First of all, thank you for your effort, but in my opinion there are a few elements missing that change the calculation. Important: I'm not saying that buying is always better, I'm just saying that some factors have been forgotten.
1. subsidies
Many modernization measures or construction methods are subsidized by the state, which means that ideally up to 40% is paid by the state. This is especially true in scenarios where a new property is built or an old property is bought and then renovated.
2. state support
Whether it's the home ownership grant or the building subsidy, there are always special payments for buying or building. In my case, this amounted to €24,000 from the state over 10 years. Since I can easily pay my installment, that's an additional €2,400 per year for my portfolio.
3. special loans
Parts of my house are financed at 0.9% interest. How? Via the ISB of the state of RLP. There was also a repayment subsidy here. This only applies in certain scenarios, as there are certain limits to the m² (which were perfectly fine thanks to the old building and children), but you should look at the average house purchase and not some luxury properties.
4. the selfishness factor
I don't know how else to describe it, but there is the selfishness factor or, conversely, the nocare factor. If I, as a buyer, put a PV system on my roof today that will have paid for itself in 10 years (assuming electricity prices remain the same), then I will increase my portfolio by around €80 per month after amortization (depending on the electricity price and electricity consumption, of course). Why doesn't the tenant benefit from this? Because the landlord has no interest whatsoever in carrying out such a modernization, because he couldn't care less about the ancillary costs as long as there is no oversupply of apartments. Hence "nocare", or "selfishness". My previous landlady was a very nice woman, but she also said "modernization only when KfW pays for it". Well, until then I got my hot water from an old instantaneous water heater that ate up a lot of electricity.
5. personal contribution
This may depend a bit on the region, but here in more rural areas, most people do it themselves when they buy an old building. Sure, I don't put a new roof on, but someone knows someone who can install a window, lay a few pipes themselves, pull the power cables themselves, stuff in insulation themselves. That's potential savings that increase the buyer's portfolio. A lot depends on talent, but if you don't have two left hands, you can do minor maintenance yourself.
Overall, I also think the 100-year lifespan is an imprecise generalization. Depending on the region and year of construction, the substance can be completely different. My father and I renovated a house that was over 200 years old and of course the walls are not exactly straight, but the substance was so good that only a few new clay bricks had to be put in between some of the half-timbered beams. A new roof truss on top and it's holding up again. However, there are also construction years in which such poor materials were used that nothing more can be done apart from demolition.
Conclusion: Good content, but the scenarios lack too many factors that have a decisive influence on the final result.
1. subsidies
Many modernization measures or construction methods are subsidized by the state, which means that ideally up to 40% is paid by the state. This is especially true in scenarios where a new property is built or an old property is bought and then renovated.
2. state support
Whether it's the home ownership grant or the building subsidy, there are always special payments for buying or building. In my case, this amounted to €24,000 from the state over 10 years. Since I can easily pay my installment, that's an additional €2,400 per year for my portfolio.
3. special loans
Parts of my house are financed at 0.9% interest. How? Via the ISB of the state of RLP. There was also a repayment subsidy here. This only applies in certain scenarios, as there are certain limits to the m² (which were perfectly fine thanks to the old building and children), but you should look at the average house purchase and not some luxury properties.
4. the selfishness factor
I don't know how else to describe it, but there is the selfishness factor or, conversely, the nocare factor. If I, as a buyer, put a PV system on my roof today that will have paid for itself in 10 years (assuming electricity prices remain the same), then I will increase my portfolio by around €80 per month after amortization (depending on the electricity price and electricity consumption, of course). Why doesn't the tenant benefit from this? Because the landlord has no interest whatsoever in carrying out such a modernization, because he couldn't care less about the ancillary costs as long as there is no oversupply of apartments. Hence "nocare", or "selfishness". My previous landlady was a very nice woman, but she also said "modernization only when KfW pays for it". Well, until then I got my hot water from an old instantaneous water heater that ate up a lot of electricity.
5. personal contribution
This may depend a bit on the region, but here in more rural areas, most people do it themselves when they buy an old building. Sure, I don't put a new roof on, but someone knows someone who can install a window, lay a few pipes themselves, pull the power cables themselves, stuff in insulation themselves. That's potential savings that increase the buyer's portfolio. A lot depends on talent, but if you don't have two left hands, you can do minor maintenance yourself.
Overall, I also think the 100-year lifespan is an imprecise generalization. Depending on the region and year of construction, the substance can be completely different. My father and I renovated a house that was over 200 years old and of course the walls are not exactly straight, but the substance was so good that only a few new clay bricks had to be put in between some of the half-timbered beams. A new roof truss on top and it's holding up again. However, there are also construction years in which such poor materials were used that nothing more can be done apart from demolition.
Conclusion: Good content, but the scenarios lack too many factors that have a decisive influence on the final result.
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@devnerd_daddy Thank you very much for your excellent addition.
Points 1-3 are very individual and cannot be quantified across the board. That's why I also pointed out in Part 1 that there are a lot of factors that - depending on the individual case - should be taken into account in the calculation. Accordingly, please always make your own calculations for your individual situation. I would also have liked to include these aspects in an example, but unfortunately no one responded to my calls in parts 1 and 2 with such points, which is a shame. Overall, 1-3 naturally has an effect per buyer. Whether it is enough to make the buyer or tenant financially better off in an individual situation would have to be calculated in a specific example.
