ᐅ Sell the entire property or opt for a partial sale with reinvestment?
Created on: 10 Jun 2018 13:41
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kaho674
There is a large property in the family located in the center of Dresden. It is a residential area—surrounded by 6-story or even taller new apartment buildings. The land is currently occupied by a very old factory building. The owners do not have the funds to demolish this building and replace it with modern new construction. On the other hand, the ongoing costs and rental income are just about breaking even. If income continues to decline, the property could financially ruin the family.
So the question is what should happen with this "factory land." It is quite certain that it could be completely redeveloped since there are multi-family buildings all around. Adjacent to this land is the family’s own business property (including land), which is not intended to be sold as it is their livelihood.
The immediate idea was, of course, to sell the entire factory land. Its value is estimated at around 1-2 million (minus demolition costs), without going into details here. The money could be taken, divided among the family, and essentially spent without long-term benefit.
However, there are also grandchildren who are struggling to establish themselves in Dresden. The family would like to support them over the long term and believes that a rental property would be ideal. Coincidentally, the grandchildren are trained in property management and could help oversee the project.
So the idea came up to sell only part of the land to gain liquidity, demolish the old building, and construct a multi-family house—ideally in collaboration with an investor who would buy and develop the other half. Of course, everything would need to be carefully calculated to see if this is feasible and if the land will generate enough value.
Is something like this possible, or is it just a scam? What would you do?
So the question is what should happen with this "factory land." It is quite certain that it could be completely redeveloped since there are multi-family buildings all around. Adjacent to this land is the family’s own business property (including land), which is not intended to be sold as it is their livelihood.
The immediate idea was, of course, to sell the entire factory land. Its value is estimated at around 1-2 million (minus demolition costs), without going into details here. The money could be taken, divided among the family, and essentially spent without long-term benefit.
However, there are also grandchildren who are struggling to establish themselves in Dresden. The family would like to support them over the long term and believes that a rental property would be ideal. Coincidentally, the grandchildren are trained in property management and could help oversee the project.
So the idea came up to sell only part of the land to gain liquidity, demolish the old building, and construct a multi-family house—ideally in collaboration with an investor who would buy and develop the other half. Of course, everything would need to be carefully calculated to see if this is feasible and if the land will generate enough value.
Is something like this possible, or is it just a scam? What would you do?
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nordanney16 Aug 2018 11:11kaho674 schrieb:
Besides all the cost and technical aspects, I am mainly wondering if it fits into the residential area. Around it are many former East German panel buildings, all of which have been modernized and are well, if not fully, occupied. There are many retirees because our parents’ generation stayed there. It’s not a chaotic family like the Flodders in Gorbitz living there, but rather more conventional families like Schulze and Schmidt. If a lively bunch of young students moves into such a neighborhood, can that work?I have no idea about the location. BUT: Do students actually want to live there? In other words, is the location suitable?
Recently, I reviewed the refinancing of a similar property in Magdeburg, also a university town with many research institutions. The property was simply in the wrong location for students—a purely residential area with nothing around it. The result was increased vacancy and high turnover. The competition, which was significantly cheaper, was the student housing managed by the student services organization.
So far, I have only seen such properties handled by professional clients who know the market.
Finally, a note on financing. If you can’t find a bank that doesn’t really care about the loan-to-value ratio, you will likely need a considerable amount of equity. If you plan to lease the property en bloc to a commercial operator, the lending value should be around 11 to 11.5 times the sustainable rental income. If the apartments are rented and managed individually, the lending value will be a maximum of 14.5 times. The cost to you would probably be about 15 times (including the land).
nordanney schrieb:
I have no idea about the location. BUT: Do students actually want to live there? In other words, is the location suitable? That’s exactly the question. The connection to the university is great (bus stop right outside – 4 stops) – but what about everything else? As a young person, you probably want to live more in the city center, where the action is, with a different bar, nightclub, and cinema on every street. On the other hand, it’s said to be not as cheap there as it was 20 years ago. Also, it takes about half an hour to get to the university from there.
But once you’ve built a bunker like that, it’s hardly easy to switch to a retirement home later on.
kaho674 schrieb:
A consultant recently suggested the idea of offering student dormitories. I wonder how many more "crazy ideas" your relatives want to come up with before they let a development team take charge.
Student housing is not a bad idea in itself, but so far in the thread, homogeneous usage concepts haven't really seemed "appropriate" to me.
Specialized properties for different tenant groups are an interesting area, in every respect.
In any case, you don’t develop a property by spending years collecting a mixed bag of conceptual visions.
Especially not because, over the years, existing tenants give up and the situation keeps constantly changing.
https://www.instagram.com/11antgmxde/
https://www.linkedin.com/company/bauen-jetzt/
11ant schrieb:
I wonder how many more "nagging doubts" your relatives want to collect before they actually let a development team take over. I don’t know either. But we’re not in a rush.
11ant schrieb:
Student housing isn’t a bad idea in itself, but throughout the thread, homogeneous usage concepts haven’t really seemed “suitable” to me. Homogeneous usage concepts? Elephant! Speak plain German!
11ant schrieb:
You definitely don’t develop a property by spending years continuing to gather a mixed bag of conceptual visions. Well, we’ll see. I sense a bit of impatience from you, but it doesn’t affect me at all…
11ant schrieb:
Especially not because over the years current tenants give up and the cards keep being reshuffled forever. We make up 90% of the current tenants ourselves. Or did I misunderstand you?
kaho674 schrieb:
Homogeneous usage concepts? Elephant! Speak German clearly! Well, it’s quite simple: no either/or for students OR seniors, but rather AND. Housing, aftercare, social services, and so on.
kaho674 schrieb:
I always sense a hint of rush from you. I am the very picture of calm. The challenge with projects like these is bringing several experts together at the table. They won’t be available next quarter. You basically need to know months in advance when you will be well rested.
kaho674 schrieb:
We are 90% existing tenants ourselves. Or did I misunderstand you now? No, then I misunderstood you. So far, I thought the existing tenants to be considered were mostly third parties.
https://www.instagram.com/11antgmxde/
https://www.linkedin.com/company/bauen-jetzt/
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HilfeHilfe16 Aug 2018 16:48If the city allows it, why not! They can go celebrate somewhere else. Your nephews can move in with the little brats right away. Who is supposed to finance this thing?
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