buying a house vs. saving ER

[JoanOfSnark]

So I've been poking around the forums a bit and I think I've managed to mostly just confuse myself more....

Given that the goal here is FIRE: I am currently debt-free and renting, and am generally of the opinion that I would like to own an apartment. I picture real estate being part of my investment portfolio, and I admit to also having a bit of an emotional pull towards owning my own four walls, especially since my apartment building is now coming under new management and I've heard lots of horror stories from friends about being strongarmed out of their places. I'm generally figuring that my best bet will be to buy an apartment in the direst need of renovation I can find with the best price, keep living in my rented apartment until the owned-place is liveable, then move in and finish it up. Either rinse and repeat the cycle if I decide to move, or buy further apartments and renovate and then rent out for income. I'm not imagining being some kind of real estate mogul, partly because being a giant landlord sounds like a lot of work, and partly because I don't have a huge amount of capital to work with off the bat.

So given that... Right now I'm sitting on a decent amount of cash (about 30% of the imaginary purchase price of my imaginary fixer-upper, by my estimates, but I'm in Germany, where it's more common to do something like 50% down rather than the US 20%), and... I feel like I MUST be doing it wrong. It's straight up in a savings account. But once I actually buy the place, I'll not only have no savings, but a huge debt that will need paid down. I can't really invest in the meanwhile though, I think, because my timeline is to buy int he next 5-ish years.

So how do I go about saving for both ER AND a mortgage? I'm paying into the state-retirement-scheme at the mandatory rates, and the employer-offered pension scheme at the basic rate (I don't quite understand it, frankly, but I'm working on that), and on top of it I have private "retirement insurance" which I also don't fully understand, so my after-67 years should be amply taken care of. What about years 35-ish-67? How do I do that?

[CU Tiger]

First step would be to do some reading and studying until you do understand your private pension and insurance schemes. Knowledge is power.

Then, I would put some of your savings, equal to six months living expenses, aside (mentally, if not in a separate account) in a real emergency fund. Then save up as much as you need to to pay down on a purchase. Do not take your savings down to zero with your purchase.

It might take you longer, but saving more for a place that is in good condition may be worth it unless you can do a lot of the work by yourself. If you have to fix a place up and pay rent, your mortgage, and for the renovations....you are paying a lot extra for two places at one time.

[JoanOfSnark]

Yeah, I'm reading up on the theme at the moment, but bureaucratic German is a tough nut to crack. If anyone wants to chime in with a "beginner's guide to Riester-, Rürup-, Staatliche-, Pensionsfond-, and Privatversichertrente", I'd be forever grateful.

Right now the emergency fund and house fund are pretty comingled, but I wasn't really ever planning on totally draining one to fund the other- I suppose that should have been clearer in the original post.

I can do a lot of the work myself- I renovated the place I now rent (that's a common thing here), and I'm and engineer, partner is an architecht- we've both got the DIY bug, I'm just realistic enough to know that living in a major construction site isn't super fun. Once basics like walls and electric and plumbing get put in though, I don't think we'd be paying for twice the housing for super long. The current place we have is also pretty cheap, but not a great long-term solution for our needs (any kid we eventually have would have to live in the pantry...), so I figure it's better to get the long-term place before the neighborhood fully gentrifies. If I can.

Anyway, what is the general way of dealing with the saving-for-pre-legal-retirement? Taxable accounts? Some kind of 401k rollover trickery (which I can't do, but might be able to find a German equivalent)? Does the 4% rule apply if you only have to make it till 67 before all the subsidized support kicks in? I'm getting a bit turned around in the math.

[Bob W]

Strangely on this site people say "buy" when they mean borrow. 

[MrMonkeyMustache]

Strangely on this site people say "buy" when they mean borrow.

You mean "borrow" in like the person have to give the house back when they are done with it if it is not paid 100% in cash?