4 This seems to be a no-brainer on paper, but people tend to forget about the portunity costs, which of course have to be taken into account.
5 Apart from my personal dislike of personal work, you are exchanging your time for money here - and probably at a lower hourly wage than in your normal job. You have to see this extreme form of DIY as a real hobby and enjoy it. And so do your friends.
I've never spoken in general terms about a property lasting 100 years. Don't know where you're getting that from 🤷
Points 1-3 are very individual and cannot be quantified across the board. That's why I also pointed out in Part 1 that there are a lot of factors that - depending on the individual case - should be taken into account in the calculation. Accordingly, please always make your own calculations for your individual situation. I would also have liked to include these aspects in an example, but unfortunately no one responded to my calls in parts 1 and 2 with such points, which is a shame. Overall, 1-3 naturally has an effect per buyer. Whether it is enough to make the buyer or tenant financially better off in an individual situation would have to be calculated in a specific example.
4 This seems to be a no-brainer on paper, but people tend to forget about the portunity costs, which of course have to be taken into account.
5 Apart from my personal dislike of personal work, you are exchanging your time for money here - and probably at a lower hourly wage than in your normal job. You have to see this extreme form of DIY as a real hobby and enjoy it. And so do your friends.
I've never spoken in general terms about a property lasting 100 years. Don't know where you're getting that from 🤷
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•@DonkeyInvestor Ah, that's a shame about the calls of course; unfortunately I'm not a good example myself, as I was actually extremely lucky (150k total purchase price in the Frankfurt catchment area for a halfway renovated property with solid interior values and new heating).
Just to be clear, I don't think any of the points are nobrainer and I have great respect for the calculations and research you've done :) Nothing is simple.
Points 1-3 are indeed very individual, but they also apply to many home buyers. With two children, this can amount to a good 8-10% of the total price for properties that are not overly expensive.
I am also unsure about the valuation of the personal contribution. As I said, I live in somewhat more rural areas and a lot of work is done here. It's particularly worthwhile for small jobs, as the travel costs are comparatively high. Of course, it's hard to quantify this because the individual factor is very strong here.
As for age, you didn't specifically mention 100 years, I expressed that stupidly. What I meant was that the maintenance costs don't necessarily have to be that high, depending on the original substance.
Just to be clear, I don't think any of the points are nobrainer and I have great respect for the calculations and research you've done :) Nothing is simple.
Points 1-3 are indeed very individual, but they also apply to many home buyers. With two children, this can amount to a good 8-10% of the total price for properties that are not overly expensive.
I am also unsure about the valuation of the personal contribution. As I said, I live in somewhat more rural areas and a lot of work is done here. It's particularly worthwhile for small jobs, as the travel costs are comparatively high. Of course, it's hard to quantify this because the individual factor is very strong here.
As for age, you didn't specifically mention 100 years, I expressed that stupidly. What I meant was that the maintenance costs don't necessarily have to be that high, depending on the original substance.
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•@devnerd_daddy Do you happen to have an overview of the possibilities of your points 1-3? I haven't done much work on this yet, but would like to learn more.
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@DonkeyInvestor So, work and so on have kept me busy, but here are the two things I have actually made use of myself:
Loan with repayment subsidy from the ISB: https://isb.rlp.de/foerderung/701-702-703.html
KfW building subsidy: https://www.kfw.de/inlandsfoerderung/Privatpersonen/Neubau/F%C3%B6rderprodukte/Baukindergeld-(424)/
I've just checked the ISB's interest rates again and holla, something has changed. Three years ago I took out a loan at 0.9%, now it's 2.35% for 10 years or 2.55% with no limit. However, there is at least a 5% repayment subsidy, which is granted right at the start, so it is not subject to compound interest.
At the time, I borrowed the maximum and only specified the minimum as repayment, as I knew that I could simply invest every additional euro in ETFs and sell them again at a profit at some point within 10 years. Risk protection: Even if I were to be in the red with the portfolio after 10 years, I would still have enough funds to carry out regular follow-up financing, which I can then redeem in case of doubt after a decent price upswing (or if the new loan is cheap enough, I just pay it off and enjoy the profits from the portfolio)
Loan with repayment subsidy from the ISB: https://isb.rlp.de/foerderung/701-702-703.html
KfW building subsidy: https://www.kfw.de/inlandsfoerderung/Privatpersonen/Neubau/F%C3%B6rderprodukte/Baukindergeld-(424)/
I've just checked the ISB's interest rates again and holla, something has changed. Three years ago I took out a loan at 0.9%, now it's 2.35% for 10 years or 2.55% with no limit. However, there is at least a 5% repayment subsidy, which is granted right at the start, so it is not subject to compound interest.
At the time, I borrowed the maximum and only specified the minimum as repayment, as I knew that I could simply invest every additional euro in ETFs and sell them again at a profit at some point within 10 years. Risk protection: Even if I were to be in the red with the portfolio after 10 years, I would still have enough funds to carry out regular follow-up financing, which I can then redeem in case of doubt after a decent price upswing (or if the new loan is cheap enough, I just pay it off and enjoy the profits from the portfolio)
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•@devnerd_daddy mega, thank you very much!
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