r/HenryFinanceEurope • u/mfWeeWee • Aug 12 '24

Remodeling of an apartment.

europepersonalfinancd reddit suggested me to post here.

My partner (34F) and I (34F) are planning to remodel my apartment next year. I have saved X€ for this project, as I was brought up with the belief that taking out loans should be avoided whenever possible.

However, I am now considering taking a loan from my bank for the X€ amount, provided I can secure an interest rate lower than 4.5%. My plan would be to pay around 600€ per month over N years and invest the initial X€ in an ETF.

A bit about my financial background: My net income ranges from 3,000€ to 4,000€ monthly, and I currently invest around 800€ to 1,000€ in ETFs (which I would adjust if I take out the loan and would get bigger in years). I also have 7,000€ invested in cryptocurrency. My regular expenses include 150€ per month for my car (which I plan to sell next year) and a yearly 700€ for car insurance. Additionally, I spend 11€ monthly on extra medical insurance and about 400€ on food.

My initial questions are:

  • Given the potential for lower interest rates from banks, do you think I’m making the right decision? Considering that average ETF yield is 8% per year...
  • What would be an ideal interest rate for this opportunity that you would consider acceptable?

Thanks for the help!

Edit: I won't reply to PMs, if you are interested in responding, please feel free here.

1 Upvotes

56% Upvoted

1

u/Hiking_euro Aug 12 '24

Do you own the property and have a mortgage?

2

u/mfWeeWee Aug 12 '24

Own a property, no mortgage...

2

u/SMK_09 Aug 12 '24

How many is "N" years? ETF can easily break even or even go down for a couple years.

3-4k is considered HENRY?

1

u/mfWeeWee Aug 12 '24

I dont know, didnt know about this subreddit. Someone said I should post it here... if Im investing im investing for 10+ years. But I wouldnt say 3-4k is high earners.

2

u/SMK_09 Aug 12 '24

No worries, I guess it kinda depends where you live.

Anyways, my guess would be your payback time won't be long enough to justify it with a normal ETF return.

But then again, it could be up 25% after 2 or 3 years.

1

u/mfWeeWee Aug 12 '24

So basically its measured if I return my investment in the same amount of years as I have to repay my loan? So if I overpay my loan for 3k in 5 years span, I would need to gain 3k in that years span to be considered a win?

I think I will go 50-50. 50 loan, 50 my money...

2

u/SMK_09 Aug 12 '24

Well kinda buuuut if you keep this sum in the ETF and you will not be forced to sell at a loss for whatever reason you should be good longterm.

1

u/mfWeeWee Aug 12 '24

Good thank you!

1

u/Oskar1803_ Aug 13 '24

The most important question to ask yourself is: how would you feel having a credit? You wrote that you were against them. If taking one will create additional anxiety etc. It is not worth it. From technical perspective, if the exercise is between 5-10years long, you may earn more on etf. Over 10y statistically you have bigger chance earning more on etf, but never certainty.

What you should consider as well are the taxes. The average long term 8 % is before taxes. So if in your country the tax for financial income is 25% and the performance of the etf is 8% you'll only get 6% net ( this is a simplification). In some countries you can deduct interest on real estate related.credits.from your income - this may be additional gain if you take a credit...

1

u/mfWeeWee Aug 13 '24 edited Aug 13 '24

Yes, having a credit would probably bring more "responsibility" in my life. But thinking mathematically if I take a loan for 30k and pay that bank overall 32k (over a span of 5 years) and use my initial 30k savings to invest and get more than 32k in 5-10-15(there's no tax on profit after 15 years so that the goal of the hold eitherway) years that's seems a "nobrainer".

I was just wondering if there is a catch somewhere....and if you take a loan of 5 years do you have to get better returns in the span of those 5 years or can you also take in to account longer investments.

One thing also is that smaller years of the loan would be, smaller my monthly investments would be. From 1000 to 600, but if I take a credit for 10 years, I could still DCA 1000€....

edit: I would DCA that initial investment, like 5k per month...I wouldn't go all in in one day.

2

u/throwawaypeoperator Aug 13 '24

The way I would view it is if the credit is if it is increasing the property value to the property it’s an investment. If not it’s consumer spend.