Hello everyone,
I have been an active reader here for a long time. I have already discovered many useful tips and learned a lot from you. Thank you for that.
Now to the actual "problem."
We live in a nice 4-room condominium, which we have almost paid off – the value of the apartment is about 380,000 euros (approx. $410,000), with current debt of around 115,000 euros (approx. $124,000). There is about 90,000 euros (approx. $97,000) in our bank account. After the fixed interest period ends (beginning of 2022), we could make use of the special repayment option and pay off the remaining amount in full. That is the background.
Our municipality will sell about 50 plots of land in a new development area this spring (the infrastructure work is in full progress). Since we have two children, our chances of getting a building plot are good.
Price: about 300 euros per square meter (approx. $325 per square meter).
We would like to build. Since I am a teacher, I need a dedicated home office. I am tired of constantly working at the kitchen table. School materials are scattered all over the living room.
I estimate that the dream of owning a home would cost us about 600,000 euros (approx. $650,000).
About our income:
Monthly net income: he earns 2,600 euros (approx. $2,800), I earn 2,500 euros (approx. $2,700) working 75%, private health insurance already deducted, plus child benefits of 400 euros (approx. $430), totaling 5,500 euros (approx. $6,000).
How should we best proceed now?
a) Pay off the apartment completely, sell it, and finance only the difference?
b) Keep the apartment, rent it out (rent about 900 euros (approx. $975)), do not pay it off, but take on additional debt to finance part of the house?
c) Use the equity as a down payment for the land (+ a small variable loan), sell the apartment after the fixed interest period ends, pay off the remaining debt with the proceeds, and put the remaining "profit" into the new house...
d) ???????
I know that was a lot. I hope you can help me a little...
I have been an active reader here for a long time. I have already discovered many useful tips and learned a lot from you. Thank you for that.
Now to the actual "problem."
We live in a nice 4-room condominium, which we have almost paid off – the value of the apartment is about 380,000 euros (approx. $410,000), with current debt of around 115,000 euros (approx. $124,000). There is about 90,000 euros (approx. $97,000) in our bank account. After the fixed interest period ends (beginning of 2022), we could make use of the special repayment option and pay off the remaining amount in full. That is the background.
Our municipality will sell about 50 plots of land in a new development area this spring (the infrastructure work is in full progress). Since we have two children, our chances of getting a building plot are good.
Price: about 300 euros per square meter (approx. $325 per square meter).
We would like to build. Since I am a teacher, I need a dedicated home office. I am tired of constantly working at the kitchen table. School materials are scattered all over the living room.
I estimate that the dream of owning a home would cost us about 600,000 euros (approx. $650,000).
About our income:
Monthly net income: he earns 2,600 euros (approx. $2,800), I earn 2,500 euros (approx. $2,700) working 75%, private health insurance already deducted, plus child benefits of 400 euros (approx. $430), totaling 5,500 euros (approx. $6,000).
How should we best proceed now?
a) Pay off the apartment completely, sell it, and finance only the difference?
b) Keep the apartment, rent it out (rent about 900 euros (approx. $975)), do not pay it off, but take on additional debt to finance part of the house?
c) Use the equity as a down payment for the land (+ a small variable loan), sell the apartment after the fixed interest period ends, pay off the remaining debt with the proceeds, and put the remaining "profit" into the new house...
d) ???????
I know that was a lot. I hope you can help me a little...
A
allstar8328 Oct 2020 06:29Kati.com schrieb:
The girls, at 5 and 9 years old, are becoming quite easy to manage, and we are enjoying the almost carefree family life. And for the upcoming period, is simply renting a house not an option? The girls might move out again at around 18 anyway.
By the time the house is built, one daughter will probably already be 11.
Bookstar schrieb:
5,500 euros family income is only average and not really much. Many high earners already have that if only one person is working. Oh man, this really shows how out of touch this forum can be sometimes...
I’ll quote from a recent study: “With a net monthly income of 5,294 euros (about $5,700), couples without children belong to the richest ten percent in Germany.”
Since I myself rent out one apartment at the moment and will have three next year, I would choose to rent out. You just have to carefully calculate (or have someone calculate) what rental income you will actually have left after all costs and taxes. You can then add that to your 1,800 euros (about $1,940) mentioned above. When your fixed interest period runs out, you can refinance the remaining amount. I would then choose a relatively low repayment rate. That way, you have a good surplus that you can add on top of your 1,800 euros (about $1,940). Nowadays, you don’t necessarily have to repay at 4-5%, you can take a bit less because interest rates are very low. You could also consider taking out a mortgage lien on 100,000 euros (about $108,000) of your existing apartment as equity to reduce your interest costs a bit.
What you also have to consider is that the tenants effectively pay down the mortgage for you. So the value you could later realize if you ever sell will be higher. And you can still do that anytime. Just sell the apartment if things get too tight or something doesn’t fit anymore.
That’s how I would do it. But I like to rent out and try to make money over the years this way.
Now, one more thing I have to say. If you really want to move back into the apartment after the kids have moved out, because it’s ideal for you and you really like it, then I don’t think @allstar83’s idea is bad at all. Because honestly, what do you want to do as a couple in such a huge house with 160 - 180 m² (1700 - 1,940 sq ft)?
