What can we finance?

What makes renting relatively cheaper compared to buying/building... and purely economically makes it sensible to sell and switch to the rental property. I've been saying that all along *duckandrun*

That is one side, the other side is the interest rate. The simplest approach is rent versus loan interest. If rent neither rises nor falls, apartment prices neither rise nor fall, and there is no inflation, then you only need to compare rent and loan interest, hypothetically calculated on full financing.

300,000 EUR x 0.02 / 12 = 500 loan interest
For comparison, factor 20.83 = 1,200 rent

If the factor used to be 15 and the interest rate 7%, then that was roughly even. Neither advantages for tenants nor buyers.
If today the interest rate is 1.5 to 2.0%, then a factor of 50 to 67 would be even. Clear advantage for buyers at factor 30.

Real estate prices do not change that quickly, but with 5-15 percent value increases per year, a direction is clearly indicated. Economic equilibria sometimes need long, long periods of time before they occur.

Actually, I’m rather amused to see where this thread is heading...

you’ve got a few frogs in there now.

6.8% gross rental yield at 2% financing interest? Where do you get that ratio?

You completely neglect the liquidity flow.
The financier doesn’t amortize and the tenant doesn’t save.

Completely aside from variables that make these calculations at best a forecast anyway (inflation, interest rate changes, rent changes, maintenance, actual savings rate, etc.) you simply leave out some factors from a commercial and mathematical perspective or apply disproportionate conditions.
You won’t convince anyone that way.

Edit: just read backwards that the 6.8% somehow already appeared in a previous post. Honestly, it’s too exhausting for me to look up how that came about, but it doesn’t change the proportionality and the rest.

You won’t become wealthy through real estate or stocks anyway. I rather rely on entrepreneurial activity in the IT/digital sector. And then you invest the surpluses in real estate and the stock market to preserve value (!) plus minimal value changes plus/minus whatever. More convincing?

We don’t need to argue here about percentages (!), but in the current interest rate and rental environment as well as the current stock market environment, and here there are indeed career starters and so on reading along, you simply cannot come up with such fairy tales that everything is perfect and rosy in the stock market and home ownership, which nowadays can be financed historically extremely cheaply, would be bad.

Then such stories like having a house worth 700-800k paid off in your late 40s or early 50s, but the stupid owner is so, so attached to it and would never sell it. Maybe some mentality thing of our grandparents’ generation, but certainly not today’s digital natives. Whoever has paid off the house and it’s not in the middle of nowhere, has basically secured their future as soon as the kids move out and the big place can go.

If we look at the last 20 years in the stock market, then 4.87% was achieved despite (!) steadily falling interest rates. These falling interest rates, quantitative easing etc. led once again to one-time effects favoring the stock market. These one-time effects will not happen again in the future; with rising interest rates, one even has to fear opposite effects.

4.87% before costs, taxes, and inflation. After the lowest ETF costs, taxes, and inflation, a real return of between 1.0 and 1.5% remains in the stock market over the last 20 years. Despite favorable one-time effects, which will probably reverse in the future. Crises? Yes, crises always happen. They are also not predictable. If they were, I would bet on them in the derivatives market.

In contrast to 1.0 to 1.5% in the stock market under high-risk conditions, I first secure the low-hanging fruits. A saving on one’s own rent is at least as safe as German government bonds. On the side, I can still invest in ETFs and have a nice mix of low-risk investment and high-risk investment.

A more or less well-known US millionaire once put it this way. The first tenant is always the best. He always pays his rent, never cancels, will never be a rental nomad, never intentionally damages your property, causes no mold damage which he simply covers up and then moves out... on the contrary, he will do everything to ensure your property is always in the best condition. The first tenant is always yourself.

Thank you for taking the trouble to break down your approach again.

Instead of a lengthy counterstatement, I will try a different approach, with a question for understanding.

A central counterargument of mine is that the saving phase in the owner-occupied property (installment) does not generate a compound interest effect, but the saving phase, for example, in the stock market does, if you invest accumulating profits. But you ignore this. What is the reason for that?

Explanation on this: What you consider as rental savings = return is invested in wealth building (paid-off house) throughout the entire repayment period of the house.
Comparable in the stock market would be to always reinvest dividends to build wealth in the form of the value of the portfolio.

Mathematically, with the house, you pay back a part of the unchanging(!) sum of the loan each year, so linear growth.
With stocks, you pay back a part of the changing(!) (=increasing) sum each year, so exponential growth.

Of course, as a tenant you can pay less annually into stocks because you don’t have rental savings. On the other hand, you start the exponential effect with your own capital, which you would otherwise have invested in building the house.

So here two effects have to be considered, which cause enormous differences between the two models over ordinary repayment periods (20 or even 30 years).

In your calculations, I find none of these two effects: nothing. Therefore my question is why you think it’s okay to simply ignore this? Do you have a convincing reason why it does not have to be included?

Linear vs. exponential over 20 years with different starting conditions, in my opinion, demands attention to open a serious counter-calculation of both models.
Reference is made again to #70 by , where this is correctly presented as an approach.

You won't get wealthy either way through real estate or stocks.

??? Seriously?

At this point, I will leave out all personal experiences and opinions and instead recommend reading Thomas Piketty's "Capital in the Twenty-First Century". It broadens the perspective a bit...

Interesting discussion

Your property also has a multiplier of 15.
Under these circumstances, or rather with these numbers, it simply sounds like a good investment.
Of course, buying then is better.

But for the OP, it is not realistic.
In Munich, the multiplier is rather between 30 and 40.