How do I think about buying a house

Should I buy a property? These five things will help you decide

1. A house you live in is not an investment decision, but a decision about how you want to live.

If you're considering buying a car, chances are you're not counting the monthly pass you save against the cost of fuel. You buy a car because you want to be flexible. Maybe because you're a little lazy or because you're moving to a village where the bus only runs three times a day.

Then when it comes to houses, some think they need to buy quickly before interest rates rise, and wonder what role the potential bursting bubble will play in their property purchase. But that's pretty unimportant in the first step. Because the decision to buy a house, just like a car, depends primarily on the way you plan your life.

If you are considering buying a house or apartment, take a little time and answer these questions for yourself:

  • Do I want to stay in this city, in this place?

  • Even if I lose my job?

  • Would I find a new job here?

  • Would I get annoyed if my dream job was offered in another city and I just bought a house?

  • How much space do i need?

  • Do I want to have children?

  • How much space do I need with children?

  • Can I still pay off my loan if I work less and spend more because I have children?

When you buy a property, you give up flexibility. At the same time, it is very nice for many to have their own house. Maybe it has a garden that you can design however you want. You can plant apple trees and build a bike shed. If you want to break through a wall, add a balcony or tear out the laminate, then you can do that.

Krautreporter reader Julia asked whether it makes sense to buy an apartment now that is too small with children to be able to live there in old age. In between, she would rent the apartment. I passed the question on to Anke Behn from the Bremen consumer center. Behn says that one cannot say in general whether it makes financial sense. “It's more of a consumption decision. It can be useful if you know: this is the perfect apartment. There is an elevator. Maybe friends live in the house. "

When you have answered all of this for yourself and you know that you want to buy a house, then you can devote yourself to the financial part: How do I find out how much house I can afford?

It is not enough just to count on the price of the house or apartment. In addition, there are additional costs such as real estate transfer tax, notary fees, registration fees in the land register and possibly money for a broker. As a guideline, the consumer advice center calculates ten percent of the purchase costs of the property, which comes on top. If you buy a used property, there may be renovation costs, for example to replace the bathroom or the heating.

How much credit you can and want to expect depends on the individual situation. The consumer advice center writes: "Many banks advise that the loan installment should not amount to more than 40 percent of the net income, the remaining 60 percent are necessary for the standard of living." When planning, you should note that the monthly rate could increase at the end of the fixed interest rate. I'll explain that in the next thesis.

2. You should be particularly careful when interest rates are low

Interest rates are currently low. As a result, it is relatively cheap to take out a loan. But you should make sure that interest rates can rise again. When you take out a loan, you can usually decide how long the fixed interest rate should last. The longer the fixed interest rate, the higher the interest rate that is paid.

Anke Behn, financial expert at the Bremen consumer advice center, recommends a fixed interest rate of at least 15 years, preferably longer. As a repayment rate, she recommends at least three percent, preferably more. The repayment rate is the percentage of the loan that is repaid annually. The lower the repayment rate, the longer you pay back. And the more credit is left when the fixed interest rate expires and the interest rate may rise. This is problematic because the interest is calculated on the rest of the loan. This can greatly increase the rate that you have to pay back.

Anke Behn also recommends agreeing a special repayment option. This is the option of repaying a certain amount once a year in addition to the fixed installments. If, for whatever reason, you have too much money, you can use that to repay the loan faster.

In addition, it makes sense to be able to change the repayment rate in between. Then you are flexible if you can pay back more or less money in a certain period of time.

Because interest rates are so low and many people are taking out loans, house prices have increased. That doesn't have to stop either. If interest rates go up again, house prices will likely go down. If you want to live in the house your whole life, it doesn't really matter. If you plan to sell the house again, yes.

“Is the bubble bursting?” Asked a reader. First you have to ask yourself: Is there a bubble at all? According to Duden, a real estate bubble is a “(speculative) strong demand for overpriced real estate”. Investors do not shy away from a price that is too high because they expect that the price will continue to rise and that they can sell again at a higher price. When the bubble bursts, prices fall, buyers lose money and can no longer service their loans. We know that from the financial crisis. You only know for sure that there was a bubble once it has burst.

