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...
P
Piotr19812 Nov 2020 21:58Snowy36 schrieb:
And where will the 600K for the new house come from?If a condominium (depending on its location) has already significantly increased in value, I would consider using the property as collateral with the bank. This could greatly improve the conditions and result in better interest rates. Once the condominium is paid off, increase the repayment rate and use the income to additionally service the new house loan.
Snowy36 schrieb:
And where is the $600K for the new house supposed to come from? That’s exactly the problem. Let’s assume the apartment is paid off and can be rented out for €900. If I can only pay down 2% of the purchase price annually, that would be about €4,000 compared to roughly €11,000 in rental income assumptions. Since the apartment is quite new, I have few deductible expenses or renovation costs to offset. So I would have to pay tax on about €7,000. Or am I miscalculating here?
P
Piotr19812 Nov 2020 22:08Kati.com schrieb:
That is exactly the problem. Assuming the apartment is fully paid off and can be rented for €900 per month (about $970), if I can only pay down 2% of the purchase price annually, that would be "only" around €4,000 (about $4,300) compared to roughly €11,000 (about $11,850) in rental income. Since the apartment is fairly new, I have few deductible expenses or renovation costs to offset. So I would have to pay taxes on approximately €7,000 (about $7,550). Or am I calculating this wrong? What do you mean by 2%? Of what exactly?
Taxes are calculated based on all your income, not just rental income.
Piotr1981 schrieb:
What do the 2% refer to? 2% of what?
Taxes are calculated based on all your income, not just rental income.By the 2%, I mean the depreciation (over 50 years).The apartment originally cost about 220,000 euros – minus the proportional land value (about 20,000 euros) = 200,000 euros x 2% = 4,000 euros.
For taxes, I recommend consulting a tax advisor. An old house or a condominium with rental income, additional costs, and depreciation is different from a new house where almost all costs for a home office can be deducted. The calculations can take some time. Talk to a tax advisor beforehand—they can tell you within half an hour what suits you best.
Who owns the apartment? You alone or both of you?
Otherwise, maybe consider selling it to your spouse?
This could have the following advantages:
- Generates equity for the new house
- Is exempt from property transfer tax / stamp duty
- Generates interest on the condominium that can be deducted
- Creates a higher purchase price that can be amortized
It should be arranged so that the apartment essentially pays for itself.
This way, it continues to pay itself off, resulting in low taxes and building equity for your new home.
However, this only works if it is owned by one person alone.
Otherwise, maybe consider selling it to your spouse?
This could have the following advantages:
- Generates equity for the new house
- Is exempt from property transfer tax / stamp duty
- Generates interest on the condominium that can be deducted
- Creates a higher purchase price that can be amortized
It should be arranged so that the apartment essentially pays for itself.
This way, it continues to pay itself off, resulting in low taxes and building equity for your new home.
However, this only works if it is owned by one person alone.