Up-to-date one hears again and again from the age poverty and the low pensions. Due to the uncertainty of the situation at retirement age, young people in particular need to make provisions in good time. Will the payments into the pension fund be sufficient? Or should you just take the money to the bank?
In addition to a variety of possible hedges, it is also very popular to purchase a property in order to be able to live rent-free in the already paid-off house later on. But is it really so simple?
There can be no general answer to this question, because there are many criteria to be considered. It depends above all also on the personal financial situation. So that you can make the right decision for you, we present to you in the following the points, about which you must think and try to answer so the question for you whether a real estate is worthwhile itself as age precaution.
What to consider – The advantages
The advantages of a real estate as a pension are manifold. Concrete gold is still considered a safe investment. Financial crises, economic downturns and high inflation regularly cause people to invest their money in concrete gold to "keep it safe. The yields from a "rent-free life" in the own 4 walls lure and if one creates it to buy a solid object that investments calculable and the net yield calculable makes and if the own life is so far strengthened that one can foresee over years like the own courses run, then a real estate is a good "column" with the private security for age and pension. However, there are some things to consider….
1. The time
If you want to build or buy a property yourself as a retirement provision, then start in good time. You can usually get good conditions for a loan at your bank. The older you get, the more difficult it becomes to finance your own home, as retirement and the time when the loan is paid off become closer and closer together and the banks calculate corresponding risk premiums. It is also favorable if you can use a building savings contract. On average, you can then pay off the necessary loan in 20 to 30 years and then live rent-free in your own home.
Real estate is particularly exciting as a retirement investment when you have properly worked out your life plan. That is, if one knows "here I want to live with my family for the next decades". To sell a property shortly after the purchase, because the private life planning has changed, is usually a big loss business for the real estate owner.
2. The location
When building or buying, you should make sure that you choose a good residential location. This is important for the value preservation. It could happen that you want to or have to sell the house again (if you change professionally or privately). Or if you would like to rent out the house for a limited period of time before you use it yourself in retirement.
By renting out, you can initially generate income again. But you will only find tenants if the location of the house is attractive. You can of course build the house only for the purpose of renting and live yourself in a cheaper rented apartment. This also allows you to supplement your pension and still use the rented property as a private retirement provision.
Location is particularly important in old age. In old age, mobility decreases, so you should already think when buying that it makes sense to have doctors, supermarkets and recreational facilities within walking distance to be able to live carefree in old age in the property.
Of course you pay a good location but always expensive. Accordingly, when buying real estate, one must carefully weigh up the costs and benefits and should already lose a thought for the time in old age here.
3. Property as retirement provision for landlords
As a landlord, you have tax advantages, as you can deduct your expenses (i.e. the acquisition costs, but also the loan or renovation costs). In addition, you can pass on some of the running costs that you incur with the rental property to your tenants. This includes regular modernization and renovation, such as painting the facade or installing a new heating system.
This circumstance should be taken into account in the financing. Maybe it makes sense to buy a property and finance it by renting it out? In old age, the property is then paid off and can be used by yourself.
4. Real estate as private retirement provision for owner-occupiers
If you prefer to move into your own home yourself, you have more freedom than in a rented apartment. You can change anything you want at any time as you wish. In addition, there is no threat of rent increases or terminations. Instead of paying rent and financing the property at the same time, you only have to pay the loan installments, which can be easily calculated over a long period of time.
Important: Regardless of whether you want to use the property yourself or rent it out: You should discuss your plans with experts. Use brokers or financing advisors of your house bank and bring up your plan. Here some tips will surely fall off fast and they can judge, which project fits perfectly to your life. Many experts offer their services free of charge, because you want to accompany your real estate purchase naturally subordinate (and so earn), however also a paid discussion with an expert (ask times with the local consumer center for a consulting date) can be very worthwhile and trailblazing!
What costs to consider – The disadvantages
Whether you move into the property yourself or prefer to rent it out is always a personal decision. In both cases, however, it is important that you also take into account all possible cost traps.