The Bundesbank assumes that condominiums and houses in German cities are too expensive, i.e. that the prices are higher than can be explained by long-term economic development. Nevertheless, it sees no immediate threat to the stability of our economic system, so it does not see a bubble.

The Bundesbank estimates that the price exaggerations in 2017 were between 15 and 30 percent. In her 2017 Financial Stability Report, however, she writes: "Overall, the risks from residential property financing are still rather limited and the information available does not indicate any immediate risks to financial stability."

The research institute empirica publishes a bubble index. For 9 out of 12 large cities, economists see a rather high risk of bubbles. But if you compare the signs with Ireland before the financial crisis, the situation in Germany is relatively relaxed. At that time, Ireland had completed 20.9 homes per 1,000 residents. The outstanding loans for housing construction amounted to 72 percent of the gross domestic product. In Germany, just over three apartments per 1,000 inhabitants were recently completed, and the debt ratio was 41 percent of gross domestic product.

The business magazine Capital has published a dispute between two real estate experts. With the beautiful title: “Real estate market: We have a bubble! Which bubble? "

But you shouldn't rely on rising prices. “Real estate has developed very well in recent years, especially in sought-after parts of the city,” says Anke Behn from the Bremen consumer center. "But you don't know whether it will continue like this."

This figure shows the development of house prices in different countries. It is noticeable that the fluctuations in Germany were relatively small compared to other countries. You can also see that the prices have risen and fallen again and again.

3. Rule of thumb if you want to move in yourself: Where the prices are low, buying is cheaper. Renting is cheaper in places where prices are high.

I have described that the decision whether to buy or rent is first and foremost a decision about how you want to live. Many will decide to have their own house, even if it is not financially worthwhile. Many will continue to rent even if it is cheaper to buy. Nevertheless, this thesis offers a clue to those who are undecided.

The prices for houses and apartments rise differently in different places. From 2016 to 2017, prices rose the most in Berlin, Frankfurt am Main, Hamburg, Cologne and Stuttgart. The location, and thus the price development, plays an important role in the question of whether it is cheaper to buy or rent.

When investors buy a house, an important metric is the rental yield. That is the annual rental income in relation to the purchase price. If you buy in a place where there is a high risk of not finding tenants, the rental yield must be higher. This is a basic rule in all investments. The higher the risk, the higher the return must be - and vice versa. A higher rental yield means more rental income in relation to the purchase price.

In places that are booming, you can be relatively sure that you will find a tenant. It is also more likely that the value of the property will rise because many investors want to buy here. Therefore, investors are willing to pay a higher price in relation to the rent. From this one can deduce: In a booming location, purchase prices are higher in relation to rents. In locations that are not booming, purchase prices are lower in relation to rents.

If you want to move into the house or apartment yourself and you are sure that you want to stay there, then the risk does not matter. You don't have to find a tenant because you live in it yourself. And if you don't want to sell, the increase in value isn't that relevant either. From a financial point of view, it is therefore worthwhile to buy where the purchase prices are lower in relation to the rents, in the areas that are not booming.

For some people, the concept of an old age annuity might be interesting. If you have a house in an area that is attractive to investors, you may be able to sell it for an annuity. This means that you agree with the buyer that you will receive a certain amount of money every month until you die. If you die, he gets the house. This can be useful for people who have no heirs or who do not want to inherit anything. In this way you can turn the value that is in the house into money for your retirement provision.

4. State funding in the form of Wohn-Riester is too complicated

Most of them have already heard of the Riester pension. This is a form of private retirement provision. I explain how it works in episode 2 of this series. Since 2008 you can also use the state subsidy to finance your own property.

When I asked for questions and comments about real estate, two people pointed out the dangers of Riester. A reader wrote that her parents were badly advised, decided in favor of the Riester subsidy and have not yet been able to pay off their house.

In an article about Wohn-Riester, the Bremen consumer center writes in the first sentence: "Wohn-Riester is a complex as well as complicated construct." I say it's too complicated - because an offer that the state makes its citizens should be so simple that, with a little time, you can understand it. The criticism is similar to that of the tax return. It could also be made simpler so that people who earn their money the normal way do not need a tax advisor.

But back to Riester. The goal: It should be easier to finance owner-occupied property in order to be able to live there in retirement without paying rent. With a permit, you can rent the house or apartment for a certain period of time as long as you are still working. As soon as you retire, you have to live there yourself.

