What are the possible benefits and risks of buying an old house in a far away area?

Question

I live in Germany with very little savings, around 20k. I have seen some run-down old houses in far away areas offered to be sold. My gut is telling me that it's a good idea to own a house as property, even if it's run-down. However I'm not sure about the possible risks or benefits from taking such a step.

I'm in my late 20s and planning to get married in 2 to 3 years. I was thinking to buy such a house and then renovating during my holidays. However, I'm not really sure if this is a good idea or not, since I don't know the possible risks or benefits.

The problem is that I can't imagine living in such a house because it will be too far from any city in Germany. Also if I renovate it I doubt anyone will rent it since I would imagine not a lot of people live in such remote areas anyway, so the possibility of demand is rather low.

However my gut is still telling me to make such a purchase, just to make sure that if everything else goes wrong, I will still have a place to live. This possibility is rather low as well because in Germany we get a lot of social benefits. But I'm considering buying one just as an extra layer of security, i.e you never knows what could happen.

Here are the possible benefits that I could think of:

1- Extra peace of mind.

2- The possibility that the prices of houses rise in the far future. (Which is an extremely low possibility given the aging population here)

The possible risks:

1- Freezing 20k Euros liquid for a long period of time on a property that I will possibly never use.

2- Spending possibly extra 10k Euros for renovating and nobody rents it. (The 10k figure is just a guess ... not sure if renovating could cost more than that).

3- Spending my holiday in doing something useless while I could use that time to learn something new or invest in personal skills. (I'm a programmer ...)

Are there other risks or benefits that I could have missed?

Answer 1

You appear to be assuming that even if the value of the property does not rise in the future, it will at least remain. Have you considered that you may never be able to sell such a house for even 20k in the future? As you noted, the population in that area seems to be low, and aging, meaning that in 5 years, perhaps there is even less demand than what there is right now.

Further, you may have additional operating costs for the house, even if you don't live there / rent it out. For example - utility costs which may be necessary, maintenance costs when something gets damaged in the whether, property taxes, insurance, etc.

The benefits which you have listed ('peace of mind' and 'possible rise in value') are dubious. If I owned a house in some remote area, I would now have to worry about possible vandalism, weather damage, missed tax payments, missed financial opportunities due to cash shortage, etc etc. The only peace of mind is against the fear that all of society breaks down and you have a shack to sleep in. Is that really a risk you fear? In a not-so-terrible catastrophe, for example you lose your current job, would it help you to move away to somewhere where there is no work? And the way you've laid it out, a 'rise in value' seems to be a pure gamble on what might happen in the future. This is not a good way to make investment choices.

What if in 3 years you get married, and want to move, but don't have the down payment for the house you actually want to live in?

Real estate is very 'illiquid', which means it is hard to convert to cash. This would not be emergency savings for you, and would be quite risky to hold.

Answer 2

I live in the U.S. so things may be different, but:

You say you can't live in the house now. So it would either be sitting vacant or you would have to rent it out.

If it's vacant, then it could be damaged by a storm, or the pipes could freeze in the winter and break and flood the place, or vandals could do major damage, etc. There are lots of things that if you were there, you could prevent or fix with minimal effort, but if no one is there, if it goes on for weeks with no one knowing, could do major damage. My parents had a summer home for a while and one day while they weren't there thieves broke in and stole all the appliances and everything else they could carry off. Here in the U.S. insurance on vacant houses costs way more than insurance on occupied houses, because the insurance companies know this.

Even if you can find a renter, you then have to manage the property from a distance. If the furnace quits or the toilet gets clogged, the renter will expect you to fix it. Which probably means you have to hire a plumber or whatever. I own a rental property far from my home, and I've had some very annoying maintenance calls. Like the tenant complained that water was coming in when it rained. I sent a carpenter. He told the tenant that she had to close the windows when it's raining. He then charged me $150 for the service call. I had one tenant who totally trashed the place, $10,000 in damage. Etc.

You say it's in a remote area. I assume this means there are few jobs around, so moving there any time before retirement is impractical. You could conceivably use it as a vacation home, but do you want to?

I don't know what the housing market is like in Germany these days. Is there any reason to believe housing prices will rise, or even remain stable? It doesn't sound like it's an investment.

You mention having a place to live if you lost your job or something. But if you couldn't get a job there, this isn't very practical. And, is this some outrageous great deal, or is it likely that you could always buy a house in such an area for a comparable price? If so, it would make more sense to just keep the cash in the bank or some liquid asset, and if you did need a house, then buy one.

