At some time in the 30's most of us are thinking about buying a house or at least an apartment as we are all wishing to have our own home some time. But from the financial perspective, does buying instead of renting really makes sense?
In the region where I live buying a house with a size of about 120m² would cost about 400 000 EUR. Thanks to the low interest rates this is already insanely expensive. Additional costs are the following fees:
fees for the land register of 3.5% of the buying price: 14 000 EUR
fees for the entry in the land register of 1.1% of the buying price: 4 400 EUR
fees for real estate agent of around 3.0%: 14 280 EUR
other fees and additional costs calculated with: 10 000 EUR
furnishing etc. calculated with: 40 000 EUR
So in total the additional costs will be 82 680 EUR and the costs for house worth of 400 000 EUR will be 482 680 EUR. Now assuming having a capital of 150 000 EUR, which is not that bad, would mean that you should take out a loan of 332 680 EUR.
The problem is when taking out a loan there will be additional fees like:
service fees
additional fees for the land register etc.
All in all you need to calculate with additional fees of around 12 000 EUR just for taking out a loan.
How much do you have to pay back?
Assuming an interest rate of 2.8% and a monthly rate of 1 366.96 EUR and a credit period of 30 years it would resulzt that in total you pay 492 107 EUR over the 30 years.
That does mean that you are paying 642 107 EUR for a house, which is worth 400 000 EUR. That is a difference of more than 240 000 EUR and that does not include any repair costs. From the financial side this does not look like a real good investment. Of course there is the possibility in an increase of the value of the house. But to keep a house in a good shape you will have as well a lot of repair costs etc.
When I compare it to renting, a reasonable rent, without additional costs like water, gas etc., would be on average 1 500 EUR with a yearly increase of 2% over the 30 years, which will make it a total rent payment of around 730 000 EUR. This is a lot more but you do not have any repair costs and you still have your start capital of 150 000 EUR.
Investing the start capital instead of buying
The average compound rate of the S&P 500 is about 9% per year. If I invest the 150 000 EUR I can turn that in more than 1 800 000 EUR after 30 years. Looking at that number buying a house looks like a really bad decision form the investing side.
Conclusion
For me buying a house does only makes sense when you have enough own capital and you don't have to take out a large loan. Of course there is always the wish of having your own house, but paying a mortgage for 30 years does not look like a perspective I aiming for.
What is your opinion about buying a house or renting?