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Ruferianer6 Oct 2019 11:09Good morning HF,
We have been considering for some time how to manage a family-owned property currently developed in a suburb of a large city in a long-term and sustainable way. Unfortunately, we have no experience in this area, so we hope to gain some helpful ideas from this post. Many thanks in advance for any advice.
Background: The property covers an area of 700 sqm (7,535 sq ft) and is partly occupied by an almost square building with 8 m (26 ft) side length, 3 floors (including raised ground floor) plus a basement. The basement is only partially underground (approx. 1.4 m (4.5 ft)). The attic with a gable roof was added in the 1990s to the existing building, which dates back to the post-war period. On the property, there is also a former utility building now used as an apartment, as well as a single garage. Due to financial and personal reasons, the modernization including the attic conversion was only partially completed, so some interior work (e.g., in the stairwell) is still unfinished. The property is encumbered with a mortgage, with an outstanding balance of around 240,000 euros at the end of 2019. The building is currently occupied by my mother-in-law (retired), and some rooms are rented out. Some rooms are empty or used by the family as guest rooms. It is likely that some renovation work is needed, as only the essentials have been addressed due to financial constraints.
From our point of view, there are basically three options for the future:
We have considered renovation. This would mean that my wife and I could live on one floor, one floor would be rented out, and my mother-in-law would remain on the ground floor. The conversion would, of course, have to be barrier-free. Against this option is the fact that the family does not really want to rent anymore (one floor would remain unused since all my wife’s other siblings already own their homes). Also, the house does not really meet our expectations, and the barrier-free conversion (external elevator?) would certainly be expensive.
Therefore, we are currently thinking about option 1—that is, tearing down everything on the property and starting from scratch. The idea is to build two bungalows of about 60 sqm (645 sq ft) each for own use on the plot. Since we do not want a basement, we would like to build a small utility building with laundry facilities, storage space, and a bike cellar. Additionally, there is a dream to build one of them in the style of Mies van der Rohe (or also Neutra, Ruf, etc.).
The question, of course, is what we can realistically afford. We are the only ones in the family still renting. Everyone else already owns property and is actively repaying loans. In about five years, we could provide an equity share of 80,000 euros and a monthly payment of around 1,000–1,200 euros, plus 300 euros for reserves and additional costs. My mother-in-law could contribute around 500 euros from her pension. By then, we would have reduced the existing loan to about 100,000–120,000 euros (a bank change by payoff would only be possible after 8 years). Since we will be in our mid-40s then, we want to have the new loan paid off within 15 to a maximum of 20 years.
Assuming an interest rate of 1% in five years and a monthly payment of 1,700 euros, we could plan for a full repayment loan with a term of 15 years and a loan amount of around 285,000 euros. Plus the equity share and minus the existing loan, this leads to a maximum investment sum of 265,000 euros. It is probably easy to dismiss any illusions with this figure. By extending the term to 20 years, we could increase the amount to 350,000 euros.
So, our current question is whether option 1 is feasible with a budget range of 250,000 to 350,000 euros and, if so, how. Prefabricated house, architect-designed house, perhaps even the mentioned dream house? And how should we best prepare financially during this time—building savings contracts, extra repayments, etc.?
We have been considering for some time how to manage a family-owned property currently developed in a suburb of a large city in a long-term and sustainable way. Unfortunately, we have no experience in this area, so we hope to gain some helpful ideas from this post. Many thanks in advance for any advice.
Background: The property covers an area of 700 sqm (7,535 sq ft) and is partly occupied by an almost square building with 8 m (26 ft) side length, 3 floors (including raised ground floor) plus a basement. The basement is only partially underground (approx. 1.4 m (4.5 ft)). The attic with a gable roof was added in the 1990s to the existing building, which dates back to the post-war period. On the property, there is also a former utility building now used as an apartment, as well as a single garage. Due to financial and personal reasons, the modernization including the attic conversion was only partially completed, so some interior work (e.g., in the stairwell) is still unfinished. The property is encumbered with a mortgage, with an outstanding balance of around 240,000 euros at the end of 2019. The building is currently occupied by my mother-in-law (retired), and some rooms are rented out. Some rooms are empty or used by the family as guest rooms. It is likely that some renovation work is needed, as only the essentials have been addressed due to financial constraints.
