ᐅ Is Buying Land and Building a House Too Risky in the Current Situation?
Created on: 24 Jun 2022 10:14
J
Julchen7393J
Julchen739324 Jun 2022 10:14Hello everyone,
After quietly reading along for a long time, I finally want to reach out to you with my first post to ask for advice.
My partner and I currently live in an end-terrace house (end townhouse) that we rent cheaply from my boyfriend’s parents – who inherited the house themselves. Since the size of the house is not sufficient for our long-term plans and a lot of money would be needed for renovations, we have been looking for a plot of land to build our own home for some time.
Now, a building plot in a new development area of our municipality has been returned, and we are eligible to apply for it. Because the plot is provided by the municipality, it is significantly cheaper (€420 per m² (approx. $440 per sq yd)) than the market price (€600–1000 per m² (approx. $630–1050 per sq yd)). All other plots are already developed or have building permits/planning permission applied for, so it’s unlikely that any more plots will become available.
Although the plot is probably a unique opportunity, we are very uncertain about the feasibility under the current circumstances and would appreciate your assessment.
General information about us:
Female, 29 (Controlling) and Male, 30 (Engineer)
No children yet, but we plan to have two children within the next 4-6 years (which is why we want more living space)
Financial situation:
Net income: €7000 (approx. $7400)
Current expenses: €3400 (approx. $3600)
Surplus: €3600 (approx. $3800)
Equity: €250,000 (approx. $265,000) – of this, we plan to put €200,000 (approx. $212,000) into financing; part of the remaining €50,000 (approx. $53,000) is tied up in retirement savings and should remain there
Construction costs:
Plot: 621 m² (6679 sq ft) at €420 per m² (approx. $440 per sq yd): €260,820 (approx. $277,000)
Additional purchase costs: €18,257 (approx. $19,400)
House construction: 150 m² (1615 sq ft) at €2600 per m² (approx. $270 per sq ft): €400,000 (approx. $425,000)
(We have an appointment with a construction company next week to see if this is feasible with significant DIY work)
Basement: €40,000 (approx. $42,500)
Garage: €25,000 (approx. $26,500)
Kitchen: €25,000 (approx. $26,500)
Outdoor facilities: €30,000 (approx. $32,000)
Total costs: €800,000 (approx. $850,000)
Financing requirement:
€800,000 - €200,000 = €600,000 (approx. $425,000 - $212,000 = $638,000)
The bank would approve a loan with our desired monthly payment of €2,500 (approx. $2650), but depending on interest rate changes, the repayment period without early repayments would be between 30 and 35 years.
We are particularly worried that our estimated construction costs are too low and that significant price increases may follow.
Also, the long loan term concerns us – given the planned children, we find it difficult to consider a higher monthly payment, especially since we both earn roughly the same and will face significant income reductions due to parental leave benefits.
For days now, we have been torn between “taking this once-in-a-lifetime chance to get an affordable building plot in town” and “the financial risk is too high in the current situation.”
We would be grateful for your thoughts on our plan and the expected construction costs.
Best regards,
Julia
After quietly reading along for a long time, I finally want to reach out to you with my first post to ask for advice.
My partner and I currently live in an end-terrace house (end townhouse) that we rent cheaply from my boyfriend’s parents – who inherited the house themselves. Since the size of the house is not sufficient for our long-term plans and a lot of money would be needed for renovations, we have been looking for a plot of land to build our own home for some time.
Now, a building plot in a new development area of our municipality has been returned, and we are eligible to apply for it. Because the plot is provided by the municipality, it is significantly cheaper (€420 per m² (approx. $440 per sq yd)) than the market price (€600–1000 per m² (approx. $630–1050 per sq yd)). All other plots are already developed or have building permits/planning permission applied for, so it’s unlikely that any more plots will become available.
Although the plot is probably a unique opportunity, we are very uncertain about the feasibility under the current circumstances and would appreciate your assessment.
General information about us:
Female, 29 (Controlling) and Male, 30 (Engineer)
No children yet, but we plan to have two children within the next 4-6 years (which is why we want more living space)
Financial situation:
Net income: €7000 (approx. $7400)
- Female: €3400 (approx. $3600) and Male: €3600 (approx. $3800) – both full-time 40 hours per week (with additional variable bonuses not yet factored in)
Current expenses: €3400 (approx. $3600)
- Fixed costs: €2200 (approx. $2350)
- €600 rent, €350 utilities incl. heating, internet, and electricity, €500 car expenses incl. insurance, €400 retirement savings, €350 other fixed costs (insurance, streaming services, etc.)
