“Prepare your work outside; get everything ready for yourself in the field, and after that build your house.” – Proverbs 24:27 (ESV)
Last year, we decided to make a study about buying our own apartment. That move ignited my desire to pursue the purchase our own apartment rather than paying the rent.
Buying your apartment is a smart financial decision. I should have followed the advise of Peter Lynch when I read his book One Up On Wall Street and made this my first investment. I thought I can make fortune by making other investment vehicles and pay a house in cash later on. But what happened to me is that I paid and apartment to the landlord.
Here’s my story
My family and I went to CAFPI for a property loan simulation.
The manager asked, “How many years we’ve been paying the rent?”
I replied, “23 years – five years in Beausoleil and 17 years in Paris.”
He said, “And how much you are paying right now?”
I said, “800 Euros every month.”
Again, he asked, “How much is the cost of the property you are planning to finance?”
Out of the thin air I said, “Around EUR200,000 for a 3-pieces apartment.”
He said, “Congratulations! You’ve already paid out your mortgage. You have paid already the total of 220,800 Euros!”
That’s right! It’s the same as I paid the apartment of my landlord. I did all the hard work – I endured the pains while he enjoys the gains.
What can I suggest to you?
So if you are a Filipino living in France with your family, here’s my suggestion: if you are 30 – 50 years old, buy your house or apartment. That means if you will pay out your housing loan in 20 years, you will be able to save that amount supposed to be paid for the house or apartment of the landlord. Why pay for someone else’s if you can pay to own your house or apartment?
Most people out there will talk you out that it is better to rent than to own. They will tell you that owning a house or apartment is a poor investment. They will tell you that maintenance is costly. They will tell you that property tax is costly.
All these reasoning are totally insane.
What’s the cost of owning a property?
For may case, let’s say I will buy a EUR230,000 apartment with less than 10% down. I took, EUR117,000 loan payable in 11 years with 1.8% interest. The total amount I pay for interest is EUR13,500 and insurance of EUR13,500 as well. Since I am investing in a new building to be constructed, I received from the government the total of EUR92,000 with no tax (prét a taux zéro). I will pay the PTZ for another 10 years after the first 11 years.
Putting all together, here’s the calculation of what I will pay to own this apartment if I will live until 72:
- Capital : EUR230,000
- Total financing cost (interest, insurance, etc.): EUR33,000
- Property and Residence tax: EUR105,000 (assuming EUR4,000 a year for 21 years with a principal residence)
- Furnishing: EUR25,000
- Maintenance: EUR48,000 (assuming a 1% annual maintenance cost)
- Total cost of ownership: EUR441,000
Yap, that’s almost half a million euros. It looks like a lot, but you have to remember that this conservatively covers the living space for your entire life.
How much would it cost me for the rent on that same place? Assuming that the landlord owns it with the similar terms as I have, and assuming that the he makes no profit on the rental?
He will be renting it out to me for the price of EUR1,750/month to pay his mortgage!
Advantages that you can get if you own your house or apartment
So what are your advantages? Here are some:
- You can leave the value of the house or apartment at the end of your life. If the property did not appreciate in 21 years, you’d still be able to sell it for the original value.
- You beat inflation. When you buy your property on a fixed mortgage, you are betting against the currency. That means every year you own your house or apartment, it gets cheaper to live there. Unlike your landlord who will increase the rent 1-2% every year.
- In case you live out the payment terms, the amount you should pay for the rent is additional money in your pocket.
The final word
The calculations I made here are all rough estimates. I put higher value so that it’s better to err on the upside than on the downside.
So if you think about long term, you’d be better off paying for your mortgage to own your house or apartment than paying the mortgage of the apartment you are renting.
Are you deciding to buy your house or apartment and you are looking for a financing simulation? Don’t go directly to your bank, they will simply kill your dreams. It’s better to pay a broker for a fee who will handle everything for you.
PM or email me if you need coaching about this matter.
Here’s to your success in buying your house or apartment!