From our point of view, there are basically three options for the future:
- Demolition and new construction
- Renovation
- Sale
We have considered renovation. This would mean that my wife and I could live on one floor, one floor would be rented out, and my mother-in-law would remain on the ground floor. The conversion would, of course, have to be barrier-free. Against this option is the fact that the family does not really want to rent anymore (one floor would remain unused since all my wife’s other siblings already own their homes). Also, the house does not really meet our expectations, and the barrier-free conversion (external elevator?) would certainly be expensive.
Therefore, we are currently thinking about option 1—that is, tearing down everything on the property and starting from scratch. The idea is to build two bungalows of about 60 sqm (645 sq ft) each for own use on the plot. Since we do not want a basement, we would like to build a small utility building with laundry facilities, storage space, and a bike cellar. Additionally, there is a dream to build one of them in the style of Mies van der Rohe (or also Neutra, Ruf, etc.).
The question, of course, is what we can realistically afford. We are the only ones in the family still renting. Everyone else already owns property and is actively repaying loans. In about five years, we could provide an equity share of 80,000 euros and a monthly payment of around 1,000–1,200 euros, plus 300 euros for reserves and additional costs. My mother-in-law could contribute around 500 euros from her pension. By then, we would have reduced the existing loan to about 100,000–120,000 euros (a bank change by payoff would only be possible after 8 years). Since we will be in our mid-40s then, we want to have the new loan paid off within 15 to a maximum of 20 years.
Assuming an interest rate of 1% in five years and a monthly payment of 1,700 euros, we could plan for a full repayment loan with a term of 15 years and a loan amount of around 285,000 euros. Plus the equity share and minus the existing loan, this leads to a maximum investment sum of 265,000 euros. It is probably easy to dismiss any illusions with this figure. By extending the term to 20 years, we could increase the amount to 350,000 euros.
So, our current question is whether option 1 is feasible with a budget range of 250,000 to 350,000 euros and, if so, how. Prefabricated house, architect-designed house, perhaps even the mentioned dream house? And how should we best prepare financially during this time—building savings contracts, extra repayments, etc.?
I believe that the financial resources for option 1 are by far not sufficient.
I don’t think you can build a bungalow for less than 200,000 (currency) each. The smaller the house, the higher the cost per square meter. This does not include demolition or any outbuildings.
Whether a 60 sqm (645 sq ft) bungalow makes sense for two people is uncertain, as I don’t know your background.
Also, calculating with an interest rate of 1% over five years is rather optimistic than pessimistic. It’s better to prepare for a worst-case scenario.
I don’t think you can build a bungalow for less than 200,000 (currency) each. The smaller the house, the higher the cost per square meter. This does not include demolition or any outbuildings.
Whether a 60 sqm (645 sq ft) bungalow makes sense for two people is uncertain, as I don’t know your background.
Also, calculating with an interest rate of 1% over five years is rather optimistic than pessimistic. It’s better to prepare for a worst-case scenario.
H
hampshire6 Oct 2019 12:07First of all, giving truly good advice is not possible without seeing the property and knowing the region.
To me, the renovation-rent-own-use solution sounds reasonable. The tenant contributes to covering costs, no rent payments create additional financial flexibility, and the mother-in-law does not have to be relocated—which can be difficult for many, especially older people, even with a new building on the same plot. The only argument against this is the unspecific statement that the family does not want to rent out.
Depending on the region, renting can also take the form of holiday rooms, worker accommodations, or simply furnished units. This can effectively address concerns about problem tenants or undesirable individuals, as tenant protection laws are limited. (If the reluctance to rent comes from this concern.)
