ᐅ Is it practical to build a house as a temporary solution (for about 10 years)?
Created on: 25 Feb 2013 23:59
S
spocky80Hello,
my question is probably not easy to answer clearly and specifically. However, I would appreciate hearing your opinions. I hope some people find the time to read my post. 🙂
My current situation: I live with my wife and one child in a rented apartment with a basic rent of about 600 euros (approximately 600 euros).
Long-term plan: We will take over my grandparents’ house. Of course, not while they are still alive. I sincerely wish them many more years with us, and for their age of 80, they are still very fit. So, the timing of taking over that house is difficult to estimate.
Short-term plan: We are considering buying or building something of our own for the interim period. Two reasons brought us to this idea: 1. We find paying 600 euros (approximately 600 euros) rent less desirable than paying off our own property. 2. We are not sure whether our savings in the bank will retain their current value in the future. This is the typical “real assets instead of cash” way of thinking.
The idea behind the idea goes like this:
We want to build a small single-family house as cheaply as possible—and I really mean cheap—for the temporary period. Cheap because eventually, we plan to move into another property. This temporary house should simply stop us from paying rent and convert money into real value.
If we take over the other house in perhaps 10 years, we would then like to rent out the house we build now.
The construction site is in the vicinity of Braunschweig (about a 10-minute drive to the city center), with a local train station offering quick connections to Braunschweig and Hannover. The highway is just minutes away. Shops, gas stations, doctors, kindergartens, and all types of schools are located directly in the town.
The affordable Town & Country house is estimated to cost 140,000 euros (approximately 110 m² (1,184 ft²) living space). All other costs including the plot of land have been calculated carefully with the bank, including a possible financial reserve for any overlooked expenses. The loan is planned to be paid off within 15 years (fixed interest rate for the full term), and our payments would not exceed our current basic rent.
I am aware that many would advise against such a low-priced house. Considering that it is “only” a temporary home for us, I think building this cheaply makes more sense than for someone building a “forever home.” For a “forever home,” we would certainly invest more money, no question about that.
This project would only be unreasonable if it was foreseeable that the house could not be rented out or sold after the assumed 10 years, which is also a possibility.
Strictly speaking, we would have saved 72,000 euros in rent by then, so a “loss” at sale on a naive level would not really be a loss.
Now I have already used the key word in the last sentence: Is our plan too NAIVE, or is it essentially a good strategy to save rent during the transition period and protect our savings from financial uncertainties?
I would appreciate any opinions—whether objective or subjective, brief or detailed.
Best regards,
Sebastian
my question is probably not easy to answer clearly and specifically. However, I would appreciate hearing your opinions. I hope some people find the time to read my post. 🙂
My current situation: I live with my wife and one child in a rented apartment with a basic rent of about 600 euros (approximately 600 euros).
Long-term plan: We will take over my grandparents’ house. Of course, not while they are still alive. I sincerely wish them many more years with us, and for their age of 80, they are still very fit. So, the timing of taking over that house is difficult to estimate.
Short-term plan: We are considering buying or building something of our own for the interim period. Two reasons brought us to this idea: 1. We find paying 600 euros (approximately 600 euros) rent less desirable than paying off our own property. 2. We are not sure whether our savings in the bank will retain their current value in the future. This is the typical “real assets instead of cash” way of thinking.
The idea behind the idea goes like this:
We want to build a small single-family house as cheaply as possible—and I really mean cheap—for the temporary period. Cheap because eventually, we plan to move into another property. This temporary house should simply stop us from paying rent and convert money into real value.
If we take over the other house in perhaps 10 years, we would then like to rent out the house we build now.
The construction site is in the vicinity of Braunschweig (about a 10-minute drive to the city center), with a local train station offering quick connections to Braunschweig and Hannover. The highway is just minutes away. Shops, gas stations, doctors, kindergartens, and all types of schools are located directly in the town.
