To Buy or Not to Buy: Evaluating a Dual-Floor House Purchase in Urban Austria

[hyperrun]

I'm 27 y/o, live in Austria, and earn ~40k a year. I have ~150k invested in a set of all-world ETFs, and ~10k in a bank account. If I want to 'extract' 100% of the money from my ETFs, I have to pay ~10k taxes on it.

My girlfriend is roughly my age, earns a similar amount (bit more, but in the same ballpark) and has a bit less invested (~120k, can't withdraw for ~1 yr, though). She's quite a bit more risk-averse, e.g. I feel very confident taking a loan if it's financially useful to do so, she doesn't really 'like' owing someone a large amount of money.

I live in a small (~30mē) studio (I pay my rent with computer work for my landlord (a few hrs each month)), my girlfriend also lives in a small flat and pays ~600€/month (city center).

In the long term, I don't want to live in this small studio forever. I grew up on the land side, in a house with a garden. That's why my gf and I looked for housing opportunities (+ of course wanting to live together).
All our friends and family are (somewhat) close by, so we plan to stay in this area. Thus, we plan to not rent anymore but buy it.

We mainly aimed for a ~70-100mē flat in a larger building. Being a nerd + like having data, I created a spreadsheet and entered all the data for whatever flats we found. Prices for these kinds of homes roughly range from 150k - 350k (depending on size, location, etc.).

The reason I'm writing this entry is because we stumbled upon quite a different option: There's a house somewhat in the city center of a nearby town. The location is perfect (~20 min by bike to work in one direction for both of us and ~20 min by bike to visit friends in the other direction). It costs 375k (+ fees etc), has 220mē, and 2 floors (+ basement). There's no garden, though. The two floors (groundfloor + 1st floor) are quite separate, and even in the ad for the house, they mention that it would be perfect to rent one of the floors.

My girlfriend and I are seriously considering this option. I want to discuss my current thoughts and I am looking for feedback of any kind.

- How long do I plan to be there? We don't have any plans for children in the short and medium term. This probably changes in a few years, though. One floor provides very comfortable living space, especially considering that we are both living in small apartments right now. It probably would be even big enough for an additional child. So I feel like it has a lot of potential for really long-term us by us. If we decide that we don't want to live in the city center and prefer to have a garden (or any other reason), I feel like we could always rent both units or even sell it again. In summary, we plan to live there for a long time, but have options in case things change.

- Renting: One of the floors got renovated in 2016 and looks quite nice in the pictures. The other floor 'awaits your personal touch.', which is an euphemism (in German) for saying that you need to do a lot of work before being able to comfortable live in it. Even though I'm quite young, I'd be motivated to both rent this unit and before that improve it/make it usable. That being said, besides helping a few friends on renovations (little things, such as coloring walls, chiseling away a wall, ...) I have not much experience with this labour. And I have never been responsible for the overall goal, it's only been: 'Could you help me on Saturday doing this or that'. I expect that to be totally different. Despite this, my current plan would be to do as much stuff myself (+ gf + friends) and only delegate stuff the remaining stuff to professional services (incl. water + power handling).

There are a few similar flats (compared to a single floor of this house) being offered for rent in this city, all priced at ~800€/month. So I assume this would be a reasonable rent price for our case as well.


Financial details

I've created a table with different scenarios (see attached):
- First 3: Baseline, assuming not renting the other floor.
- 4-7: assuming 500€ rent income
- 8+: assuming 700€ rent income

- House costs: 375k + 13.5k broker fee. For the next 2 years there are pretty nice tax exceptions (e.g. free land register entry), so I don't assume many more costs. In summary: I expect the house to cost ~400k.
- Loan: Quick loan check turns out, that it's easily possible to get loans with a 35 year duration for ~3.75%. Furthermore, there are also government bonuses such that loan for this kind of investment only costs 1.5% until 2028 (government wants to create incentives to revitalize the economy). Summary: I plan with a worst case scenario of having 4% credit, potentially the real costs are much lower.
- Regular costs:  The ad for the house states costs of ~375€/month (power, water, heating + waste fees). They are legally required to put this information in the ad, so I assume this to be more or less correct.
- Rent income: I assume ~500€ if we rent the other floor. This is much lower than the expected ~800€ because of expenses + potential vacancies.
- Renovation cost: No deep analysis, I assume 100k to be an upper limit of the costs involved for renovating the other floor before being able to rent it (probably <50k would be more realistic, but since I'm not sure, I want to be more pessimistic).
- Credit costs, including both principal and interest payment.
- Lost return: I'm not happy with this column. I tried to quantify the loss of ETF return if I convert the ETF to be able to lower my loan sum. It's a yearly 7% of the 'Own funds' column. Happy to change this, if anyone has a better idea.
- Netcosts: Creditcosts - Renting income + lost return
- Running costs: What we would have to pay every month (375 + creditcosts - renting income)

