To buy or not to buy? A house for a million...

[Hawki]

Life Situation: M29 and F29 filling together, no kids (yet)

Gross Salary/Wages: ~140k (This will drop somewhat when my wife goes part time for the kids in 2 years to 100k)

Net Income after health insurance, taxes, gov. pension sheme  etc: 84k or 7k per month (this cannot be changed anyways so I save you the details)

Current expenses:
- Rent for 21sqm studio: 325€ + 75€ in utilities
- Internet: 25€
- Insurance: 70 Euro p.a
- Grocery: 400€
- Transportation: 50-100€
- Additional expenses for holidays, sport equipment, clothes etc
- Holidays: 150€
= ~1500 Euro per month consistently including all one time effects.


For mortgage payments: NaN

Assets:
Brokerage: 230k
Fixed cash account: 10k
Cash: 10k
= 250k

Liabilities: NaN

Additional Info: My wife and I are currently trying to FIRE asap and we want to get kids in ~2years. We are currently commuting in opposite directions for 15km (me) and 32km (her) one direction 3-5 times per week.

Currently we are facing quite a live changing question. Shall we buy a house, an appartment or simply keep on renting? The real estate prices have gone through the roof in the recent years here in Germany but morgages are extremely cheap. (We can get sub 1.3% p.a for 20 years fixed for amounts up to 1million Euro.

Now there are  our three options:
1. Keep on renting: Advantage we can always get the right sized house and never pay for "empty space". Downside: something like a workshop will not be possible, our kids would have a better time with a nice garden, a workshop and a house where we can do whatever pleases us...

Cost: 500 in the next three years, after that 1000-1500 per month in rent

2. Buy an appartment: this basically is an insurance against rising house prices, however the same downsides as above still apply. Over all lowest standard of living as the size will be fixed.

Cost: 350000 for the house, ~100k of our stash + 9k p.a (1% interest, 2% repayment) = 750 per month

3. Buy a house outside of town: ~550K Pros: Better split between commuting distances. 20km for both, higher quality of living, predictable costs.
Cons: Kids will require public transport tickets and will have to commute so school. The house is wedged in between two houses, too large for us two at the moment.

Costs: 550k for the house, 150k of our stash +12k pa in interest and repayment = 1000 per month

4. Buy a piece of land inside the city next to a HQL area: cost for the land 450k, + building a new double house 500K.
Pros: Own property with garden, direct access to school in the immediate neighborhood, can rent out the second half of the house for 1300-1500 per month. The house will be future proof with a very low energy consumption because of extremely good insulation. Unexpected costs and repairs are estimated to be much lower than a 40 year old house..

Cons: 950k for the house.

Costs: 200k of our stash, loans from different banks and family. 1.5% interest + 3% repayment (need to pay back parenty etc quicker, 2% repayment on bank loan)
Monthly cost: 3300
Monthly income: 2000 1500 from half the house + renting out a few rooms in our side
Costs over all: 1300 per month.

Risk: After 20 years the guaranteed interest will run out. The PV of the remaining 300k in debt is around 200k. Overall the risk is low and the price high...

After 30 years when we retire the house will be more or less payed down and we will have a very safe passive rental income that adjusts itself with inflation.


What do you guys think? Giving up our nice stash and lowering our savings rate for pretty much ever in return for a great area to live in with our kids and free commuting for everyone but my wife. (She will have to buy a ticket as 32k is too much in winter)

[reeshau]

Additional Info: My wife and I are currently trying to FIRE asap and we want to get kids in ~2years.

After 30 years when we retire the house will be more or less payed down and we will have a very safe passive rental income that adjusts itself with inflation.

There are a lot of confusing things in your case study, but let's start with the big one: are you looking to retire ASAP, or in 30 years?

Regardless of that, though, buying a house for your future kids is as risky as buying them for your future spouse.  Are you sure you know what they will like or require?  Take it easy, let them come, and you will find in that moment just what you need.  You might be surprised.  In the meantime, you can build your resources so you have even more flexibility when it is time to decide.

Lastly, you seem to conjoin the rent vs. buy decision with the size of house.  Are there no houses for rent?  I currently rent a 4 bed suburban house.  And somebody owns your apartment.  These should be separate decisions.

[gaja]

The kid(s) isn't here yet, and the first couple of years they don't take any room at all. It is many years before your non-existent kids will start school. You have plenty of time to think and plan. Many things can happen: change of jobs, new hobbies, new schools being built, new houses coming on the market. And while you wait, the savings will pile up.

That said; I wouldn't build a new house unless you have a very strong vision for very special house. It is not only more expensive, but it also requires a lot of work, and usually puts a strain on the relationship between spouses.

[Watchmaker]

Agree with the above: you are not at a point in your life where you are ready to, or need to, make this decision. Enjoy living in your apartment, just the two of you.

One day your needs may change, but worry about that when it happens.

Also, if you did build a 1MM euro house, using 200k of your investments, you'd be the very definition of house poor and would be putting yourself at risk of a financial calamity if something went wrong (can't rent out the other part of the house, one or both of you loses your job, etc).