Investing in property? I don’t think so

May 12th, 2006

Recently, a lot of people were suggesting me to invest in property in Frankfurt. The argument goes, instead of paying rent, I can put the same money towards a down-payment and in the end even own a flat. If I move away, I can just sublet the apartment to someone and the rent would still cover the payments, they say.
I was thinking about it for a while and even took the step of talking to my bank for details on getting a mortgage, but in the end decided against it.
The reason for this is, that the conditions people were telling me have some underlying assumptions I don’t agree with. First, my bank claims the down-payment for a comparable apartment would be about 40% more than what I pay for rent now; that is extra money I have to put towards the apartment every month that I can invest elsewhere or just spend now. Second, thereĀ  is a relatively large down-payment for an apartment, which would require me to save up for one or two years before buying – that is again money I could put somewhere else. Third, I’m not convinced that property prices will continue to go up in Germany in the long run – since the population has been shrinking and will continue to do so for the next decades. If property prices stagnate or grow at a rate below the level of inflation, again my money is put to better use if invested in a sector where there is strong growth. Fourth, I think people tend to overestimate the liquidity of the rent and buy market: If I would happen to move somewhere else, it might take a long time until I find someone to rent or sell the apartment to and I have to keep shelling out the down-payments every month even if it is standing empty. Also, properties have to be maintained, which can incur significant costs.
Lastly, I think that in case you own property in a city, ultimately you will be bound there, which I’m not sure I want at this point – Frankfurt is a great place to live at but I don’t see the advantage in giving up my freedom to be able to pack and move to anywhere on the planet on relatively short notice.

Entry Filed under: Uncategorized

Leave a Comment


Trackback this post  |  Subscribe to the comments via RSS Feed


May 2006
« Apr   Jan »

Most Recent Posts