In the past few months I’ve been receiving multiple emails asking for my opinion on the current real estate market and if I can shed any light on how I’m searching for a property. To be completely fair, writing something about this topic is not easy because there’s a lot of (individual) factors that play a role here. Let’s start with purchasing a house/apartment for personal purposes.
For some it’s a dream, others are completely against home ownership. The millennial revolution for one is radically against it. I like the majority of their ideas but can’t relate to their vision on owning real estate. Perhaps this would change if I lived in the United States or Canada.
I find the choice to buy your own house is completely personal and I also think that in some cases, it can be beneficial towards Financial independence. It all depends on the geographical area you’re in, and doing your own calculations. For instance, when we lived in Germany, we spent approximately 900 € on rent and utilities. After comparing these numbers to mortgage payments and etc, we found that there’s barely no difference. On the contrary, we would be paying less if we took the government incentives into calculation. So in our case, it could’ve been beneficial to own our apartment. One could argue that you need some cashflow in order to purchase said property, while if you rent, that amount can be used to invest, generating more cashflow. However, what if you move out after a certain time and are able to generate even more cashflow by putting the place up for rent… This example is merely to proof that it’s not easy and every user case has multiple variables.
Now, the other day I was reading an article that disclosed the following; Belgians are less and less into renovating and prefer to buy turnkey houses. These results were established by pulling metrics distinguishing between the amount of granted loans for renovating and loans for newly build real estate properties. I found it astonishing that this outcome is mainly caused by the fact that people simply don’t have the money anymore to engage in a renovating loan because they already overpaid for the actual purchase of the house itself!
I was so surprised I explained the story to my owl friend who was coincidentally passing by. Yup, he couldn’t believe it either!
Talking about people living beyond their means.
The Belgian National Bank concluded that hardly any fresh money was added towards savings or investment products in 2017. Virtually all of the cashflow flowed to the real estate market. This doesn’t mean that all Belgians have invested in real estate last year. The total of household consumption was almost as high as the disposable income. Besides that, mortgage debt increased by 8 billion in the first nine months of 2017. The Federal Reserve Bank of New York stated that the total household debt in the United states has reached a new peak, exceeding the 12 billion mark. Americans have now borrowed more money than they had at the height of the credit bubble in 2008.
I’m well aware that the economy is moving forward, jobs are being created and all other crap related to it, but come on! House prices are too damn high now! You’re basically creating your own prison for the next 25-30 years. I for one think that owning a house is a good thing but I won’t allow it to put chains around my legs. Perhaps I’m thinking a bit different than most people…
I’m confident that adding real estate to your investment strategy is an extra asset. Under the right circumstances though! The following scenarios are currently playing a role in my decision to own a piece of real estate. What if I would invest in a Belgium real estate property in the next two years but afterwards decide to move abroad with my girlfriend for an indefinite period? Wouldn’t that cause a lot of hassle if something needs to be fixed or if the tenants have questions? And how about tax declaration each year? What if I have to find new tenants after a while? Or I can decide to sell the property of course? As you can see, a lot of open questions.
If I decide on moving forward to buy something in Belgium, there are other factors playing at role:
- Preferably located in an area where it’s easy to find tenants
- Renovating/home improvement possibilities as they can hugely increase value.
- ROI of at least a few percentages after deducting all the costs (rent out scenario)
The real estate prices are very high and thus, it’s becoming an extra challenge to find something appropriate. Why not wait for a correction? Like things are heading now, there’s bound to be a decrease in value. And like every smart and persistent person, that’s when we come out and play a crucial role.
So I reassured my owl friend that I wouldn’t take a decision head over heels and asked him if he was up for a crazy night of stock analysis and ETF research…