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Fabian00715 Mar 2020 12:54Good morning, dear forum!
I have been quietly reading here for a while and have been hesitant about whether to share my thoughts. But now the time has come, as I need external input, whether friendly, constructive, or even critical.
I live in northern Lower Saxony, near the Emsland region. Salary levels and construction costs here seem to be well below the forum average.
About my situation:
35 years old, single, no children.
Income: 1800€ net
Expenses: 800€ per month
Equity: 15,000€ in stocks/crypto
1,800m2 (0.44 acres) plot with an old house (fully paid off)
Land prices per m2 are between 60-80€/m2, and the average rent per m2 for newly built homes is about 6-7.5€.
My plan:
Renovating the old building would cost as much as a new build. The roof, all windows and doors, the heating system, and the facade would have to be replaced—barely worthwhile.
Of course, I would like to build a small house according to my own ideas.
However, over the past few years I have realized that, as a working professional, the plot is too large and requires too much maintenance.
I could sell part of it, but then I would lose control over the new neighbor or building project. Since I do enjoy the freedom and quiet of the 1,800m2 (in a residential area), this is a dealbreaker for me.
Alternatively, I have thought about building a single-story two-family house on part of the plot and renting it out.
If financially feasible, this could provide additional security, especially in retirement.
The house would cost about 130,000€ per 85m2 (915 sq ft) unit (painting and electrical work would be done entirely by myself). Additional costs would include utility connections, permits/planning fees.
So roughly 300,000€ for the whole project.
Due to my age and the local rent index, financing would only be possible over 30 years (including fixed interest period).
If I extend the calculation, with 30 years and an effective interest rate of 1.5%, the monthly payment would be about 1,033€.
The new KfW subsidy of 18,000€ per unit should be considered, which would theoretically reduce the monthly payment to around 900€ (would I realistically get 1.5% interest?).
According to the rent index (7€/m2), the cold rent would only be about 1,200€ total. That leaves little room for maneuver at first.
What are the general requirements or rules regarding rental properties?
With interest tax deductions as operating expenses and depreciation on construction costs at 2%, some financial reliefs come into play later, but should these be factored in from the start?
Furthermore, the loan amount will be gradually devalued by inflation over time, while rental prices are expected to rise.
Assuming this option is feasible, how would a bank view a subsequent new build for personal use 1-2 years later, especially since the land (as equity) would theoretically already be tied up in the rental property?
Best regards
I have been quietly reading here for a while and have been hesitant about whether to share my thoughts. But now the time has come, as I need external input, whether friendly, constructive, or even critical.
I live in northern Lower Saxony, near the Emsland region. Salary levels and construction costs here seem to be well below the forum average.
About my situation:
35 years old, single, no children.
Income: 1800€ net
Expenses: 800€ per month
Equity: 15,000€ in stocks/crypto
1,800m2 (0.44 acres) plot with an old house (fully paid off)
Land prices per m2 are between 60-80€/m2, and the average rent per m2 for newly built homes is about 6-7.5€.
My plan:
Renovating the old building would cost as much as a new build. The roof, all windows and doors, the heating system, and the facade would have to be replaced—barely worthwhile.
Of course, I would like to build a small house according to my own ideas.
However, over the past few years I have realized that, as a working professional, the plot is too large and requires too much maintenance.
I could sell part of it, but then I would lose control over the new neighbor or building project. Since I do enjoy the freedom and quiet of the 1,800m2 (in a residential area), this is a dealbreaker for me.
Alternatively, I have thought about building a single-story two-family house on part of the plot and renting it out.
If financially feasible, this could provide additional security, especially in retirement.
The house would cost about 130,000€ per 85m2 (915 sq ft) unit (painting and electrical work would be done entirely by myself). Additional costs would include utility connections, permits/planning fees.
So roughly 300,000€ for the whole project.
Due to my age and the local rent index, financing would only be possible over 30 years (including fixed interest period).
If I extend the calculation, with 30 years and an effective interest rate of 1.5%, the monthly payment would be about 1,033€.
The new KfW subsidy of 18,000€ per unit should be considered, which would theoretically reduce the monthly payment to around 900€ (would I realistically get 1.5% interest?).
According to the rent index (7€/m2), the cold rent would only be about 1,200€ total. That leaves little room for maneuver at first.
What are the general requirements or rules regarding rental properties?
