Author Topic: !50,000 in hand. Retired. Should I buy home or rent and invest the money?  (Read 749 times)

The_Learning1

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My situation: mid-fifties. An insane divorce several years ago reduced my net worth by a great deal. I changed states, retired at 55, and met somebody new. My pension -- which I live off of -- is $2600 monthly plus an excellent health plan. I have $200,000 in a federal IRA (the TSP); €120,000 euros in my bank account. I live in Germany although I am an American. (My fiance has a ten year old child we decided to return to live in Germany which is far cheaper than in the United States and plan to reside here for ten years, at which point we will move to the -- also very cheap -- southwest of France.)

I currently pay €1200 a month for a large, beautiful villa on a large plot of land in the countryside. We have a well so water is super cheap. We pay electricity but it's not so bad and heat with wood and some LPG -- about €2000 annually total. We will be here for ten years so am thinking although it's nice it's essentially 1200 x 12 months x 10 years.. A lot of money spent.. We could buy a smaller house in town for around €200,000 euros. Monthly payment would be about 600. Interest rate is 2.8 percent. Water would be slightly more expensive, heating slightly less. I suspect the house we're looking at would appreciate slightly in ten years (maybe ten percent) but not by much more than that. But I am an American in Germany and they want a fifty percent down payment. With transaction fees and taxes that amounts to around €110,000 euros.

So here are my options, it seems to me:
-- Downsize to the smaller house, pay the huge down payment, have a lesser monthly payment, and get the benefit of building equity for when we move in ten years;
-- Stay in the current nice villa and invest the €110,000 in the stock market or something. Use the money I make in the stock market to mitigate some of the damage of renting for ten years;

What would you do? How should I be thinking about this problem? I have to decide this week? Any and all advice most welcome. 



frugaldrummer

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You don't mention property taxes. Neither do you mention state of volitility of rents or home prices in Europe.

If we were to assume neither rents nor home prices rise significantly and home values remain relatively stable, you could think of it like this:

Keep the 110,000 Euros  invested and withdraw 4% per year which is 373 euros per month minus whatever taxes you have to pay on that. Let's say it's 300 after taxes and reduces your rent from 1200 to 900 per month.
That's still 300 euros above the mortgage payment on a house BUT after property taxes and increased utility bills and expenses of home repairs and maintenance wouldn't it be a wash? In which case I would stay where you are until you move to France in ten years.

Now if you anticipate rapidly rising rents, that might change the equation. You don't mention your fiancee's income or assets - that might make a difference in the calculation too.

Also - what are the laws there about community property ? If you invest this money in the house, marry again and divorce again, will you lose part of your equity? Please don't marry without a good prenup (if that's available there).


The_Learning1

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Thanks very much frugaldrummer. Property taxes are less than €400 a year I am pretty sure but you're right I need to check that.

Prices are rising fast around here with Britain's decision to leave the European Union ("Brexit"); many of the banks that used to be in London are relocating to Frankfurt so they can continue to be based in the EU and work in the EU. That's having a major impact on house prices, unfortunately.

The question of where the rental market is going is an interesting one. Historically rents have been quite low in this area. But the market has tightened significantly and that would seem to indicate price rises in the offing.

Your point about going into relationships with agreed decisions about how they would end, should they end, is an excellent one.

Moonwaves

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The question of where the rental market is going is an interesting one. Historically rents have been quite low in this area. But the market has tightened significantly and that would seem to indicate price rises in the offing.
Don't forget that it's not all that easy to just raise the rent here and there are limits on how much it can be raised over what period of time. Might be worth a call to your local Mieterverein.

You might also consider posting a link to this thread in the big German one to get some advice from people really familiar with the market.

MrThatsDifferent

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I know this is way too simplistic, so please seek an expert in Germany, but I would have thought about it like: the rent would be $144k over 10 years (I’d imagine the rent would increase though); $120k invested over 10 years should double to $240k. So you’d be up $100k and all of that would be available to you. You’ve already gone through one divorce, I’d be a bit cautious about being a non-citizen in a property arrangement with a citizen if things go badly.

Here’s the other thing. Since you’re already mentally ok with buying a smaller property, why not move and rent one? That way you’ll reduce that expense further. I would reduce risk and increase assets as much as possible so you can deal with whatever curveballs come your way.

Read Go Curry Cracker’s never buy articles.

Linea_Norway

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The other thing to consider is whether you enjoy doing home maintenance or not. Renting makes life a lot simpler.

For home prices, they say that in general home prices follow inflation. You cannot really expect more than that.
Doesn't your rental contract specify how much the rent may be adjusted each year? Mostly it is just with inflation value.

Do you need to pay wealth taxes over your money? Is that wealth tax reduced if that money is invested in a home?
Do you need to pay property taxes on an owned home?

+ 1 for renting a smaller home.