultimately what it is all about.

In addition...

If you can achieve a sales price of €175,000, you still need €95,000, which at 2% loan costs is about €159 monthly burden WITHOUT repayment. Amortization calculators are available everywhere on the internet; you can quickly figure out what remains with bearable burden.

At €200,000 you only need €70,000 and then you pay that off even faster... and become completely debt-free.

I would therefore only hold the apartment if it is in a corresponding location in a major city or an area experiencing population growth, where you can calculate with additional above-average appreciation. Otherwise, the time effort and risk do not pay off – and that exists with individual properties.

Best regards Dirk Grafe

Makes perfect sense. We will think it over.

Thank you very much for your top contribution!

I did some research. Unfortunately, the loan splitting mentioned by Musketier is not possible, since the loan on the apartment at that time has been completely repaid and you can't just deduct interest as income-related expenses again (but I am happy to be corrected by the tax officer or a tax advisor )

I am not quite as familiar with income tax anymore. My time in the tax office was a while ago. So you could very well be right. It might possibly work if the apartment is sold from one spouse to the other and a loan is then taken out for that purpose (provided it belongs only to one spouse). But this will initially incur costs. Whether my idea would even work and whether the additional costs can then be recouped by deducting the interest payments as income-related expenses would have to be checked.

because of high depreciation (2% of almost 200,000)

Regarding depreciation, please note: As far as I know, the basis for depreciation is the historical acquisition/manufacturing costs and not the current market value. The depreciation period was then, as far as I know, the remaining useful life (50 years minus the period of owner-occupation).