With interest tax deductions as operating expenses and depreciation on construction costs at 2%, some financial reliefs come into play later, but should these be factored in from the start?
Furthermore, the loan amount will be gradually devalued by inflation over time, while rental prices are expected to rise.
Assuming this option is feasible, how would a bank view a subsequent new build for personal use 1-2 years later, especially since the land (as equity) would theoretically already be tied up in the rental property?
Best regards
Where do you currently live yourself? In the old house?
What I don’t understand is: what is the difference between having other owners or tenants as neighbors? Both situations can work well or poorly. You also can’t easily get tenants to leave.
Is there demand for apartments in the area?
I think your income is too low for something like this, especially if you are already calculating with the 2% depreciation allowance. From the rental income, you have to or should, for example, build up a maintenance reserve. What about a buffer for vacancies?
What I don’t understand is: what is the difference between having other owners or tenants as neighbors? Both situations can work well or poorly. You also can’t easily get tenants to leave.
Is there demand for apartments in the area?
I think your income is too low for something like this, especially if you are already calculating with the 2% depreciation allowance. From the rental income, you have to or should, for example, build up a maintenance reserve. What about a buffer for vacancies?
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Fabian00715 Mar 2020 14:44Hello, yes, I live in the old house. It’s not uninhabitable, but it’s not really worth investing a lot of money in it.
However, I do see the difference. On one hand, 800 m2 (8600 sq ft) would bring me up to 64,000 euros (about 64,000 USD) at sale (maximum). On the other hand, after 30 years I would have an unencumbered rental property.
In addition, I can simply decide what kind of building is constructed, where it is located, and how the access road is designed. I don’t have any of that control in a sale.
I’m just not keen on having one or two full floors potentially right next to my garden, maybe even with a party room close to my bedroom. With renting, I simply have more control.
The demand for rental apartments here actually exists. I don’t know of any new construction in the area that isn’t already rented out. Building plots are scarce. Those that are currently being developed attract such great interest that practically all units are taken even before infrastructure is complete.
Maintenance reserves would still be possible (unless one calculates using the Peters formula, which I consider somewhat high).
In general, due to my profession, I have the advantage of not being dependent on specialists for many things.
Vacancy reserves would of course also need to be built up, depending on the financing offer, either from the surplus or from tax reliefs.
Of course, the whole thing is still just roughly outlined and very conservatively calculated, but I do see good profit potential, especially through interest deductions and depreciation. For me, it’s less about earning more monthly income and more about additional security in retirement.
However, I do see the difference. On one hand, 800 m2 (8600 sq ft) would bring me up to 64,000 euros (about 64,000 USD) at sale (maximum). On the other hand, after 30 years I would have an unencumbered rental property.
In addition, I can simply decide what kind of building is constructed, where it is located, and how the access road is designed. I don’t have any of that control in a sale.
I’m just not keen on having one or two full floors potentially right next to my garden, maybe even with a party room close to my bedroom. With renting, I simply have more control.
The demand for rental apartments here actually exists. I don’t know of any new construction in the area that isn’t already rented out. Building plots are scarce. Those that are currently being developed attract such great interest that practically all units are taken even before infrastructure is complete.
Maintenance reserves would still be possible (unless one calculates using the Peters formula, which I consider somewhat high).
In general, due to my profession, I have the advantage of not being dependent on specialists for many things.
Vacancy reserves would of course also need to be built up, depending on the financing offer, either from the surplus or from tax reliefs.
Of course, the whole thing is still just roughly outlined and very conservatively calculated, but I do see good profit potential, especially through interest deductions and depreciation. For me, it’s less about earning more monthly income and more about additional security in retirement.
R
RotorMotor15 Mar 2020 14:52Is building even allowed there?
Overall, I think the income is too low for such a project.
Are there any possibilities to increase it?
Overall, I think the income is too low for such a project.
Are there any possibilities to increase it?
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Fabian00715 Mar 2020 16:21RotorMotor schrieb:
Is building even allowed there?
Overall, I think the income is too low for such a project.
Are there ways to increase it?Building is permitted. Increasing income is difficult. Just received a raise (in the trades). There is unfortunately not much industry around here.
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HilfeHilfe15 Mar 2020 17:03You don’t invest 300,000 (300k) in a rental property if you yourself are living in a run-down place. Besides, it won’t be feasible with your income. Rental income involves risks.