To get a loan in Austria, you most likely have to meet these criteria (banks can make exceptions though):
- <= 35 years loan duration
- 20% Own funds
- Monthly payments < 40% from income (which would be 1.200€ for me, or 2.500€ for both my gf + me)


Even if we are not buying this house, I want to have clearer thoughts on which variables I want to look at. Is my table useful? Could I improve it? Do you have any recommendations for me? I know it's kind of a messy post, hopefully the main details are clear.

[former player]

You've put a lot of work in on the financials but if you haven't even seen the house yet it's all theory.  I'm not sure that you are ready to buy this particular house but you need to make an appointment for you and your girlfriend to go and see it as a starting point.

Deposit
You mention that your girlfriend's money is tied up for a year.  This means that if you are going to buy within the next year there will only be your money for the deposit, and the lines in your table showing a 250k deposit are for a year's time only.

And you will need to keep some money back to start renovations, even if you are going to do much of the work yourself and fund the rest out of income. 

So your assumptions for the deposit look over-optimistic. 

If your girlfriend is contributing to costs and working on the renovation without putting in a deposit then it might be tricky to work out how much financially each of you has put into the house.  You need to keep good records for finances and time spent, just in case (renovations are stressful and lead to arguments).

Cash flow
How much do you save out of your current income?  I'm a bit concerned that you are not paying money for rent at the moment and that much of your savings could be coming from that.  Going from paying nothing for housing to paying a significant amount for the loan and expenses may be a bigger financial shock than you are expecting.  Funding renovations is on top of that (even if you are doing much of the work yourself, materials are expensive).

So I think you need to look again at your projected cash flow immediately after buying: this is much more important to the success of the project than your concern about lost returns from your investment.  It's cash flow that very often sinks an enterprise like this one, and I think it's likely to be your biggest obstacle.  You need to look carefully at what money from your income each month you will be able to put into the renovation and make sure that it is sufficient to keep the work moving on, otherwise you will be stuck with an unrenovated or partially renovated property that you can't live in or rent out and don't have the money to get it to that state.

General
Renovating a house, from my experience, is something that can be learnt: work out what you want to achieve with each job and then approach it logically.  But it is very often more time consuming and expensive than people expect.  If you are working full time and renovating as well you are unlikely to have the time and money for much else.

This could be a good house hack for you.  The problem I see with it is getting past the first few years when you are short of capital and income to fund the renovation.  It's that intiial difficulty that stops a lot of people from doing the same sort of thing.  If you can get past that then as time goes on the financial rewards can be good.

[hyperrun]

I'm currently saving ~70% of my current income. You are right, it's all theory for now, but I feel like that's how you should start. There's no point in looking at the house if the theory won't work out, right? I totally get your point and I also feel like I'm ready to visit the house.

Deposit: You are right, her money is not available yet. It will take time for the house purchase to go through, and I feel l'm not at that level of planning yet. For our calculations, I feel like it's fine to assume that her money is available, if it turns out that we want to put as much money down as he have, we could figure out how to get her money out sooner (or postpone the buying of the house, etc). I hope this makes sense.

I'm totally with you with the internal split between my girlfriend and me. Since she's more risk-averse, I totally see that she's doing more of the deposit (if she has access to her money) and I do more of the monthly payments, but similar to the previous paragraph, I feel like these topics are details. Definitely worth mentioning, but I hope the focus are the technicalities of financing part.

