[BG] Buying apartment with a forever loan

[east81]

I recently spoke to a credit consultant that implied that if I’m interested in a property and it’s rent price equals the monthly loan payment, it makes financial sense to buy it because if at some point I want to move out, I could sell it to another buyer for a higher price and end up with a large sum of money.

I think it makes sense even if the real estate market takes a dive. If I was renting that whole time I’d end up with nothing in the event of moving out. Selling a property would at least generate some cash for me.

Do you agree?

The loan to repay would be upwards of €500k but the monthly payment would be something very affordable.

Loan details:
Total to repay: €500+k
Duration: 30 years (until I’m 65)
Monthly repayment: €2000 (affordable for my budget and equals rent of equivalent property)

 

[oluwayinka]

@east81 I personally wouldn't consider loan amount = rent money as a good idea as there are other expenses to consider besides rent, maintenance, property taxes and service charges (if applicable).

Also, house prices can equally go down, not only upwards. My 2 cents.

 

[east81]

@oluwayinka Yes there is maintenance but its not that much when you buy a flat in a new building. Property taxes in Bulgaria are reasonably cheap, still.

Yes, house prices do go down in crashes but they recover over time, just like any asset.

Whatever happens in the end, with buying, you end up with fractions of a flat when you need to move out. You may be selling it at a loss in a worst case scenario, sure, buy you’re getting some cash to help you on your journey.

 

[swordfish11]

@oluwayinka

Also, house prices can equally go down, not only upwards. My 2 cents.

Yes, but you're also building equity. It might be the case that even with prices down you're still ahead or at least breaking even. Say, the 500k house now costs 450k, but you have 100k equity. You can move out with 50k after a sale. Of course, it can also drop to 400k and you have 50k equity, in that case you'll need to pay 50k extra just to get rid of the house. Over the long run the risk of this is smaller (mainly because you have less debt on the house), but not zero until you settle the mortgage.

 

[justinarnot]

@east81 Depends where the property is located. If it is a center of a major city most probably the price will not go down. But keep in mind maintenance, taxes etc.

 

[joseph700]

@justinarnot That's a very good point.

A relative of mine was suprised when he found out his appartment actually slightly decreased in value after 10 years (was in a medium sized city, in a very average neighbourhood).

 

[east81]

@justinarnot Sofia. Central neighborhood.

 

[prettyfit12]

@east81 As other people saying here, rent = repayment is not the best approach.

Consider several things like:

• Interest in some time of people to buy the place, even if the price drops, if you are in a hurry to sell, you may loose even more money.
• Possible dip of prices (with the current situation, depends where, but Deutsche Bank has already implied that Germany and Netherlands housing market is in some places over 20% overpriced).
• Maintenance, taxes, running costs.
• Depending where it is, sell it might mean you have to pay a big check to the tax agency.
• Renting also implies more flexibility. One friend of mine bought an apartment in a horrible building where kids are screaming all day long (in Spain is common for kids to play until later than other places in Europe), which made him seriously consider selling, with the implied loss of money for that.

This does not mean don't buy, means study the case, think about where you will buy it, check very carefully all the associated costs, and then decide if you pull the trigger.

 

[swordfish11]

@prettyfit12

One friend of mine bought an apartment in a horrible building where kids are screaming all day long

This is literally the best 'problem' to have with a building lol, it's not even close to a horror story. I'd much rather live in a place with screaming kids than in a deserted rundown village that's forgotten by the world.

 

[zjmcdon98]

@east81 Focusing on the monthly repayment and not the total cost of the loan is the wrong approach. Its like car salesman trying to trick you thinking the monthly payment is all that matters. Sounds to me like someone is just try to get you to sign for a loan.

What is the interest rate, what is the total cost of the credit?

The first many years you’ll mostly be paying interest first and not the principal, you would probably not be building equity for a while.

Buying and selling property takes time and cost money. There are a lot of fixed costs that can take years to recoup, and you’ll have to pay taxes on any potential profit. Depending where the property is located, price can go down. Lots of place in Europe have a negative demographic pressure (not enough babies) which in the long run should reduce property prices (outside of big cities).

There are plenty of buy vs rent calculator online, have a look.

 

[lailah]

@east81 You are assuming constant appreciation of the value

 

[englishcatholic17]

@east81 You are missing a couple of key points here:

• You assume property prices will go up forever.
• You don't account for all of the extra costs that come with owning a property. (maintenance, taxes and all the other jazz)
• In case something goes wrong, you can always rent a cheaper place. If something goes wrong and you are stuck with a 2000€ monthly payment, you are pretty much fucked unless you have quite a bit of saving)
  

Not to mention, what the fuck are you renting for €2000 a month in Bulgaria?

 

[east81]

@englishcatholic17 If things go bad for me. I can put the place for sale and find a buyer for at least some amount that will give me a head start to remedy my situation.

For 2k€ I can rent a pretty good apartment equivalent to what I could buy for a 2k€ a month loan repayment minus the initial cost to buy the furniture, etc.

 

[janetmal]

@east81 I found this video helpful for thinking about this question:

.

The percentage might not be 5% in your case, but the rent = repayment equation is definitely too simplistic.

 

[soosh99]

@east81 Your monthly repayment needs to be lower than rent for it to make sense. Generally there are costs when owning an apartment that are included in the rent but not included in the monthly repayment (such as taxes, weekly trash collection, etc.).

 

[unkownduck]

@east81 Do you understand the building/maintenance system where you are buying, insurance and taxes. Political stability will always be a risk to consider too.

I dont follow sofia super closely, but I would not commit to a 500k condo there, given the risk. Take this with a grain of salt, but to me it does not seem like you know what you are doing, so at least do bit more research before you decide.

 

[resjudicata]

@east81 We don't know your situation. If you are a software developer netting 6-7k euro, that's too expensive for you, and keep in mind that's a temporary situation and taxes will go higher. Senior Bulgarian devs usually net more than Germany and UK because of the taxes. Usually people who buy such an expensive properties have businesses, big inheritance, etc. Also those properties are not very liquid. Liquidity with the middle class ends up around 250-300k and they still can't afford it, and only do it because they have inherited/sold something - generally they don't have high income.

 

[resjudicata]

@east81 You are putting a big anchor on your neck expecting to get rich.

I don't think it is a certain win.

In the Netherlands loans like this were common and people got severly burned, when the end of term or retirement was there.
Lower market, more expensive loans, or different gov rules.

 

[juviavxii]

@east81 Maintenance is something that people mentioned and as a young homeowner I can't stress that enough.

Shit WILL break and it will be your responsibility to fix it or find someone who can. Depending on what exactly broke - fast. You can't have your pipes leaking water or your electricity not working.

Secondly, insurance. This will vary from place to place but any apartment that is on loan will have to be insured, otherwise the bank won't give you the loan. This can run up costs and is also another thing you have to deal with in case of damages.

If your comfortable w/ a monthly payment of €2k per months, find something that fits your needs for a monthly payment of €1k per month and save/invest/pay into the mortgage with the remainder. If everything goes south you ideally have a few months of a safety net where you don't have to worry about the mortgage.

 

[east81]

@juviavxii I find a lot of these buy/rent comparisons have houses in mind. Apartments are much cheaper to maintain. Especially in a new building, which is what I’m after. I rent a new apartment and in 5 years the maintenance is almost nothing.