The affordable Town & Country house is estimated to cost 140,000 euros (approximately 110 m² (1,184 ft²) living space). All other costs including the plot of land have been calculated carefully with the bank, including a possible financial reserve for any overlooked expenses. The loan is planned to be paid off within 15 years (fixed interest rate for the full term), and our payments would not exceed our current basic rent.
I am aware that many would advise against such a low-priced house. Considering that it is “only” a temporary home for us, I think building this cheaply makes more sense than for someone building a “forever home.” For a “forever home,” we would certainly invest more money, no question about that.
This project would only be unreasonable if it was foreseeable that the house could not be rented out or sold after the assumed 10 years, which is also a possibility.
Strictly speaking, we would have saved 72,000 euros in rent by then, so a “loss” at sale on a naive level would not really be a loss.
Now I have already used the key word in the last sentence: Is our plan too NAIVE, or is it essentially a good strategy to save rent during the transition period and protect our savings from financial uncertainties?
I would appreciate any opinions—whether objective or subjective, brief or detailed.
Best regards,
Sebastian
What immediately stands out in your calculation is the rent savings. Of course, the cold rent (basic rent without utilities) no longer applies. But what about the interest on the mortgage payments? A rent saving of €72,000 can very quickly turn into €72,000 in interest costs.
Don’t forget that additional construction or purchase-related costs cannot be included in the property’s value.
Furthermore, the bank would charge a substantial early repayment penalty if the house is sold before the fixed interest period ends.
If I were you, I would save over an indefinite period and invest the money into the likely necessary refurbishment or renovation of the existing property. This way, you’ll benefit more than if the money is tied up in the loan for the temporary solution.
Regards from the Palatinate
Don’t forget that additional construction or purchase-related costs cannot be included in the property’s value.
Furthermore, the bank would charge a substantial early repayment penalty if the house is sold before the fixed interest period ends.
If I were you, I would save over an indefinite period and invest the money into the likely necessary refurbishment or renovation of the existing property. This way, you’ll benefit more than if the money is tied up in the loan for the temporary solution.
Regards from the Palatinate
K
karliseppel26 Feb 2013 07:39Somehow, I don’t quite understand this... Even if I ignore interest for a moment, with a repayment of 600€ per month, I still don’t get close to 140,000€ after 15 years. Definitely not including additional costs, landscaping, etc. Somehow, the land where the “temporary house” is supposed to stand is also missing from the calculation. I might consider building “the” house that fully meets your needs right now during this low-interest phase. Then you would finance and pay off that. Whether 600€ per month will really get you far, you need to calculate yourself—I find that, to put it mildly, extremely tight. If in a few years the grandparents’ house becomes available for natural reasons, you could rent it out and use the rental income accordingly. Of course, you cannot claim mortgage interest as a tax deduction in that case, but maybe a skilled tax advisor knows some other options.
Another completely different aspect is the time until the grandparents pass away. There is already a lot of speculation about the assets, but it cannot be ruled out that the grandparents might still need this wealth during their remaining lifetime, for example for care.
Another completely different aspect is the time until the grandparents pass away. There is already a lot of speculation about the assets, but it cannot be ruled out that the grandparents might still need this wealth during their remaining lifetime, for example for care.
Quite a bit has already been discussed.
However, there might be other alternatives as well.
Depending on the location of the plot, one could also consider relocating the grandparents.
A nice, small, accessible bungalow instead of a large house could potentially be appealing to the grandparents. Of course, you can’t simply remove the grandparents from their familiar environment to the point where they no longer feel comfortable.
Additionally, there are some tax planning opportunities that come to mind, but I cannot share them here.
Looking ahead, I can imagine that an accessible bungalow could find interested parties, especially given the aging population in Germany. This could apply both to buyers and renters.
However, there might be other alternatives as well.
Depending on the location of the plot, one could also consider relocating the grandparents.
A nice, small, accessible bungalow instead of a large house could potentially be appealing to the grandparents. Of course, you can’t simply remove the grandparents from their familiar environment to the point where they no longer feel comfortable.
