In the past few months I’ve been receiving multiple emails asking for my opinion on the current real estate markets (especially in Belgium and even in Germany) and if I can spread any light on how I’m searching for a property. To be completely fair, writing something about this topic is not easy…
Let’s start with purchasing a house/apartment for personal usage.
For some it’s a dream, for others it’s something to completely avoid. The millennial revolution for example is against buying a house and even loves to comment on the haters. Not my kind of style but hey…if it works for her, who am I to judge.
I find the choice to buy your own piece of property is completely personal and 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 that to mortgage payments, property taxes and etc, we found that there is barely a difference. On the contrary, we would be paying less if we took the government incentives into consideration. This example is merely to proof that it’s possible but not easy.
The problem is sourced with the spending behaviour of people. The vast majority buys a house they can’t afford at all. The other day I came across an article saying Belgians are less and less into renovating an old house but prefer to buy a turnkey house. The numbers backing up this article were established by pulling metrics from banks/credit providers and distinguishing between the amount of granted loans for renovating versus newly build real estate. I found it astonishing that this result was partially caused because of the fact that people simply don’t have the money anymore for a renovating after buying the house. The already overpaid for the actual purchase! 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 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. To compare, 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. Well done guys!
In most cases, 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…
However, I’m confident that adding real estate to your investment strategy is an extra asset. Under the right circumstances though! My situation is somewhat special in that I don’t know where we will end up living. The following scenarios are currently playing in my decision. What if I would invest in real estate property in Belgium 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? Or I can decide to sell the property of course…As you can see, a lot of open questions. People that own a piece of property abroad and have experience with tax declarations and so, feel free to reach out!
Regardless of the above, I would like to share some principles that I apply:
- Mortgage: The most common thing to do in Belgium is allocating 30 – 35% of your income to your mortgage. I tend to go more towards 20 – 25%. Based on that, you can calculate your maximum price and have a primary search filter. Important side note: this percentage also includes 0.5% of the buying price for things that need to be fixed over the coming years.
- Investment project: I always check what the possible price (before and after renovations) could be when putting the place up for rent. Ideally, this exceeds the total cost/month. (=mortgage, taxes and some income for fixes)
- Property with decent foundation but that needs renovation. You can increase the price a lot by getting your hands dirty and saving on manual labour. It’s also something I’m very interested in and I’d love to create something myself.
- Square meters do count: We’re entering a time where it’s necessary to get the maximum value of every square meter that you own. Why overpay for space you don’t use? I rather create smart spaces (= spaces for double use) or renovate a property in a way that all spaces blend together.
- Location: I research the area the property is located in, distances to stores (= biking possibilities) and the possible renting possibilities. For instance, I check the rental market and keep track on how long similar properties are available.
I must admit, it’s becoming an extra challenge to find a property that answers all of the aforementioned criteria. Besides that, our personal situations tends to go more into the direction of moving to Germany again. But that’s another story…