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  #81  
Old 08.12.2011, 12:49
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Re: buying a house: where to start?

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You could extend this argument to any business transaction and the result is we'd go back to the stone ages where people hunted for food themselves, cooked it themselves, built their own hut, etc. If there's something beneficial for both parties, why not enter into a transaction? Or would you prefer that nobody (including businesses) ever borrows money from a bank?
Sometimes we have no choice and debt can be a useful instrument for such situations. But if we have the choice between debt and no debt to achieve the same end, I'm for the no debt solution.
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  #82  
Old 08.12.2011, 13:00
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Re: buying a house: where to start?

Well said!
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  #83  
Old 08.12.2011, 13:03
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Re: buying a house: where to start?

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In the meantime you assume your rent stays the same for 30 years!! More likely it increase 1-3% each year so your rent will be higher regardless. The rent once paid is gone and it will be easily equaly to the mortgage payments.
er, no. My rent is the same to the rappen as it was when I moved in more than 10 years ago. Furthermore, in that period the company has given me a new kitchen, a new bathroom, new radiators, new windows and has also totally renovated the communal areas (stairs and entrance) making them much nicer and replaced the rickety old elevator by a nice modern one. Incidentally, I also own shares in the owning company and the dividend has been 6% per annum on average. So the only difference to owning is that I am free to pack my bags and go when it suits me.

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If you have the means to go the mortgage path it will easily out perform in the longer term. Unless you have found a magic place where youi will commit the 180000CHF for the time period involved
I don't need a magic place. Having that money disposable means I am able to re-assess my investment plan at any time and can sell out and take my money elsewhere at any time that pleases me.
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  #84  
Old 08.12.2011, 13:14
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Re: buying a house: where to start?

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The situation in (beautiful and wonderful) Cape Town (where my OH's family comes from) is however very different to the situation here, no?
Well it is the same dynamics except that we are starting from drastically different levels. Our prime interest rate is 9% and an entry level modern 3bed house might cost you anywhere between 700 000 ZAR and 1 500 000 ZAR, depending on the suburb.

I just sold my house for 795 000 ZAR, less than 100 000 CHF (newly built 2bed-2bath in 2008, 120m2 with lovely views of Stellenbosch). The local property market has been deflating since the peak in 2007 and mark-downs of 5-10% to attract buyers are common.

On the Atlantic Seaboard side of Cape Town (Camps Bay, Clifton) property prices are still out of reach for normal people (4 - 30 mil. ZAR), being bid up by international glitterati and the like. Much like the Genfersee Riviera, I imagine.
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  #85  
Old 08.12.2011, 14:07
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Re: buying a house: where to start?

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Mom and Pop franchises are popular because many Moms and Pops suck at maths or build business cases on wildly optimistic assumptions. For example overtime is not charged for, insufficient money is put aside for pension funds.
you missed the point.
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  #86  
Old 08.12.2011, 14:43
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Re: buying a house: where to start?

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you missed the point.
No I didn't. I was showing that just because there are plenty of people out there who want to run franchises, it doesn't mean that they are necessarily always a good idea. Essentially franchisers are outsourcing their risk to the potentially incompetent.
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Old 08.12.2011, 14:47
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Re: buying a house: where to start?

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That's true, until if and when you need to sell your house, to realize the capital gains that was the premise all along. I mean, that's why people invest their 3rd pillars as deposits, to get a return.

Then, it becomes very important that your house has a kitchen, etc. that competes with the rest on offer. And if you didn't do your upgrades as time passed, you will either have to lower your selling price drastically to lure buyers, or have an serious all-at-once expense to get up to "standard".
Yes... and no. It depends very much on the house. A 1950s villa might well need a new up to date kitchen, etc. But a great quality home several 100s of year old, in good condition, does not necessarily if you buy it at a really good price. Quality, character and location may well transcends this, at the right price- and a buyer with a good eye will work out the potential for her/himself and do what THEY want with it. It does take a special house - but if you look in the right places, they can still be found. A house with the potential for a GRAND DESIGN will always be a bit different and for a specific market only.
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  #88  
Old 08.12.2011, 15:06
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Re: buying a house: where to start?