Deep-dive into different scenarios, focusing on cash-flow, new table is attached (slightly more accurate figures in the table than in the text):

Spoiler: show

Scenario 1
Assuming no renters for a second and minimal deposit: 900€ monthly costs (375 recurring costs + ~1400 loan costs divided by 2).
Loan costs can be divided in principal and interest. Principal repayment would be 476€ (400 k/35 years/12 months/2 people). "Lost" money would therefore be 424€.
Thus, instead of 0€ rent I would have to pay 424€ (which sounds reasonable with respect to 3k income).

If we look at the next few years, things look even better: With a state-sponsored 1.5% loan, this would bring the monthly costs down to 677€. Principal doesn't change, thus the 'lost' money would be 201€.

Has this naive assessment a major flaw I overlook?

Scenario 2
Second scenario would be 100k investment + 500€/month renter. Loan would be 1.900€/month (@ 4%), running costs for me 887€ (1900 + 375 rec. - 500 rent, divided by 2 people). The monetary value we gain (500k [400k house + 100k renovation] / 35 years / 12 months / 2 people) would be 595€. Thus my overall 'lost' money would be 292€.
A 1.5% loan for the next few years would drop this final value to an astonishing 82€.

If we only have to spend 50k for renovation, the final value would drop to 221€ (assuming 4% credit).

Cashflow-wise, we both would have pay 900 (no renters, 4%)/677 (no renters, 1.5%)/887 (renter, 100k investment, 4%)/580 (renter, 100k investment, 1.5%) euros every month. But part of it could be seen as investment (as we get the value of the house after the 35 years).

Scenario 3
Same as scenario 1, but with maximum amount of own funds (250k) -> cashflow of 520(4%)/420 (1.5%) and lost costs of only 43€ (4%).

Scenario 4
Same as scenario 2, but with maximum amount of own funds -> cashflow of 740/570 and lost costs of 145€ (4%).

All in all, I feel like the details work out. Net-result would be an additional cashflow anywhere between 500 and 1100€ depending on the scenario. A part of this (470-590€) is 'only' the principal repayment, and thus could be seen simply as moving my investing from ETFs to that house (Right?). So if we exclude that, what's really changing is paying up to 500€ rent (last column in table2), but I get a much nicer location to live in.

Do you (or anyone) spot any errors in my calculations?

[hyperrun]

Just out of curiosity: Why is no one answering? Is my post too messy? I'd really love any feedback, also on the meta-level!

[beekayworld]

Since you asked, I'll share my thoughts.

I agree that you need to visit in person.  The pictures may not portray the place accurately. There could be sounds or smells that would bother you.  The feel of the locale may be off-putting.  Look at what the roads are like for the various 20-minute bike rides you mention.

How long have you two been together? Buying property together links your futures together until the property is sold or one of you buys out the other.  If you break up and rent out the two units, you will have to make decisions together (whom to rent to, what repairs to make).

Since you girlfriend isn't as comfortable as you are in getting a mortgage, perhaps you should buy a place using your own credit/downpayment/signature and she pays something towards it every month as rent.  If you two stay together (get married?) then you can add her name to the deed and it will be co-owned anyway.  If not, she still has her nest egg she didn't have to put towards a down-payment she wasn't keen on doing.

[Green_Tea]

Hey 👋

I like the idea of renting out part of the house / house hacking.

Might money for renovation be made part of the mortgage? It's common in one of your neighbouring countries.
Very important: mortgage rate and fixed time of interest.

I also propose visiting the area and the house. Talk to neighbours.
Don't get all heart eyed about it and don't fix on it as if it were a once in a lifetime opportunity.

Get advice from people experienced with real estate acquisition in your country.

I'm interested to follow!

Re your question, maybe one of the reasons is that this forum's biggest group of participants is from the US.

[Sibley]

I don't know anything about Austria's housing market. However, you haven't seen the house. I can't tell you how many times when house hunting that the pictures looked great and then I'd go see the place in person and it's so completely not what I expected that any and all thinking previous was completely useless. All your theory is just that: theory. It is, at best, a starting point. At worst, it's a waste of time.

If you're interested in buying this place, you have to go see it. See the house, see the neighborhood. Until then, it's a dream and nothing more.

[hyperrun]

Thanks for your replies. I'm glad it's not because I was missing something important in my posts. I'll schedule a meeting to go see the house + also brainstorm ideas with my girlfriend how we want to handle our splitting. I'll keep you updated :-)