Demolishing and building two small bungalows not only means losing potential helpful income but may also destroy an important asset against existing liabilities. This option seems feasible only with a well-filled wallet. With the budget allocated, this will be difficult in any region in Germany.
To me, the renovation-rent-own-use solution sounds reasonable. The tenant contributes to covering costs, no rent payments create additional financial flexibility, and the mother-in-law does not have to be relocated—which can be difficult for many, especially older people, even with a new building on the same plot. The only argument against this is the unspecific statement that the family does not want to rent out.
Depending on the region, renting can also take the form of holiday rooms, worker accommodations, or simply furnished units. This can effectively address concerns about problem tenants or undesirable individuals, as tenant protection laws are limited. (If the reluctance to rent comes from this concern.)
Demolishing and building two small bungalows not only means losing potential helpful income but may also destroy an important asset against existing liabilities. This option seems feasible only with a well-filled wallet. With the budget allocated, this will be difficult in any region in Germany.
You don’t mention ownership details (or I might have missed it?), but if it is established that the mother-in-law wants to continue living in the property, the first thing to clarify is who owns what part of the house and land. Without ownership on your side, I wouldn’t invest anything. It’s uncertain how banks will view the mother-in-law’s right of residence. If she remains registered as a partial owner in the land registry, the issue of how to handle the other heirs should be resolved (waivers of inheritance?).
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Fummelbrett!6 Oct 2019 15:22Without knowing the floor plan, I would lean toward renovation.
You could create a level downstairs for your mother-in-law; since there is space outside, a barrier-free entrance might not even be that expensive. Then you could arrange the two upper floors for yourselves – I would guess that this renovation would likely be cheaper than demolishing and building two bungalows including an outbuilding.
And when it comes to interior design, you would have almost unlimited options. Admittedly, I wouldn’t want to live permanently in just 60cm (24 inches) of living space, and I think it’s great to have the possibility to design two stories. Additionally, you could carry out this renovation in several phases, so your mother-in-law wouldn’t have to be relocated for a long time.
However, you should ABSOLUTELY check and, if necessary, adjust the ownership arrangements beforehand. Even if your wife is the owner, if you invest your money, in case of a possible separation you could end up with less than nothing in the worst-case scenario.
You could create a level downstairs for your mother-in-law; since there is space outside, a barrier-free entrance might not even be that expensive. Then you could arrange the two upper floors for yourselves – I would guess that this renovation would likely be cheaper than demolishing and building two bungalows including an outbuilding.
And when it comes to interior design, you would have almost unlimited options. Admittedly, I wouldn’t want to live permanently in just 60cm (24 inches) of living space, and I think it’s great to have the possibility to design two stories. Additionally, you could carry out this renovation in several phases, so your mother-in-law wouldn’t have to be relocated for a long time.
However, you should ABSOLUTELY check and, if necessary, adjust the ownership arrangements beforehand. Even if your wife is the owner, if you invest your money, in case of a possible separation you could end up with less than nothing in the worst-case scenario.
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Ruferianer6 Oct 2019 19:30Thank you very much for the feedback so far.
Regarding the topic of renting: without going too much into detail, this was more of an obligation than an option for the mother-in-law. She simply no longer wants to share her property with strangers. And we would likely feel the same if we were to move onto the property. Whether that attitude is something you can afford is a completely different question. By the way, during the last refinancing a few years ago, the new bank’s main point was that the value lies only in the land, not the building.
As for ownership, the bank holds a first-priority mortgage registered in the land registry. I would, of course, like to clarify what will happen with the ownership and the heirs before anything becomes concrete. And, if I understand Maria16 correctly, the bank will also have a say in this.
With a living area of around 60 sqm (645 sq ft), we have felt very comfortable for about 15 years, especially when there is the option to use a terrace or garden during the warmer months. We lived briefly in an 80 sqm (860 sq ft) space and felt rather lost there. The mother-in-law would also be more than happy with 60 sqm (645 sq ft) — on the ground floor of the existing house, she only has about 53 sqm (570 sq ft) due to the stairwell.
