This is an advertisement from big
capital. It offers to put our personal money into their shares, open your mouth
and wait for the money to grow by 10, even 15 percent per year. Who can
guarantee such percentages? There have been cases in history when stock markets
took an extremely long time to recover, although a 50+ year period without
recovery (including dividend reinvestment) is rare and is usually associated
with the collapse of a specific country's economy or war, and not with the
global market. For example, it took Japan's Nikkei 225 index more than 30 years
to return to its 1989 peak.
Key facts:
Japan (since 1989): After the
bursting of the asset bubble, the Japanese stock market fell and it took more
than three decades (until ~2024) for the index to reach its previous highs
again.
Great Depression (USA): After the
1929 crash, it took about 25 years for the Dow Jones index to recover to its
pre-crisis level (including dividends).
Geopolitical events: The longest
recoveries are usually associated with military conflicts or political systems
that have disrupted capital markets (e.g. Russia after the 1917 revolution).
Most developed markets (e.g. the
USA) have always recovered over a period of 50–100 years, even after the
biggest crises, due to economic growth and reinvested dividends. You may not
survive that many years, especially in Lithuania, you know what medicine is
like here, a doctor is a nurse, and she knows just as much as a primary school
teacher.
And we cannot promise mountains of
gold to big capital, which drives housing prices to unattainable heights. We
will elect populists and force big capital to sell those houses and apartments
to residents, as is done in America. You will have a lot of losses.
“This text mathematically and
without any emotions destroys the biggest Lithuanian myth – the necessity of
desperately purchasing your own home. The numbers show that buying “your own
corner” with a maximum loan and hidden maintenance costs over three decades can
cost hundreds of thousands of euros in lost profit, compared to the path of a
disciplined tenant-investor. We will review the specific calculations of the
two scenarios and emphasize why decisions must be made by evaluating not only
the success but also the crisis scenarios in both cases in order to find the
most effective solution for your goals
The Concrete Illusion: Why Owning
Your Own Home Can Become an Anchor, and How Mathematics Destroys the
“Lithuanian Dream”
In Lithuania, there is one unwritten
rule. Almost a religion. “Renting is throwing money into the pond. A real man
must build a house or at least buy an apartment.” Thanks to this dogma, we have
become European leaders in terms of “concrete” ownership. But let’s ask one
uncomfortable question: are you really the owner of that home? Or are you
simply renting it from a bank for 30 years, assuming all the risks, all the
repair costs, and paying double the price in interest?
Today, we will put emotions aside
and forget about the romance of “our corner”. Let's take a calculator and do
some cold calculations and answer the question: what is more financially
beneficial - to buy an apartment with a maximum loan or to rent, and to employ
the saved money in the market?
Myth busting: "Prices in real
estate are only rising"
Most people buy an apartment not
only for living, but also as a "wonderful investment". However, the
market has no mercy, and people's memory is short.
Let's remember the 2008 crisis in
Lithuania. Prices fell drastically. People who bought new construction property
in the center of Vilnius during the peak took as much as 13 years (until 2021)
for the value of their property to return to its starting point. For thirteen
years, your capital was frozen, and you paid interest on property whose value
is less than your debt to the bank. This is not an investment. This is an
anchor. Blind optimism in finances is the fastest way to bankruptcy.
Hidden Cost: Housing is like a
hungry beast
A loan payment is just the tip of
the iceberg. When we take out a loan, the interest is essentially the same
rent, only paid to the bank for the right to use its money. Over 20–30 years,
you pay a second price for the apartment in interest alone.
But housing is not just a brick that
lies there. It is an infrastructure that needs constant maintenance:
• Repairs every 10 years.
• Updating household appliances.
• Home renovations and unexpected
breakdowns (e.g., burst pipes).
• Historical rate: Maintaining a
home over 20 years costs an additional 1–2% of its value each year.
The tenant does not have these
problems. The washing machine broke down? The roof leaked? This is the
financial burden of the owner, not the tenant.
Mathematical Ring: Buyer vs.
Tenant-Investor
Let's compare two scenarios,
discarding fairy tales and relying on mathematics.
Scenario A: Buyer He buys a new
2-3-room apartment in Vilnius/Kaunas.
• Property price: 200,000 euros.
• Down payment (15%): 30,000 euros.
• Loan amount: 170,000 euros.
• Term: 30 years.
• Monthly payment: about 800 euros
(at ~4% interest).
• Final price: About 284,000 euros
are given to the bank over 30 years (with 5-6% interest this amount would reach
340,000 - 350,000 EUR). When the initial deposit and repairs are added, the
costs easily exceed the 400,000 EUR threshold.
• Result: After 30 years, the buyer
has an old apartment in need of major repairs, the value of which, if
successful, will be about 500,000 EUR.
Scenario B: Tenant-Investor He rents
an identical apartment for 725 EUR/month (75 EUR less than the bank deposit)
and adheres to strict investment discipline.
• Initial capital: 32,000 EUR
(30,000 EUR saved deposit + 2,000 EUR, which would be spent on bank/notary
fees).
• Monthly investment: 241 EUR. It
consists of 75 euros (savings on rent) + 166 euros (avoided repair costs: 10%
of the property value or 20,000 euros, divided over 120 months).
• Period: 30 years.
Based on the data from the
“Financial Lithuanians” investment calculator, let’s see what compound interest
creates:
• At a standard historical 10%
annual return: Accumulated capital will reach 1.1 million euros.
• At an ambitious 15% annual return:
Accumulated capital will reach as much as 4.4 million euros.
Even when evaluating the standard
(10%) scenario, the investor is ahead of the buyer by a difference of more than
half a million euros.
Numbers don't lie, but scenarios
change: Stress test your plan
Before making a decision, it is
important to understand that both 10% and 15% returns are not guaranteed.
Investing in broad indices, alternative funds or loan portfolios carries risks.
Life does not happen according to an Excel spreadsheet, so you must make a
decision after assessing both good and bad scenarios in both cases:
Homebuyer stress test:
• What will happen if interest rates
(EURIBOR) rise drastically again and your down payment increases by 30%?
• What will happen if in 15 years
the area loses its attractiveness and the property value stagnates or falls?
• Will you have a reserve when in 10
years you need 20,000 euros for major repairs?
Tenant-Investor stress test:
• What will happen if the stock
market falls by 30% and takes 5 years to recover? Won’t you panic and sell your
property at the bottom?
• What if rents double faster than
your salary?
• Do you really have the discipline
of steel to invest those 241 euros you saved every month for 30 years in a row,
without spending money on a new car or a vacation?
Your next steps
Instead of blindly following the
crowd, do your homework:
Model your situation: Open the
Financial Lithuanians calculator and enter the real numbers for rent and
housing prices in your city.
• Perform a personal stress test:
Reduce your planned investment return to 6-7% and increase interest rates to
6%. See which option wins in the pessimistic scenario.
• Set goals: Honestly answer to
yourself whether you need psychological peace of mind (“my wall”) or maximum
capital growth.
Fear of making a mistake is often a
more rational variable than blind optimism. Emotional security has a specific
financial expression – peace of mind requires opportunity costs. Those for whom
the guarantee that “nothing will be thrown away” is most important usually
choose concrete and naturally come to terms with the lost potential profit.
Meanwhile, when evaluating the engineering of capital growth, financial freedom
and flexibility, historical mathematics shows that the combination of rent and
strict investment discipline is a mathematically more efficient model. The
final equation always comes down to personal risk tolerance, for which the
opinion of the neighbor or the dogma of society has no mathematical value.”
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