Joney Talks!

Friends,

Are you like my friend Isidore in the midst of moving places? Are you looking at apartments online?  Did you save up some dinero and are you evaluating the option of purchasing an apartment/house ? That sounds great! Now go for it.

– Yeah Jonathan, thanks but I am still looking at renting out as well

– Why Isidore?

– Here are the reasons why I would not invest right now :

• I want to travel and be free
• The value will fluctuate over time, what if there is a market crash like in the US in 2008?
• Maintenance costs can be one of the pitfalls of buying a home
• There are financially far better options than purchasing a house.
• I do not want to be in debt for the rest of my life

–  Okay Isidore I see, well here are my viewpoints

• Investing in a first home is one of the safest manners to start investing in property rental.
• If you purchase a home, what makes you not travel? Whether you rent or bought a house you have a monthly cost, objection rejected.  And you know for one thing that I am currently living in Paris while having my apartment on rental in Norway, right? Since I bought my apartment I have been every single year on a holiday and as an owner, I was entitled to rent out my place during the holidays. So while I was snorkeling in Thailand I was actually saving money!
• Regarding the market crash, yes the consequences have been severe in some countries but in Europe, most countries were only slightly affected, and even for Spain and Portugal that took a bigger hit, the value of housing is starting to increase again after difficult years. I have investigated myself to look for property there and Madrid and Barcelona appeared as excellent candidates.
• Maintenance costs, yes there will be some I will need to repair and maintain my bathroom, kitchen, etc, however, this maintenance is also included in your monthly rent (charges for example in Belgium or France). The landlord wants to make a profit of his investment so he will make sure to charge you the best possible price to include these contingencies.
• There are alternative solutions which are more profitable than investing in your house. I agree with that, my point is that since you will need a place to live anyway why not make it profitable at once and you can invest on the side, investments are not mutually exclusive, they complete each other like Tom Cruise and Renee Zellweger in Jerry Maguire! Humor aside should everything else fail I can always live in a house, I cannot live in a stock.
• Good debt how counter-intuitive it may sounds is good for you! (I will develop more in a subsequent article)
• Look at this table from the french website Meilleurs Taux for 2015. it is showing city, price per sqm, rent per sqm, minimum period to be a worthwhile purchase compared to the rental, the last column will show you on the left the optimistic scenario of lower interest rates and on the right the pessimistic scenario. This means that if you intend to stay at the same apartment in Marseille you would save money already after 3 years instead of renting the place!

• Here are some more updated figures for 2016, that will show you that purchasing a 70 sqm apartment in the City of Light is already worthwhile after 6,5 years! Here are similar websites if you want to buy in Norway or Belgium.
• Since my home increased in value I could have bought a bigger house but for now, I used that equity to create additional wealth by investing in Garages! So besides a ridiculously low startup fee, I did not spend a dime on those yet. You can check with your bank and with the security they have in your apartment you are able to get an additional loan.
• Be aware that if you purchase a property today with historically low-interest rates and they remain fixed your mortgage cost will be constant over a 20-30 years period while your rental price will increase with the inflation (typically 2-3% per year – so optimistically increase of 48% (constant 2% increase) or 80% (constant 3% increase) for a period of 20 years).
• Every month I am the owner of more equity, i.e. I own more of the apartment as time goes by and when I will be 60 or something I will be debt-free for 20 more years! (the current life expectancy age is 80 in western countries). This is a saving of 20 years of rent, in the 2015 Paris example all things being equal I am thus saving 403 200 EUR (24,4 EUR/sqm*70 sqm*20*12). How does that sound?

• My friend from Ecuador actually just purchased a house and felt nervous and excited at the same time, she showed me her credit letter from the bank and told me she is now in debt for 20 years. I reassured her and told her, no you are investing for 20 years! I have heard it before but ever since I have bought my apartment in Norway I  have never felt in debt, my focus was on how to increase my wealth.
• Talking about pension and aging, once your house paid off you are free to for example sell it, buy a new house and invest the rest effortlessly. Luc Brialy takes an example on his website of a couple selling their Grenoble house after the kids moved out and purchasing another one in fantastic Ecuador for 75 000 EUR. The same applies if you simply move to a smaller house when you are older, you can live a more comfortable pension time.
• Isidore, what will you hand over to your kids once you will leave us for a better place?
• I already have a boss at work I do not need a landlord that will limit my creativity in rearranging my place to live, or that will say that for any reason I need to move out because he wants to move back in. (A friend of mine had his landlord come back to the apartment because of some couple issue) In addition I appreciate the stability feeling it gives me (but okay that is me).

So, Isidore, what will you do? I know it can be a tough decision but will you build something sustainable that will make life easier for you and beloved ones or rent your whole life to make your tenants richer as time goes by?