Because above all the calculation and the financing must be very well thought out.
Here's what you need to look out for in real estate for private retirement provision:
- You need a secure financing concept.
- Check whether you are entitled to subsidies (Wohn-Riester, Baukindergeld or similar).
- When calculating, consider not only the purchase price, but also the acquisition costs. So broker commissions, land transfer tax or the cost of the notary and the registration in the land register (notary costs). Here you are fast up to 10%-14% of the purchase price, which come again on top of it!
- Take into account the current service charges and taxes.
- Also include the tax advantages in the calculation.
- You need to build reserves for repairs. Modernization measures (new insulation, new windows, new roof) may become necessary at any time.
- Include the risk of rising interest rates for your loan in the calculation. When concluding a financing agreement, think about the follow-up financing (e.g., a mortgage).B. via building savings contract to continue favorable interest rates into the future)
- Calculate exactly what rental income you need to achieve at least to cover the monthly costs.
Rules of thumb for financing the property
It is said that the additional costs make up about 10-15% of the purchase price. You should therefore include these costs in addition to the purchase price of your property.
Your repayment (the initial repayment in the loan agreement for financing) should be around 3%. It should not be much lower, otherwise very long contract terms and correspondingly high costs for financing will arise. The necessary equity should be at least 20%, better 30% of the total investment amount.
It is good if you have the possibility to readjust and lower your repayment in case of emergency. Best of all, of course, completely free of charge. Quite often this becomes necessary, if during the repayment a further child comes on the world and thereby further expenditures become necessary.
And importantly: It does not have to run always worse in the life. Inheritances, promotions in your job or other changes often provide small financial injections. It makes therefore quite sense in the financing contract a special repayment to agree around "free capital" into the own concrete gold for the age precaution to push to be able.
Calculation example for financing
For an average property that costs 350.000 euros, a good 35.000 Euro incidental expenses. If you bring the necessary equity to only 300.If you have to take out a loan for a property costing around EUR 000, you would have to pay interest and repay the principal of around EUR 1,200 per month to be able to "afford" the property.
This would then also be the minimum amount that you would have to generate as rental income with your property for retirement provision. If you have chosen a poor property that is unattractive for a variety of reasons (appearance, location, layout), you will have problems generating the minimum income.
Other problems – other opportunities
When you buy a property as a private retirement plan, you not only have to deal with the direct costs. There could also be problems if the house loses value due to other circumstances (water damage, lightning strike, fire) and has to be renovated. Or in the worst case is no longer salvageable. In addition, you could run into rental nomads who make the property intended for retirement uninhabitable.
If you happen to be fortunate enough to have sufficient financial resources, you should consider buying several apartments, thereby minimizing such risks. Or better to spread over different properties. You are unlikely to have exclusively rental nomads in your apartments if you carefully screen prospective buyers beforehand.
If you have decided to purchase a property for retirement, there are several options here. For example, you can think about foreign real estate, listed real estate or care real estate, as well as open real estate funds. However, all options have not only advantages, but also risks, and you should definitely seek thorough advice from a professional in this regard.
No matter what you ultimately decide to do: If you invest in a property for private retirement, you will have to save permanently. Both for incidental expenses and for reserves for future repairs. New windows, a new heating system or a new roof can be quite expensive.
Conclusion – are real estates worthwhile as age precaution?
How the real estate market and the pension will develop over the next 20 or 30 years cannot be determined with certainty. In addition, you can not know how it will be during this period with your own financial strength. Disability, illness, divorce or death usually make paying off the property impossible.
Also the Aufbringung of the additional expenses in the paid off real estate depends in the age whether you can lift these alone or in pairs. Sure, you live rent-free, but not free of charge. Heating, electricity, water, garbage fees, property tax, insurance … all this has to be paid in addition to the repair costs.
Under the best conditions and with good calculation the real estate is for the age precaution however quite an option. With sufficient reserves and a property in good condition and in a good location, you can still enjoy it in your old age.