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Yes... and no. It depends very much on the house. A 1950s villa might well need a new up to date kitchen, etc. But a great quality home several 100s of year old, in good condition, does not necessarily if you buy it at a really good price. Quality, character and location may well transcends this, at the right price- and a buyer with a good eye will work out the potential for her/himself and do what THEY want with it. It does take a special house - but if you look in the right places, they can still be found. A house with the potential for a GRAND DESIGN will always be a bit different and for a specific market only.
True, but most houses in that category are pretty expensive already, so unless you're very lucky or have a huge budget you're going to have to settle for less. Of course if you already have one that's a different situation altogether.
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  #89  
Old 08.12.2011, 15:29
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Re: buying a house: where to start?

Fact is, such houses are still available is some areas - yes those areas where prices have traditionally been very low- but might, just might - go up due to local changes and overcrowding and extortionate prices elsewhere.
You won't find them by the GE or ZH riviera - or other popular expat areas.
A gamble, as I said, and like all gambles should not be taken on unless you can take the risk.
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  #90  
Old 08.12.2011, 16:20
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Re: buying a house: where to start?

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First of all, I was NOT trying to show a complete calculation that proves that buying is more expensive than renting. I said it is a very simple example. All it says is:

1) People typically underestimate the costs to improve and maintain the house they live in. This comes from my personal experience. If you move into a brand spanking new house with no work required for the first 3 years, that's fantastic. Take an average after 20 years and we'll talk again. 2% coming from 1% repairs and maintenace, and an additional 1% for improvements and add-ons and changes is not unreasonable.

2) The example only shows that the monthly cash "saving" of ~ 1000 CHF that a lot of folks point at as a no-brainer, can easily disappear if you take capital expenses and operating expenses into account properly. It does not say anything about what is the best way to go over the long term. That depends on personal circumstances.
I didn't say your calculations were not accurate. I said they are not accurate for the purposes they were used in the post I quoted. There were more factors in there that made his calculation inaccurate including the fact that you don't have to put down 30% and that you only need to amortize up to 65%, which give your extra money to put to his 6% investment fund. But whatever.

But whatever. Everyone has to do all the calculations themselves, review all the factors, etc, etc, etc.

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Great for you, and I agree with your thinking. But how many people do you think have a spare 20% deposit in cash lying around?
A lot of people do because it's locked into their pensions fund. Ok, it takes a few years but....


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Great site, thanks Karl!

The beauty is you can turn the knobs until your side wins

Seriously, if house price growth and rental escalation over the long term drops from 2% p.a. to 1 % p.a., there is virtually nothing in it, financially. And that was my point. Of course, you'll first have to find a nice house that costs 620 000 CHF!
Well, if you had just said that we would have agreed a long time ago!! LOL.

If I break even I'm happy. If I make money I'm happier. And like I said above, in the meantime, I've go my own laundry, not fighting for parking, a yard, I can work from home & not rent an office, it's quite, no one bugs me, :P etc, etc.
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  #91  
Old 08.12.2011, 16:46
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Re: buying a house: where to start?

After having gone through this whole thought exercise multiple times over years, and having finally bought a house, my conclusion boils down to this:

- For the same cash outlay per month, you can live in a much nicer/bigger place.

- All else is subject to fate.

- If you buy, obey the simple rules: quiet, sunny, infrastructure close by (schools, shops, public transportation, motorway).

- Don't buy more than you can afford (rule of thumb, no more than 4 times your combined annual incomes)
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  #92  
Old 08.12.2011, 17:29
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Re: buying a house: where to start?

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- Don't buy more than you can afford (rule of thumb, no more than 4 times your combined annual incomes)
So for buying say 1.4M CHF worth of real estate with 20% of capital, 80% of 1.4M = 1.120M CHF loan, divided by 4 = 280K CHF yearly income.