We had considered securing the interest rate with a building savings contract, but it seems the costs are the main concern here.
Another alternative would be to build one large building instead of two smaller ones (in an L-shape). You could place an apartment on the short side (6 x 10 m (20 x 33 ft)), a double garage in the corner (6 x 6 m (20 x 20 ft)), and on the long side rooms for storage, building services, etc. (? x 6 m (? x 20 ft)) plus the second apartment (6 x 10 m (20 x 33 ft)). The living area would then be at least 174 sqm (1,872 sq ft). Would that make it more affordable? The detached lot measures approximately 18.5 x 37 m (61 x 121 ft), is flat, and has street access on one of the short sides.
Regarding the topic of renting: without going too much into detail, this was more of an obligation than an option for the mother-in-law. She simply no longer wants to share her property with strangers. And we would likely feel the same if we were to move onto the property. Whether that attitude is something you can afford is a completely different question. By the way, during the last refinancing a few years ago, the new bank’s main point was that the value lies only in the land, not the building.
As for ownership, the bank holds a first-priority mortgage registered in the land registry. I would, of course, like to clarify what will happen with the ownership and the heirs before anything becomes concrete. And, if I understand Maria16 correctly, the bank will also have a say in this.
With a living area of around 60 sqm (645 sq ft), we have felt very comfortable for about 15 years, especially when there is the option to use a terrace or garden during the warmer months. We lived briefly in an 80 sqm (860 sq ft) space and felt rather lost there. The mother-in-law would also be more than happy with 60 sqm (645 sq ft) — on the ground floor of the existing house, she only has about 53 sqm (570 sq ft) due to the stairwell.
Pamiko schrieb:The worst case would probably be a significant increase in interest rates, a major renovation becoming necessary in less than five years, or a sudden negative change in our financial situation for other reasons. If there is not even enough funding for the renovation then, we would have to sell anyway.
I think the financial resources for Option 1 are by far insufficient.
I don’t believe you can build each bungalow for under 200k. The smaller the house, the higher the cost per square meter. This does not even include demolition or an outbuilding.
Whether a 60 sqm bungalow makes sense for two people is debatable because I don’t know your background.
Also, the assumption of 1% interest in five years is rather optimistic than pessimistic. Better to plan for the worst case…
We had considered securing the interest rate with a building savings contract, but it seems the costs are the main concern here.
Another alternative would be to build one large building instead of two smaller ones (in an L-shape). You could place an apartment on the short side (6 x 10 m (20 x 33 ft)), a double garage in the corner (6 x 6 m (20 x 20 ft)), and on the long side rooms for storage, building services, etc. (? x 6 m (? x 20 ft)) plus the second apartment (6 x 10 m (20 x 33 ft)). The living area would then be at least 174 sqm (1,872 sq ft). Would that make it more affordable? The detached lot measures approximately 18.5 x 37 m (61 x 121 ft), is flat, and has street access on one of the short sides.
Fummelbrett! schrieb:The usable floor area per level is only about 53 sqm (570 sq ft) (ground and first floor) and 44 sqm (470 sq ft) (attic), the rest is stairwell space. I had forgotten how little space there is in the attic. But combined with the first floor, it might be almost too much. The roof height is 4 m (13 ft), so it might be possible to add a gallery upstairs. We also considered removing the top floor again and adding an extension to the front instead (a conservatory on the ground floor, a terrace on the first floor). But that might become too expensive again…
Without seeing a floor plan, I would tend to go for renovation.
You could add a floor downstairs for the mother-in-law; there is outside space available, so a barrier-free (accessible) entrance might not even cost that much. You could then prepare the two upper floors for yourselves — I would guess this conversion would be less expensive than demolishing and building two bungalows including an outbuilding.
And you would have almost all options for interior design. I must say I wouldn’t want to live permanently in only 60 sqm and would appreciate the option of designing two floors. Also, you could carry out this renovation in stages, so the mother-in-law wouldn’t have to be relocated for a long time.
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