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
M
Myrna_Loy27 Jun 2022 08:19guckuck2 schrieb:
And don’t be too worried about parental leave. Usually, it’s only 12 months with reduced income. You’ll lose about €1600 per month, but over the course of a year, that’s “only” around €20,000 – just save that amount in advance. Don’t forget the tax back payment 😉
W
WilderSueden27 Jun 2022 08:57guckuck2 schrieb:
And don’t worry too much about parental leave. It usually lasts only 12 months with reduced income. I think that’s a bit too optimistic because it only works if you return to full-time work immediately afterward. That assumes not only that you’re willing to leave your child in care for 8–9 hours a day at just one year old, but also that you can actually find suitable childcare and that it works out well. For us, that’s exactly the problem. Last week it got worse every day until on Friday I had to take the little one back with me. The childminder is now fundamentally questioning the arrangement, and as it looks, we will somehow have to manage until the summer holidays and then find a different childcare solution. I’m glad that we don’t both work full-time.
J
Julchen739328 Jun 2022 16:06Hello everyone,
thank you for the many responses. We were away over the weekend, so I couldn’t reply to all, but I wanted to give an update after our appointment with the construction company.
Today we had a very detailed discussion and received a rough cost estimate based on our plans.
For 150m² (1,615 sq ft) of living space over two full floors plus an attic, the turnkey price would be about €450,000, with the photovoltaic system and garage needing to be paid for separately and likely postponed for several years. The builder sees potential savings of around €20,000 through own work, but the recommendation was not to count on this, as custom finishes usually offset these savings.
A basement would cost about €80,000 (which matches well with the cost estimates we have received here) and is therefore not financially feasible for us.
In total, including the land (€260,000), purchase incidental costs (€20,000), and turnkey building costs (€450,000), we are looking at about €730,000, leaving us with around €70,000 buffer for landscaping, driveway/parking space, furnishings, and additional expenses such as temporary power supply, building permit/planning permission, etc.
If we waive the basement and postpone the photovoltaic system and garage for a few years, the project should be achievable for us.
Now we just have to decide whether
a) we are willing to make these compromises even though we would be committing to a monthly payment of about €2,500 for the next 30-35 years (which, as some have pointed out here, means we would have to return to full-time work immediately after parental leave and arrange childcare for the children) and
b) we want to take the risk that interest rates might rise significantly again before the loan contract is finalized (which could take some time since the construction planning needs careful consideration) and that we might then have to finance over an even longer term.
Best regards,
Julia
thank you for the many responses. We were away over the weekend, so I couldn’t reply to all, but I wanted to give an update after our appointment with the construction company.
Today we had a very detailed discussion and received a rough cost estimate based on our plans.
For 150m² (1,615 sq ft) of living space over two full floors plus an attic, the turnkey price would be about €450,000, with the photovoltaic system and garage needing to be paid for separately and likely postponed for several years. The builder sees potential savings of around €20,000 through own work, but the recommendation was not to count on this, as custom finishes usually offset these savings.
A basement would cost about €80,000 (which matches well with the cost estimates we have received here) and is therefore not financially feasible for us.
In total, including the land (€260,000), purchase incidental costs (€20,000), and turnkey building costs (€450,000), we are looking at about €730,000, leaving us with around €70,000 buffer for landscaping, driveway/parking space, furnishings, and additional expenses such as temporary power supply, building permit/planning permission, etc.
If we waive the basement and postpone the photovoltaic system and garage for a few years, the project should be achievable for us.
Now we just have to decide whether
a) we are willing to make these compromises even though we would be committing to a monthly payment of about €2,500 for the next 30-35 years (which, as some have pointed out here, means we would have to return to full-time work immediately after parental leave and arrange childcare for the children) and
b) we want to take the risk that interest rates might rise significantly again before the loan contract is finalized (which could take some time since the construction planning needs careful consideration) and that we might then have to finance over an even longer term.
Best regards,
Julia
T
Torti202228 Jun 2022 18:20Julchen7393 schrieb:
ready to make these compromisesThese are not serious compromises. You don’t live in the basement, and the car doesn’t care whether it’s safely parked in the garage (if there is even space there) or outside.Julchen7393 schrieb:
willing to take the risk that interest rates might rise significantly again before the loan agreement is finalized (which will still take some time, since the building planning needs to be carefully considered) and then we’d have to finance over an even longer term.I just got a chance to read the thread now, but at your age I would look for a bank that allows adjusting the repayment rate to 1%. You’re still so young that you could, for example, start with 3-4% repayment (there are often better terms) and then immediately reduce it to 1%. Numerically, that results in a very long loan term, but so what. That way, at 65 years old you’d still have a very small remaining balance. Better than having to pay high rent at an older age—you will have to accept (significantly) higher rent mid-term anyway if your current house becomes too small.And lastly: You can still pull the emergency brake at any time. By the way, interest rates have dropped about 0.25% again in recent days.
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