Right Essence for the Payment in Property Now
January 10, 2020
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Buyer advice: security and service when buying
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A condominium is for 500,000 dollars? In times of cheap credit, such property purchases are affordable, at least for high earners. But what happens when interest rates rise again?
Heike earns very well. And now she wants to buy a property again. In the Charlottenburg district of Berlin, she was offered a 140 square meter apartment for 535,000 dollars. There is also a parking space for 35,000 dollars and of course the additional costs: broker, real estate transfer tax, and notary.
Heike brings a lot of equity, around 180,000 dollars. She would like to stay in Berlin for longer and has fun with her own property. So the best conditions:
Despite a large amount of equity, she will have to borrow around 475,000 dollars for the new apartment the ancillary costs alone will add up to more than 80,000 dollars. Now she wonders if that is a good idea: 475,000 dollars in loan at 1.5 percent interest and with three percent repayment costs almost 21,500 dollars a year or more than 1,750 dollars a month. Added to this are the additional costs for house allowance and a maintenance reserve, all in all significantly more than 2,000 dollars a month.
From an economic point of view buying a property like this does not mean quick business. The rental prices for old apartments in the district are twelve dollars per square meter. For 140 square meters, that would be 1,680 dollars a month. Even as a tenant, Heike would have to expect almost 2,000 dollars per month for the apartment, including additional costs.
You could, therefore, keep the 180,000 dollars in equity as a reserve, invest for 1.4 percent for three years as a fixed deposit and collect an additional 2500 dollars per year. If she invested half of the reserve in equity funds, there would be significantly more in it.
And of course, after the purchase, Heike bears the risk that one of the neighboring houses will eventually open a noisy restaurant and the owner of the other neighboring house will use the flat roof to increase the yield for a collection of mobile phone antennas.