I am just doing some theoretical thinking in general to try to understand why people buy property and whether it makes sense or not.

Imagine there is a flat that costs 125,000 Euros and the rent is 500 Euros.

I am now trying to calculate under which conditions it makes sense to buy that flat....or whether it is in general a stupid decision from an economical point of view.

The basis: Imagine the flat is in a good condition and good location with a long-term lack of nice flats/houses and you live in a country with roughly 50% income/other taxes. Also assume the price of the proprty only rises within the inflation rate.

Case 1: You would not need a mortgage. If you put the money on your savings account at maybe 5%, this would be 520 Euros per month before taxes and 300 Euros roughly after taxes.

Case 2: You get a mortgage on 50% of the property price and live in it yourself.

The mortgage would be about 300 Euros per month...with maybe 250 Euros interests rates and the rest would be the money you pay back.

As you paid 50% on the property (62,500 Euros), you are missing out on 62,500 on a savings account which is about 250 Euros per month.

So all in all it would be 300+250 = 550 Euros you pay per month in contrast to renting for 500 Euros. You also need to pay for repairs etc yourself so maybe all in all you would pay 600 Euros.

Case 2: You get a mortgage on 50% of the property price and rent it out.

In this case, the interests from the mortage are deductable from your income tax as well as 50% of the monthly bills....and you have some additional benefits for repairs....but also an additional risk of having to refurbish the flat more often as the people ruin it or break stuff.

In this case, the monthly mortgage payments are lower then the rent so you also have a taxable income.....maybe 50% is too high and it would need to be something like 25%

..sorry, I am bored now...I think I continue this later on ....or you could do it for me if you know more then I do...which is not difficult

In the UK it is easy to calculate - as your house prices rise all the time...so even with no rent at all, just owning an empty house would even be similiar to a savings account (assuming you bought it without any mortgage...).

I have seen a contract of a flat that was for sale for 130,000 Euros which was bought 1992 for 120,000 Euros (240,000 DM) - which is not unusual here.

In the UK the flat would be worth 300,000 Euros now, or even more.

This graph shows the house prices for example in Germany in the last 15 years....



They grey line is Eastern Germany (falling) the black line is Western Germany.

So there is not much happening there.....they are more or less stable.