Are you serious? Or is this just another confirmation that prices in arc lemanique are just crazy? Or are our salaries so crap? We'd need 2 x 140K CHF, no way we'll ever get there.. or is 2 x 140K CHF the new 120K CHF?
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  #93  
Old 08.12.2011, 17:38
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Re: buying a house: where to start?

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So for buying say 1.4M CHF worth of real estate with 20% of capital, 80% of 1.4M = 1.120M CHF loan, divided by 4 = 280K CHF yearly income.

Are you serious? Or is this just another confirmation that prices in arc lemanique are just crazy? Or are our salaries so crap? We'd need 2 x 140K CHF, no way we'll ever get there.. or is 2 x 140K CHF the new 120K CHF?
i think the problem is that in the area you are competing with organisations that are paying top dollar for housing and there's no way you can compete with that.

having said that, all it takes is a halving of the value of the CHF and a corresponding nominal increase in wages to bring that 1.4m CHF house to a 700k CHF price.

given the amount that the SNB have printed and the way the EUR is going, then inflation of 100% over the next 20 or so years is maybe not so far fetched...
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  #94  
Old 08.12.2011, 17:47
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Re: buying a house: where to start?

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So for buying say 1.4M CHF worth of real estate with 20% of capital, 80% of 1.4M = 1.120M CHF loan, divided by 4 = 280K CHF yearly income.

Are you serious? Or is this just another confirmation that prices in arc lemanique are just crazy? Or are our salaries so crap? We'd need 2 x 140K CHF, no way we'll ever get there.. or is 2 x 140K CHF the new 120K CHF?
Well, if you break it down like that, it doesn't seem that expensive at all. That's two salaries at 140K each.... Isn't 140K the new 120K?

You said you put down a deposit on the place. Were you approved from the bank for a loan already? Or did you put down a deposit first before knowing if you could get a mortgage?
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Old 08.12.2011, 17:54
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Re: buying a house: where to start?

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Well, if you break it down like that, it doesn't seem that expensive at all. That's two salaries at 140K each.... Isn't 140K the new 120K?
I wonder who the heck has 2 x 140K CHF income on this forum?
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  #96  
Old 08.12.2011, 17:55
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Re: buying a house: where to start?

I think the banks are happy to finance a house UPTO 6 times your annual income (the 20% downpayment apart) meaning, for a salary of 120000 p.a., the will finance a property upto 720000 safely. Beyond that it becomes uphill in terms of who the employer is, years in current job, etc etc. I faced this precise situation as I bought my house within a year of arriving here, in a job with a startup.
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  #97  
Old 08.12.2011, 18:03
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Re: buying a house: where to start?

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I wonder who the heck has 2 x 140K CHF income on this forum?
Apparently everyone!


So what about the loan: Were you approved for it with an income less than 4x the purchase price? I think they look at it differently, if 5% of the repayments no more than 30% of your income. Something like that I don't remember exactly.
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Old 08.12.2011, 19:03
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Re: buying a house: where to start?

I think the formula is :

Mortgage (1%pa) + interest (2.8% pa)* + maintanace (@1% pa of property value) should not exceed 33% of annual salary.

In my case the loan was about 5 times the annual salary.

* this figure, I was told at the bank, is arrived at based on past 10 years historical average, not current rate.
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Old 08.12.2011, 19:12
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Re: buying a house: where to start?

Wow, it makes my eyes water. Remember so well when we took our first mortgage, the absolute maximum was 3.5 x joint income- and that was hard enough. Mind you I also remember the days our interest rate soared to 19.5%
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Old 08.12.2011, 19:14
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Re: buying a house: where to start?

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I think the formula is :

Mortgage (1%pa) + interest (2.8% pa)* + maintanace (@1% pa of property value) should not exceed 33% of annual salary.

In my case the loan was about 5 times the annual salary.

* this figure, I was told at the bank, is arrived at based on past 10 years historical average, not current rate.
I think you are right, but most use 5% interest to calculate affordability so if interest go up you don't get an "ouch" moment.
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