All told, it sounds to me like there just is no very good reason to buy this house. Unless it is truly a fabulous deal, like you can buy this house now for 20,000 EUR but next year it is unlikely that anything remotely like it will be available for less than 50,000.

Answer 3

The population of German has been decreasing since 2003 and will continue to decrease through at least 2050. The population will fall from 82.9 million to about 69 million in 2050. (This is according to the Statistisches Bundesamt in Wiesbaden.)

We can see what this means by looking at Japan, which has a similar situation. Housing prices in urban centers have dropped a little, but houses are literally being abandoned because nobody wants them in rural villages.

So from this, owning remote property doesn't sound like a good investment, because demand will probably drop and it will be tough to get your money back, much less make a profit. What happens if all the other local houses get abandoned?

Answer 4

Since you're not a real estate investor by trade, or as a hobby, I'd say the only house you need to buy is one in which to live, in the area where you work. Even then, you should compare the costs carefully before dedicating the savings and cashflow required. Yes, you can build equity in a house, but you are responsible for the property taxes, maintenance, etc., in addition to the mortgage. When you rent, the landlord pays all those things. Home ownership is not a bad thing, but you need to know what you're taking on when you buy.

If you want a long term investment, buy long term investments through a brokerage.

Answer 5

I know this is an old question, but I have some possibilities that could prove useful. I realize the OP might not be able to take the same action now as when they asked this originally, but maybe someone else will. My experience in in the USA, so YMMV.

Learning Experience

Programmers tend to think that the only thing useful is learning how to better program. As a programmer myself, I know this isn't true. Knowing how to maintain a house/car/whatever and do major repairs can benefit your pocketbook just as much (if not more) as learning a new language then getting a new job with much higher pay.

Learning how to do repairs on a house that you don't live can be considered a "play" house. If you mess up a repair, fine, you can continue to work on it again later. You don't need to do it now, since your stuff is somewhere else and it's (probably) not an emergency to fix the problem. Meaning: you can take more time to do the learning, so you'll be less stressed about the repair and make fewer problems for yourself in the process. More stress usually means making more problems, which is just a downward spiral of energy, time, and money.

The thing is, once you can do the repairs, you don't have to pay a bunch of money for someone else to do it. I saved thousands of dollars by being able to fix my own cars. Instead of $150+ per axle for a brake job, I did it myself for $50. Fuel injectors cost $80, but labor at a shop can cost $550+ beyond the part (I know this from experience). Sure, some things will still take a professional, but repairing drywall, replacing a switch, fixing a stuck door, and so many others can cost you less than $20 in parts, which could cost well over $200 for a pro to come out. With this being in the country, they may charge you an extra fee for the longer trip.

Make money

After you get all the repairs done, maybe some upgrades, and get the house looking like you want, put it on AirBnB or similar rental site. There may not be a lot of people in your area that want to permanently live in the country, but there's a lot of suckers vacationers that will pay a lot of money to "get away from it all". I mean, that's why they are on vacation anyway, right?

Make sure the price for the rental covers the annual costs of the place (tax, electricity, water/sewer, basic repairs, etc) with some emergency fund growing, too. I don't mean charge 1 rental the whole annual cost of the place, I mean charge as if it's only occupied half the time. This may come out to a fair bit of money, but as long as it's similar to what other's are charging for similar rentals/property, then you should come out fine.

If you want to guarantee you make money this way, do something a little extra so that when people leave ratings/comments on the rental site, you come out on top of search results, which will help you get more rentals. I don't know what that would be, but a little research on what people "love" on vacationing sites might get you some good results.

Answer 6

When you invest in a cheap area with little money, it is usually not a good idea since renovation costs are roughly the same than in good areas. It's not a good market situation.

You just want to work in the house during your vacation. It will take a long time and leaving a house empty for a long time will lead to extra work and expenses. It's better for the substance of a house when someone lives in it. Otherwise, animals might find a way into it, the winter will cool down the house and it may suffer from room climate, etc.

Often it's cheaper to build a new house instead of renovating a ruin. If you like to gamble, buy the house or an empty property in that area and hope the price that the land will increase in value.

Edit: Instead of a house, consider a cheap apartment. You'll have less damage from being empty. You can get a one room apartment in decent shape for that price. A house that costs $20k usually requires a lot more renovation than expected.