In the investment goals thread, there was so much discussion related to housing, and someone there even suggested moving the messages, so I thought I’d open one like this.
There’s a separate thread for driving, so why not for individuals’ housing and its effect on their own finances? Let’s not fill up the real estate investing thread either, because a debate about one’s own housing arrangement doesn’t directly belong there.
In my case, building a detached house enabled an increase in collateral for investment properties.
Five years ago, I built a house that required a €340k loan at the time. For some reason, the bank didn’t value the plot at all, so that €340k was the property’s valuation. Now, a few years later, when the property was appraised, it was €500k according to the real estate agent’s estimate. With this “appreciation” and the loan repayments made, we secured enough collateral to buy two investment properties. If I had just lived in an apartment building, I don’t know if I would have been able to generate this much collateral/appreciation. Of course, building the house was quite a bit of work, even though I went with a semi-finished kit home.
Interesting topic.
I personally live in a way that is hardly optimal for someone who wants to save as much as possible. It’s certainly not the most expensive option either, and I think a detached house owner can achieve quite a lot of savings through their own handiness. Above all, living in a large detached house on a quiet plot is a matter of well-being for us. Privacy, proximity to nature, and the countless possibilities of one’s own home and yard. Of course, the flip side is that things must be kept in good condition, and that takes both time and money.
We live in a detached house built in the 90s on the edge of a small town. The commute to the Helsinki metropolitan area is a bit over an hour. The house has enough space even for a larger family, including home offices, children’s playrooms, and heated garages. Although we’ve only lived here for a few years, it has already proven to be such an excellent place that if you ask me now, our children will get to grow up in this yard until adulthood.
Now, for the costs.
Firstly, the price of a house here in smaller towns is low. In my estimation, we got the house at a bit of a discount since the offer came from a seller we knew. If you compare it to homeownership in the Helsinki metro area, the purchase price of our house could apparently buy a two-room apartment on the outskirts of Helsinki or an old studio in the inner city. One of my colleagues has a house very similar to ours but in the far reaches of Espoo. The price was nearly triple compared to our house, and the yard space is negligible. Of course, renting would be an option, but for some reason, I’m more of a homeowner and detached-house type of person, so it is what it is.
If I think about the mandatory annual running costs, they are roughly as follows (rough ballpark estimates from memory):
On top of that, there’s the car, which one could try to do without in the city if they wanted. For me, however, the utility value of a car has proven so high that it’s hard to imagine a scenario where I’d give it up. When you split all those costs with your wife, it doesn’t amount to a huge sum.
With the mortgage split in half over a long term, the equivalent monthly total expenses (loan + interest + running costs) would seemingly rent a 60-square-meter two-room apartment in the inner city, a studio in Punavuori, or a 90-square-meter apartment in Mellunmäki. Interest rates are fluctuating so wildly, though, that the calculation is indicative at best—especially since I’m pulling these numbers a bit out of thin air and just adding them up in my head.
The main difference probably lies in maintenance and upkeep costs. There are many small purchases that an apartment renter doesn’t make or need: a lawnmower, wheelbarrows, fire alarms, a snow shovel, tools, a garden hose, just to name a few. I’m in the fortunate position that I enjoy working in the yard and can handle small DIY tasks.
Cosmetic renovations are probably done to some extent every year. Some years it’s something minor, other years something bigger. And then there are the structural and technical renovations: a roof project, water damage, or major earthworks. Even if you do a lot yourself, the costs still add up significantly. The luck of it is that these occur relatively rarely if you keep the place in good shape. And it is nice to pull potatoes from your own land with the kids on a summer morning, even if you wouldn’t dare calculate the price per kilogram.
Finally, a word on the property value. It’s impossible to say where apartment prices even in big cities will be in 20–30 years, but presumably, the price development will be better than for our house. Mentally, I’ve already written off the value of our house from my balance sheet. Even though it’s a quality house in a great location, buyers might be scarce in a few decades. On the other hand, if you keep the place in good condition, maintain it wisely, and do a lot yourself, I believe our housing costs will be quite reasonable when viewed from a perspective of decades.
It would be nice to hear some discussion here about property value appreciation if it’s from a wealthy area, or if, for example, there’s a more expensive house in the area, a well-known person, etc. Can things like this raise prices in area X?