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So I've been contemplating taking out a 
mortgage.
Not because I need a house but because I want to bet lever up as much as I can (read: take credit) in order to profit from betting that inflation will rise in the coming decade.
Back of the napkin math discouraged me.
1/x
mortgage.Not because I need a house but because I want to bet lever up as much as I can (read: take credit) in order to profit from betting that inflation will rise in the coming decade.
Back of the napkin math discouraged me.
1/x
Living in , we're looking at an average property around €300k.
Most banks require a ~30% downpayment, so we'll need to put down €90k.
At a fair interest rate of 2.5% over 25yrs, we'd pay €942 a month.
Total to pay out: €282k over 25yrs
Total cost of property: €372k
, we're looking at an average property around €300k.Most banks require a ~30% downpayment, so we'll need to put down €90k.
At a fair interest rate of 2.5% over 25yrs, we'd pay €942 a month.
Total to pay out: €282k over 25yrs
Total cost of property: €372k
Last 20yrs worth of Spanish RE history:
> Property prices grew from 2000 (€800/m2) to 2007 (€2,000/m2), decreased from 2008 until 2015 (€1,200/m2), grew from 2015 until 2020 (€1,400/m2)
A 75% increase over 20 years. Pretty mediocre.
src: https://foreignbuyerswatch.com/category/real-estate-prices/real-estate-prices-in-spain/
> Property prices grew from 2000 (€800/m2) to 2007 (€2,000/m2), decreased from 2008 until 2015 (€1,200/m2), grew from 2015 until 2020 (€1,400/m2)
A 75% increase over 20 years. Pretty mediocre.
src: https://foreignbuyerswatch.com/category/real-estate-prices/real-estate-prices-in-spain/
Note that it increased >150% in the first 7 years, but had trouble recovering after the crash - it was super overheated as evident.
I'm willing to bet that the next 25yrs will see at least a 250% increase.
Also Spain may be undervalued compared to the rest of EU right now.
4/x
I'm willing to bet that the next 25yrs will see at least a 250% increase.
Also Spain may be undervalued compared to the rest of EU right now.
4/x
If it all works out as planned, our property would be worth €1,050,000 in 2046.
We've paid €372k and have an asset worth $1.05M - a profit of €678k over 25yrs.
Note for the benefit of the doubt we're not counting maintenance, remodeling, new furniture and etc.
5/x
We've paid €372k and have an asset worth $1.05M - a profit of €678k over 25yrs.
Note for the benefit of the doubt we're not counting maintenance, remodeling, new furniture and etc.
5/x
Supposed I were to live on rent for the next 25yrs, and I picked a rent price of €800.
(rents may increase but we assume salaries would proportionally as well)
I'd keep the €90k downpayment and I'd save an extra €142 a month. What happens if we invest those over 25yrs?
6/x
(rents may increase but we assume salaries would proportionally as well)
I'd keep the €90k downpayment and I'd save an extra €142 a month. What happens if we invest those over 25yrs?
6/x
The 8th wonder of the world - compounding - happens.
Investing €90k today and an additional €142/month for the next 25yrs in an asset that has an annual appreciation of just 9.6% would leave us with €1.05M in 2046 as well.
It gets better
7/x
Investing €90k today and an additional €142/month for the next 25yrs in an asset that has an annual appreciation of just 9.6% would leave us with €1.05M in 2046 as well.
It gets better
7/x
Annual 11.25% results in €1.5M
To match that alternative, the mortgage property must appreciate 400% in 25yrs.
- annual 12.1% / 500% property = €1.8M
- annual 12.9% / 600% property = €2.1M
- annual 13.5% / 700% property = €2.1M
You get the picture.
8/x
To match that alternative, the mortgage property must appreciate 400% in 25yrs.
- annual 12.1% / 500% property = €1.8M
- annual 12.9% / 600% property = €2.1M
- annual 13.5% / 700% property = €2.1M
You get the picture.
8/x
Finding an asset that beats the S&P in annual perf doesn't sound that hard.
Look at $AAPL's yearly returns for the past 2 decades - http://www.1stock1.com/1stock1_148.htm
Granted, the risk is different - your property can never go to 0. Nevertheless, the alternative is compelling.
9/x
Look at $AAPL's yearly returns for the past 2 decades - http://www.1stock1.com/1stock1_148.htm
Granted, the risk is different - your property can never go to 0. Nevertheless, the alternative is compelling.
9/x
Looking at the past 20 years of markets, it doesn't sound hard to navigate the markets and get >12% yearly returns.
The risk of losing are somewhat even to the risk of the property not appreciating by 500% (!).
So why would you do it? Looking for advice and discussion.
10/11
The risk of losing are somewhat even to the risk of the property not appreciating by 500% (!).
So why would you do it? Looking for advice and discussion.
10/11
Things not mentioned:
mortgage pros:
- can rent it out to cover the cost and profit, given inflation rent should increase and the profit
- pretty safe
mortgage cons:
- locks you in one place (mostly)
- moreso subject to tax increases/etc (locked in country)
- you're in debt
mortgage pros:
- can rent it out to cover the cost and profit, given inflation rent should increase and the profit
- pretty safe
mortgage cons:
- locks you in one place (mostly)
- moreso subject to tax increases/etc (locked in country)
- you're in debt
Thinking more about it - renting it out seems like the most lucrative way to profit off of inflation.
If the property appreciates, the rent is bound to as well (somewhat), paying more than the monthly €942 not only paying off the mortgage but allowing you to invest the excess
If the property appreciates, the rent is bound to as well (somewhat), paying more than the monthly €942 not only paying off the mortgage but allowing you to invest the excess