- Variable costs: €1200 (approx. $1265) – budgeted quite generously; we usually spend significantly less
- Living costs, vacations, leisure activities
Surplus: €3600 (approx. $3800)
Equity: €250,000 (approx. $265,000) – of this, we plan to put €200,000 (approx. $212,000) into financing; part of the remaining €50,000 (approx. $53,000) is tied up in retirement savings and should remain there
Construction costs:
Plot: 621 m² (6679 sq ft) at €420 per m² (approx. $440 per sq yd): €260,820 (approx. $277,000)
Additional purchase costs: €18,257 (approx. $19,400)
House construction: 150 m² (1615 sq ft) at €2600 per m² (approx. $270 per sq ft): €400,000 (approx. $425,000)
(We have an appointment with a construction company next week to see if this is feasible with significant DIY work)
Basement: €40,000 (approx. $42,500)
Garage: €25,000 (approx. $26,500)
Kitchen: €25,000 (approx. $26,500)
Outdoor facilities: €30,000 (approx. $32,000)
Total costs: €800,000 (approx. $850,000)
Financing requirement:
€800,000 - €200,000 = €600,000 (approx. $425,000 - $212,000 = $638,000)
The bank would approve a loan with our desired monthly payment of €2,500 (approx. $2650), but depending on interest rate changes, the repayment period without early repayments would be between 30 and 35 years.
We are particularly worried that our estimated construction costs are too low and that significant price increases may follow.
Also, the long loan term concerns us – given the planned children, we find it difficult to consider a higher monthly payment, especially since we both earn roughly the same and will face significant income reductions due to parental leave benefits.
For days now, we have been torn between “taking this once-in-a-lifetime chance to get an affordable building plot in town” and “the financial risk is too high in the current situation.”
We would be grateful for your thoughts on our plan and the expected construction costs.
Best regards,
Julia
Hi,
you can initially finance the plot flexibly and purchase it with a relatively high equity share. Is there a building obligation in the area, and if so, how strict is it?
Some say construction must start within a few years. In that case, you could wait out the currently very volatile period and continue saving more.
If necessary, in two years you could plan with an architect and start looking for a builder for the foundation slab and basement. This can also be paid from the equity available at that time, and since construction has started, it can be covered and secured but remain idle for another year if needed...
you can initially finance the plot flexibly and purchase it with a relatively high equity share. Is there a building obligation in the area, and if so, how strict is it?
Some say construction must start within a few years. In that case, you could wait out the currently very volatile period and continue saving more.
If necessary, in two years you could plan with an architect and start looking for a builder for the foundation slab and basement. This can also be paid from the equity available at that time, and since construction has started, it can be covered and secured but remain idle for another year if needed...
J
Julchen739324 Jun 2022 10:48Hi,
Yes, there is a building obligation in this area. From the date of purchase, we have 1.5 years to submit the building permit / planning permission application, and from the application date, 1 year until construction must start or 1.5 years until completion. So there is some leeway, but unfortunately no option to delay and wait for better conditions.
Best regards,
Julia
Yes, there is a building obligation in this area. From the date of purchase, we have 1.5 years to submit the building permit / planning permission application, and from the application date, 1 year until construction must start or 1.5 years until completion. So there is some leeway, but unfortunately no option to delay and wait for better conditions.
Best regards,
Julia
Calculate your surplus if one parent is on parental leave.
Also, ask yourselves or calculate why and whether it is necessary to contribute to a double retirement plan. The numbers seem quite high to me. That can be a good thing. But if you want to manage a house building project, this dual-track system could mathematically and permanently be a no-go for the house.
Also, ask yourselves or calculate why and whether it is necessary to contribute to a double retirement plan. The numbers seem quite high to me. That can be a good thing. But if you want to manage a house building project, this dual-track system could mathematically and permanently be a no-go for the house.
So, the basement definitely seems to be priced too low. At €40,000, the estimate is hardly accurate.
Otherwise, it has to be said that you bring very good equity and also have a solid income. Of course, the desire to have children should be taken into account. During parental leave, one parent’s income would drop to around €1,800, although this could still be the case even if you change the tax classes to 3/5 (you should calculate this beforehand), but it should work out. However, you would need to check what the tax return situation would look like afterward.
In fact, at least €1,600 would be deducted from the salary initially, plus the costs of a child (child benefit is not sufficient for this). On the other hand, you still have plenty of surplus and possibly areas where you could save some money—for example, €25,000 for a kitchen is quite a high-end standard.
From my point of view, everything seems doable but should be carefully calculated. You should clarify where you would likely end up price-wise with the house. How likely is it that you will get the plot? Do you have to apply for it, or has it been offered to you?
Otherwise, it has to be said that you bring very good equity and also have a solid income. Of course, the desire to have children should be taken into account. During parental leave, one parent’s income would drop to around €1,800, although this could still be the case even if you change the tax classes to 3/5 (you should calculate this beforehand), but it should work out. However, you would need to check what the tax return situation would look like afterward.
In fact, at least €1,600 would be deducted from the salary initially, plus the costs of a child (child benefit is not sufficient for this). On the other hand, you still have plenty of surplus and possibly areas where you could save some money—for example, €25,000 for a kitchen is quite a high-end standard.
From my point of view, everything seems doable but should be carefully calculated. You should clarify where you would likely end up price-wise with the house. How likely is it that you will get the plot? Do you have to apply for it, or has it been offered to you?
It depends on the basement. Yes, a waterproof concrete basement (WU basement) that is intended to be suitable as living space will generally cost about twice as much. In unfavorable soil conditions, it could be even more.
However, if you are planning a purely utility basement, with well-draining soil and the building ground well above the groundwater level, that would be feasible...
However, if you are planning a purely utility basement, with well-draining soil and the building ground well above the groundwater level, that would be feasible...
Similar topics