Financial Idiot Issue 025 - I bought a house…

This Blog Post was originally distributed by the Newsletter "Financial Idiot". You can find and subscribe to it here.
DISCLAIMER: I'm an idiot and this isn't financial advice! You can lose money when investing, and you should never invest money you don't own or you can't afford to lose. I'm not responsible for your decisions!

… well, I didn't, but I thought about it. Welcome back to a new Issue of Financial Idiot.

Happy New Year! It's been a while since my last email, but I have a story to share. Before that, the layout of the newsletter changed. That's because I've switched the providers from where these newsletters are sent. From now on, I'll be hosting the list on Buttondown.

Anyway, let's get into it. Recently, I had the opportunity to look at a house in the neighbourhood of my parent's house. Which meant I could move back to my home town. A few hard facts: There are around 120 square meters of space per floor, but only the ground floor is liveable. The top floor doesn't even have walls, and the basement only has the heating system (oil) and a few storage spaces. It is priced at around 340k€, which is a pretty good price for its relatively young (building year 2004) age and condition.

Considering the 340k€, plus the additional buying fees and stuff related, the buy price would probably rise to around 370k€ to 380k€. Although the oil heating system works just fine, an upgrade to pellets (TODO translation) would be necessary in the next 20 years, so let's add another 50k€ to overhaul the heating system. The roof is faced fully south, so it would highly make sense to add photovoltaic panels on it. I'm unsure how much space there would be, but I'm adding another 40k€ for the panels and energy storage. Since the house is almost 20 years old, some stuff needs fixing inside. Mainly, I would change some things up in the living room, and all the walls would need painting. Calculating frugally, I think another 30k€ should be considered.

That totals up to 500k€ base investment. Although the heating system and photovoltaic system could be skipped and only the walls be painted, you could get away with 400k€.

Now that we know the sum, we can have a look at current interest rates. At the time of writing, the ECB suggests 4,5% p.a. Since we probably aren't at the rooftop of interest increase, I calculated with 6% p.a. and 35 years of paying back.

I've calculated both mortgage rates with the help of "Finanzflusses" "Kreditraten Rechner" (you can find it here).

For 400k€, the monthly rate would sit at 2.281€. For 500k€, it would sit at 2.851€. At current interest rates, you pay more interest than you ever got a mortgage beforehand.

If we were at low interest rates, say 1,5% p.a., the monthly rate would shrink to 1.593€ for 500k€. As you can see, there is a huge difference, but one thing is clear: I'm nowhere near having enough monthly income to finance such a huge investment. All of the above calculations leave out my current mortgage on my Apartment; adding the remaining amount from that would add another 120k€ to the above total sum. Of course, I could get rid of the Apartment and pay off the existing mortgage, but having one asset to generate income (renting it out) could pay off in the long run. So, I would only get rid of the Apartment if absolutely necessary. Also, getting someone to rent it is still easier than selling it on the current housing market.

So, there is no house for me for now. Well, unless I win the lottery or the crypto game. Both look unlikely, considering I'm not actively playing the lottery, and the crypto market is still really red.

Thanks for reading.

PS: For now, I don't have another upcoming issue planned. But never say never, they say, and maybe the muse will strike again sooner than expected. See ya!

PPS: If you've got a topic I could or should write about, don't hesitate to email me.

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