ᐅ Building a rental property despite a zoning plan allowing only one-and-a-half stories
Created on: 12 Jun 2016 16:47
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BendeyHello everyone,
I’m interested in whether it can be economically viable to build a rental property if the zoning plan only allows for a one-and-a-half-story building.
Here is the background to my question:
Some time ago, I inherited a plot of land of about 800 m² (8,600 sq ft) with a south-facing side, close to the city center and recreational areas. It’s really a beautiful location!
However, since the distance to the workplaces of my wife and me is a bit too far and we are very comfortable at our current home, we do not intend to build there for ourselves.
Because certain costs arise for property tax and land maintenance, and given the current low-interest environment, we would like to invest. We are therefore considering building a house there to rent it out afterward.
The problem is that the zoning plan only permits a one-and-a-half-story building, and the neighbors would likely not agree to any changes to the zoning plan.
As far as I know as a layperson, building a rental property usually only makes economic sense if a multi-family building with at least two stories can be constructed due to the fixed costs involved.
Is this correct, or can you share from your experience whether a one-and-a-half-story building can still offer a worthwhile return? Our expected return is around 5 to 6 percent.
Do you have any ideas or approaches on how to use the plot profitably despite the restrictions of the zoning plan?
Selling is, of course, also an option, but since there is some "emotional attachment" to the plot, it would only be the last resort.
I’m interested in whether it can be economically viable to build a rental property if the zoning plan only allows for a one-and-a-half-story building.
Here is the background to my question:
Some time ago, I inherited a plot of land of about 800 m² (8,600 sq ft) with a south-facing side, close to the city center and recreational areas. It’s really a beautiful location!
However, since the distance to the workplaces of my wife and me is a bit too far and we are very comfortable at our current home, we do not intend to build there for ourselves.
Because certain costs arise for property tax and land maintenance, and given the current low-interest environment, we would like to invest. We are therefore considering building a house there to rent it out afterward.
The problem is that the zoning plan only permits a one-and-a-half-story building, and the neighbors would likely not agree to any changes to the zoning plan.
As far as I know as a layperson, building a rental property usually only makes economic sense if a multi-family building with at least two stories can be constructed due to the fixed costs involved.
Is this correct, or can you share from your experience whether a one-and-a-half-story building can still offer a worthwhile return? Our expected return is around 5 to 6 percent.
Do you have any ideas or approaches on how to use the plot profitably despite the restrictions of the zoning plan?
Selling is, of course, also an option, but since there is some "emotional attachment" to the plot, it would only be the last resort.
G
garfunkel12 Jun 2016 19:101.5 stories would then mean an apartment consisting of a ground floor unit plus a converted attic/apartment in the top floor?
It might be true that a multi-family house only becomes profitable from two stories upwards. However, it probably also depends on how many apartments are included.
How many square meters (square feet) of living space are you planning, and how many apartments will it be divided into?
You could check what similar new-build apartments rent for in your area.
Two apartments seem generally a bit tight. Three or even four would certainly be better. But it also depends on whether you can fit three or four apartments into the building.
So the key is to plan the house in a way that allows multiple apartments to be accommodated.
For example, I know that 2- or 3-room apartments are the easiest to rent out (they tend to have the highest occupancy and often a better rent per square meter compared to larger apartments).
Then you can look at what rent you can charge per apartment.
From that total, take into account taxes, reserves, potential vacancy, etc. Don’t forget to calculate the yield, and finally determine how much the house can cost to meet your target.
This is how I would approach the initial steps of the project.
PS: I would only consider selling if absolutely necessary, especially if the land is in a good location. The price is likely to increase.
€: Are you even allowed to build a purely rental building in your town? Here, you can’t get a building permit/planning permission unless you intend to live there yourself 🙂
It might be true that a multi-family house only becomes profitable from two stories upwards. However, it probably also depends on how many apartments are included.
How many square meters (square feet) of living space are you planning, and how many apartments will it be divided into?
You could check what similar new-build apartments rent for in your area.
Two apartments seem generally a bit tight. Three or even four would certainly be better. But it also depends on whether you can fit three or four apartments into the building.
So the key is to plan the house in a way that allows multiple apartments to be accommodated.
For example, I know that 2- or 3-room apartments are the easiest to rent out (they tend to have the highest occupancy and often a better rent per square meter compared to larger apartments).
Then you can look at what rent you can charge per apartment.
From that total, take into account taxes, reserves, potential vacancy, etc. Don’t forget to calculate the yield, and finally determine how much the house can cost to meet your target.
This is how I would approach the initial steps of the project.
PS: I would only consider selling if absolutely necessary, especially if the land is in a good location. The price is likely to increase.
€: Are you even allowed to build a purely rental building in your town? Here, you can’t get a building permit/planning permission unless you intend to live there yourself 🙂
How about a semi-detached house, if allowed. If the plot were in Stuttgart or Munich, with international companies that occasionally look for a house for managers with families for a certain period, it could be worthwhile. Houses are also often rented in smaller towns, but if it’s out in the countryside.... 🙄
B
Bauexperte12 Jun 2016 21:20Good evening,
It depends on the building envelope and the capital you are willing to invest!
See above! Fundamentally, one-storey development is not an issue; even for a multi-family building, provided the zoning permits more than two residential units. Otherwise, a semi-detached house is a good alternative.
Please send me the link to the zoning plan and the size of the building envelope.
Regards, Bauexperte
Bendey schrieb:
I’m interested to know if it can be economically viable to build a rental apartment building as an investment property when the zoning plan only allows for one-and-a-half-storey development?
It depends on the building envelope and the capital you are willing to invest!
Bendey schrieb:
The problem is that the zoning plan only permits one-and-a-half-storey development, and the neighbors certainly wouldn’t agree to any change in the zoning plan...
See above! Fundamentally, one-storey development is not an issue; even for a multi-family building, provided the zoning permits more than two residential units. Otherwise, a semi-detached house is a good alternative.
Bendey schrieb:
Do you have any ideas or approaches on how the plot could be used profitably despite the zoning restrictions?
Please send me the link to the zoning plan and the size of the building envelope.
Regards, Bauexperte
G
garfunkel12 Jun 2016 21:56If the goal is to create a purely rental property, I would definitely focus on multiple apartments. If one unit experiences rental loss, it doesn’t mean losing 50% of the income all at once.
If there are no more than two apartments, a duplex is probably the best option.
However, on an 800m² (8600 sq ft) plot, a house with two ground-floor apartments sharing the garden and two small units in the attic could be possible.
Maybe two on the ground floor and one upstairs, which would still make three units.
For rental apartments, it usually doesn’t pay off to plan overly spacious rooms. After all, you’re not building for personal comfort.
If there are no more than two apartments, a duplex is probably the best option.
However, on an 800m² (8600 sq ft) plot, a house with two ground-floor apartments sharing the garden and two small units in the attic could be possible.
Maybe two on the ground floor and one upstairs, which would still make three units.
For rental apartments, it usually doesn’t pay off to plan overly spacious rooms. After all, you’re not building for personal comfort.
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