ᐅ Is Buying Land and Building a House Too Risky in the Current Situation?
Created on: 24 Jun 2022 10:14
J
Julchen7393
Hello 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
B
Baufuchs200024 Jun 2022 14:10Since you can live very affordably and comfortably, there is no urgent need. Why would you want to take on such a burden?
We are sliding into the biggest economic crisis since the post-war period. There will likely be upheavals that seem unimaginable right now. It is important to remain flexible. I am not in favor of rushed decisions.
My experience shows that new opportunities keep arising. It is not uncommon for some potential buyers to give up their plots of land again. You don’t have to buy and build when prices are at their highest.
And especially since you have a lot of equity, you should wait. Soon there will be many bargains regarding plots and houses.
If the costs related to homeownership keep rising like this, maybe with a levy to balance financial burdens or enormous property taxes being introduced, and energy prices continue to soar, you might end up with a nice home but living on 7,000 euros income at welfare level.
On top of that, your equity would be gone. Right now, everything feels too uncertain to me.
We are sliding into the biggest economic crisis since the post-war period. There will likely be upheavals that seem unimaginable right now. It is important to remain flexible. I am not in favor of rushed decisions.
My experience shows that new opportunities keep arising. It is not uncommon for some potential buyers to give up their plots of land again. You don’t have to buy and build when prices are at their highest.
And especially since you have a lot of equity, you should wait. Soon there will be many bargains regarding plots and houses.
If the costs related to homeownership keep rising like this, maybe with a levy to balance financial burdens or enormous property taxes being introduced, and energy prices continue to soar, you might end up with a nice home but living on 7,000 euros income at welfare level.
On top of that, your equity would be gone. Right now, everything feels too uncertain to me.
H
hauskauf198724 Jun 2022 14:30Baufuchs2000 schrieb:
Since you can live very affordably and comfortably, there is no urgency. Why would you want to tie yourselves down with such a burden?
We are sliding into the biggest economic crisis since the post-war period. There will likely be upheavals currently unimaginable.
You should remain flexible. I am not in favor of rushed decisions.
My experience shows that new opportunities always arise. Many prospective buyers are even giving up their plots.
You don’t have to buy and build when prices are at their highest.
And especially because you have a lot of equity, you should wait. There will soon be many bargains regarding land and houses.
If the costs of owning a house continue to rise like this, if maybe a hardship levy or huge property taxes are introduced, and energy prices keep exploding, then you might have a nice house but live on the equivalent of welfare with a 7,000-euro income.
On top of that, your equity will be gone. Right now, everything seems too uncertain to me.What on earth are you talking about?
hauskauf1987 schrieb:
What on earth are you talking about?That’s our forum troll who keeps coming back with a new name every time he gets banned 😀P
Pinkiponk24 Jun 2022 15:23hauskauf1987 schrieb:
What on earth are you talking about?Ysop*** schrieb:
That’s our forum troll who keeps showing up with a new name whenever they get banned again 😀Do you really think the statement "If house-related costs keep rising like this, maybe a compensation levy or a huge property tax will be introduced, energy prices continue to skyrocket, ..." is completely absurd? Currently, it is clear that building single-family homes is politically and environmentally considered the least favored housing option. I don’t think it’s impossible that legislation could bring negative changes for single-family homeowners. Let’s see how the property tax reform develops. Allegedly, there will also be "winners"—I’m curious.
J
Julchen739324 Jun 2022 15:29Hello everyone,
Thank you very much for the numerous detailed responses!
What we are definitely taking away is that we need to revise our cost estimate and reconsider the basement, which until now has been seen as essential – we hope to gain more clarity after our appointment with the construction company on Tuesday. Overall, we feel confident about doing a lot of the work ourselves; both my partner and our fathers are skilled with tools, and since the fathers are likely to retire during the expected construction period, they have offered their help. Additionally, we have a relative who works in a medical and electrical company. Of course, there will still be material costs even with DIY work.
We originally thought that with our income and equity savings, we were in a good position. The income difference during parental leave is a significant factor for us, as we currently earn quite similar amounts. Hopefully, salary increases will still be possible up to that point, but living expenses are also likely to rise, especially once children are involved.
An alternative would still be to continue renting affordably and build up equity. If the home office moves to the basement, we could currently fit a nursery (and we are aware that this is quite a luxury situation;)). Then we would only start the topic of building or buying and renovating a house after our family planning and parental leave are complete. Of course, no one can predict whether a suitable opportunity will come up again.
We will gladly provide an update after our appointment on Tuesday, and many thanks to everyone for your opinions and suggestions 🙂
Thank you very much for the numerous detailed responses!
What we are definitely taking away is that we need to revise our cost estimate and reconsider the basement, which until now has been seen as essential – we hope to gain more clarity after our appointment with the construction company on Tuesday. Overall, we feel confident about doing a lot of the work ourselves; both my partner and our fathers are skilled with tools, and since the fathers are likely to retire during the expected construction period, they have offered their help. Additionally, we have a relative who works in a medical and electrical company. Of course, there will still be material costs even with DIY work.
We originally thought that with our income and equity savings, we were in a good position. The income difference during parental leave is a significant factor for us, as we currently earn quite similar amounts. Hopefully, salary increases will still be possible up to that point, but living expenses are also likely to rise, especially once children are involved.
An alternative would still be to continue renting affordably and build up equity. If the home office moves to the basement, we could currently fit a nursery (and we are aware that this is quite a luxury situation;)). Then we would only start the topic of building or buying and renovating a house after our family planning and parental leave are complete. Of course, no one can predict whether a suitable opportunity will come up again.
We will gladly provide an update after our appointment on Tuesday, and many thanks to everyone for your opinions and suggestions 🙂
Julchen7393 schrieb:
skilled in crafts That guarantees a more relaxed installation of the flooring…
Julchen7393 schrieb:
the fathers will likely retire during the construction period and have offered to help …but with senior_external_help_ you don’t build a basement.
It’s okay to accept help, but it shouldn’t be overdone. My husband is just over 60, very fit, but I wouldn’t send him to a house build, if you know what I mean. You should be able to offer your husband support instead. If you catch my drift 😉
Julchen7393 schrieb:
we also have a family business in medical supplies and electrical services. That’s good. But even they have to pay their contractors and issue invoices.
You still need to calculate such things realistically so you don’t go from a zero-cost item to suddenly facing a 10,000€ (about 11,000 USD) expense.
Julchen7393 schrieb:
the income difference during parental leave is huge for us because we both currently earn very similar amounts. I agree, that’s why #4