The state promotes the repayment of the loan or the payment into a building society loan agreement with so-called allowances. There is a basic allowance that depends on what percentage of the income you use for the loan or the building society loan agreement. And there are allowances for every child.

While you save, you don't have to pay taxes on the subsidized Riester contributions. They are recorded in a so-called housing subsidy account. When you retire, you pay tax on the amount in that account. The Wirtschaftswoche has calculated an example. It becomes clear that the benefits of Riester are only very small in many cases because they are eaten up again by taxes.

If you sell the house, i.e. no longer use it yourself, you have to pay taxes immediately. This can mean that you lose money altogether because the tax rate is higher than when you are retired. However, there are various ways of avoiding this, which the Federal Ministry of Finance describes in an overview of Wohn-Riester.

There is a good overview of Wohn-Riester at the consumer center in Bremen.

Finanztip gives clues as to who Wohn-Riester makes sense for.

One cannot say in general whether Wohn-Riester is worthwhile. Here it can be very useful to seek advice. I have described the possibilities for this in episode 2.

5. The property is not as good as its reputation.

Real estate is popular. In response to the question "Which products are best suited for wealth planning / wealth accumulation?" In 2017, 54 percent stated owner-occupied property in the wealth barometer of the Savings Banks and Giro Association. 27 percent the property used by third parties, 28 percent equity / investment / real estate funds.

In recent years, interest rates have fallen and real estate prices have risen. Many consider real estate to be a safe investment. It is not that simple.

If you want to rent out the property, you have to find permanent tenants. Depending on where the house or apartment is located, this is more or less likely. But no one can say how certain places will develop in the long run.

Real estate is a so-called cluster risk if you don't have enough money to be able to afford other investments. In episode 3, I explained that with stocks it is important to diversify risk. So you don't buy shares in a single company, but shares in a large number of companies. Most people will only be able to buy one house in their lifetime. So the risk is not spread. If you've bet on regular rental income and then can't find a tenant, you've got a problem.

The return on real estate does not have to be particularly high either. The German Institute for Economic Research (DIW) carried out a study on the returns on real estate investments by private investors. The return is the proportion of what you earn from the property in the value of the property. In 2012, private investors had an average return of 2.32 percent. As a private investor, you can achieve significantly higher returns with shares. Over a third of private property owners had negative returns or zero percent returns.

This is the gross return. To calculate it, the study's authors subtracted operating and maintenance costs from income (but not principal payments and interest) and related that income to assets without subtracting debt.

People who invested exclusively in apartment buildings and apartment buildings had higher returns on average - compared to people who rented out condominiums or single-family houses. This can be explained by the fact that you have certain fixed costs, for example for administration. In relation to the income, these are higher for a condominium than for a rental house. Often, however, private investors can only afford one apartment and not a house with several rental apartments.

Investors often buy real estate because they hope to sell it at a higher price later, especially because it has been shaped by the permanent price increases of recent years. However, the graph above has shown that there have been phases in which real estate prices have fallen. This can also be the case in the future.

These arguments only apply to people who want to rent or sell a property. The next argument also applies to them, but also to people who live in the apartment or house themselves.

When building or buying a house, you have to assume that over the years something will break or wear out and it will need to be replaced or repaired. Edeltraud Reitzer, Deputy Federal Manager of the Association of Residential Property, says: “With a new building, you have to reckon with the fact that you have to replace the heating after ten to twenty years, the cabling for the light and the sockets after about 20 to 30 years, the facade and that Roof after about 20 to 30 years. "

Sometimes this is optional, for example how important it is to find a beautiful facade. But if the heating breaks down, you have to invest. It may be that the investments hit you when you are already retired. In any case, you should save money for investments.


  • A property that they use themselves gives many people a feeling of security, but takes away flexibility.

  • Real estate prices can fall again.

  • Interest rates can rise again.

  • A house wears out - then you have to invest.

Thanks to Paula, Henning, Corinna, Martin, Julia and Daniel for your comments. And thanks to everyone who sent me their questions.

Editor: Rico Grimm; Final editing: Vera Fröhlich; Photo editing: Martin Gommel; Illustration: Peter Gericke.