Unless, of course, you plan to turn it into two separate units. Then you could apply twice for the KFW loan and later, when the kids have moved out, rent one unit. If you can imagine having tenants in your retirement home, they would help pay off the mortgage even more.
S
Seven198428 Oct 2020 08:05Based on the overall situation you described, I recommend selling the apartment. You currently have too little debt whose interest you can deduct. The new debt on your own house cannot be deducted at all due to owner-occupation. It makes more sense to sell the apartment, use part of the proceeds as equity for your house construction, and purchase another property using financing combined with a small remaining portion of equity from the apartment sale. Right now, your return on investment is very low. The only hope is the increase in value due to the apparently good location, even though it is rural. But prices down there seem to be quite high.
Real estate investment makes sense mainly when leveraged with borrowed capital.
Real estate investment makes sense mainly when leveraged with borrowed capital.
I also think that without using the proceeds from the apartment as equity, buying a house will not be affordable for you.
Planning to rely on rental income as a surplus is simply risky, in case you end up with the wrong tenant. You can never fully predict people’s behavior. In the building where my brother owns a condominium, several apartments were purchased for rental. One of them was rented to a young doctor with a family who works at the hospital. Sounds like the perfect tenant, right? But in this case, the tenant developed a gambling addiction, leading to rent arrears and other issues. You can’t just evict a tenant overnight; this process can take years in some cases. And then what? The apartment continues to generate costs. You would have to finance both properties from your household income. As mentioned earlier, owning just one apartment in this context is particularly risky.
How about first checking whether it’s even possible to keep the apartment and still build the house (by consulting a financial advisor, your bank, or whoever financed your condominium)? This question might be answered quickly. That was the case with my brother, who also considered “switching” to a house—his household income is better than yours. The apartment had increased in value by about 100,000 Euros (approximately $110,000), and he had paid off the same amount, so there was significant equity. Still, he found it was not feasible to keep both properties. In his situation, the problem was likely the high additional purchase costs associated with an older house. These would have used up all the equity, making the whole idea no longer financially possible.
You could also apply for a building lot first. If you don’t get one in the end, at least no harm done. And if you do receive a plot and then decide not to go ahead with the project, another family can benefit, so no one loses out.
Planning to rely on rental income as a surplus is simply risky, in case you end up with the wrong tenant. You can never fully predict people’s behavior. In the building where my brother owns a condominium, several apartments were purchased for rental. One of them was rented to a young doctor with a family who works at the hospital. Sounds like the perfect tenant, right? But in this case, the tenant developed a gambling addiction, leading to rent arrears and other issues. You can’t just evict a tenant overnight; this process can take years in some cases. And then what? The apartment continues to generate costs. You would have to finance both properties from your household income. As mentioned earlier, owning just one apartment in this context is particularly risky.
How about first checking whether it’s even possible to keep the apartment and still build the house (by consulting a financial advisor, your bank, or whoever financed your condominium)? This question might be answered quickly. That was the case with my brother, who also considered “switching” to a house—his household income is better than yours. The apartment had increased in value by about 100,000 Euros (approximately $110,000), and he had paid off the same amount, so there was significant equity. Still, he found it was not feasible to keep both properties. In his situation, the problem was likely the high additional purchase costs associated with an older house. These would have used up all the equity, making the whole idea no longer financially possible.
You could also apply for a building lot first. If you don’t get one in the end, at least no harm done. And if you do receive a plot and then decide not to go ahead with the project, another family can benefit, so no one loses out.
Thank you very much for your responses.
As you can see, the opinions are quite divided.
We are also very uncertain, but first we have to wait and see if we even get the building plot.
I know... a family income of €5500 is rather average in our area. With a full-time job, I might earn about €400 more. As long as the girls are not independent, I would prefer not to place them in full-day care just so their mother can look after other children to earn a bit more. It may sound cynical in today’s times of teacher shortages... but that is a different topic we’d rather not discuss here.
I have listed the €900 rent very cautiously. Of course, I could add the rent for the underground parking space plus an outdoor parking spot. I could also charge more for the fitted kitchen... but with the €900, I wanted to play it safe.
So what’s left for us now?
We wait for the allocation of the building plots, then we plan the house, calculate all expenses and income, see what remains at the end, and make a decision... I hope we won’t regret it...
As you can see, the opinions are quite divided.
We are also very uncertain, but first we have to wait and see if we even get the building plot.
I know... a family income of €5500 is rather average in our area. With a full-time job, I might earn about €400 more. As long as the girls are not independent, I would prefer not to place them in full-day care just so their mother can look after other children to earn a bit more. It may sound cynical in today’s times of teacher shortages... but that is a different topic we’d rather not discuss here.
I have listed the €900 rent very cautiously. Of course, I could add the rent for the underground parking space plus an outdoor parking spot. I could also charge more for the fitted kitchen... but with the €900, I wanted to play it safe.
So what’s left for us now?
We wait for the allocation of the building plots, then we plan the house, calculate all expenses and income, see what remains at the end, and make a decision... I hope we won’t regret it...