Additionally, there are some tax planning opportunities that come to mind, but I cannot share them here.
Looking ahead, I can imagine that an accessible bungalow could find interested parties, especially given the aging population in Germany. This could apply both to buyers and renters.
Honestly, the idea is way too naive. First of all, the advertised price of 140,000 € probably isn’t the final figure. Then you seem to have forgotten about the interest. I also don’t understand how the loan would be paid off after 15 years with a 600 € monthly payment, unless you’re putting in maybe 80,000 € of your own money.
Renting out is of course an option, but who wants to rent 110 sqm (1,184 sq ft)? What kind of rent can you expect for a house in that area? And are there enough tenants? If the property is vacant, you’ll have to cover all the costs yourself, and it gets worse if the tenant doesn’t pay.
My advice would be, if you want to have something of your own for the time being, buy an apartment. It’s easier to rent out and also easier to sell again. And if the real estate market keeps going crazy, you might even make a profit. A friend of mine bought a small two-room apartment here in Karlsruhe 8 years ago and sold it last year with a good profit because he moved abroad.
So if anything, I would only commit to an apartment... a house involves too many risks.
Maybe, as Musketier already suggested, you should talk to your grandparents. Renting a small apartment can be nice, especially as you get older and might not be able to keep up with house cleaning. Asking for help is not so common in this generation. I would look for an open conversation before you try to patch something together.
Renting out is of course an option, but who wants to rent 110 sqm (1,184 sq ft)? What kind of rent can you expect for a house in that area? And are there enough tenants? If the property is vacant, you’ll have to cover all the costs yourself, and it gets worse if the tenant doesn’t pay.
My advice would be, if you want to have something of your own for the time being, buy an apartment. It’s easier to rent out and also easier to sell again. And if the real estate market keeps going crazy, you might even make a profit. A friend of mine bought a small two-room apartment here in Karlsruhe 8 years ago and sold it last year with a good profit because he moved abroad.
So if anything, I would only commit to an apartment... a house involves too many risks.
Maybe, as Musketier already suggested, you should talk to your grandparents. Renting a small apartment can be nice, especially as you get older and might not be able to keep up with house cleaning. Asking for help is not so common in this generation. I would look for an open conversation before you try to patch something together.
hm...
You should also consider that your grandparents will eventually move into age-appropriate housing. This usually requires money, and typically the existing property has to be sold to either buy into the new place or cover the monthly costs of a care home.
It’s simply not possible to make a decision now for something that will happen in 15 years, because so much can change.
Personally, I would not feel comfortable living cheaply and simply for most of my life if I could afford otherwise.
A cheap house is also difficult to sell later. Renting it out is, in my opinion, not something to plan on due to many uncertain factors. Renting can be an option to put a house on the market if it cannot be sold.
Therefore, regardless of your family situation, I would create something nice and of your own where you can imagine living for the majority of your life.
Whatever your situation will be in 10 or 15 years... it always turns out differently than you expect.
This is something you see again and again: a couple in their mid-20s plans a house and three children. Either they end up with only one child and the house is too big, or at the latest after the children move out, the house is too large.
Living habits and life circumstances change, and people want to change as well. Or a separation forces changes.
Another option, if you want to stick to the plan (grandparents’ house), would be to buy the land as an investment with the intention of selling it later for a profit. However, this would not be possible in a new development area, since there is usually an obligation to build within a certain time frame.
You should also consider that your grandparents will eventually move into age-appropriate housing. This usually requires money, and typically the existing property has to be sold to either buy into the new place or cover the monthly costs of a care home.
It’s simply not possible to make a decision now for something that will happen in 15 years, because so much can change.
Personally, I would not feel comfortable living cheaply and simply for most of my life if I could afford otherwise.
A cheap house is also difficult to sell later. Renting it out is, in my opinion, not something to plan on due to many uncertain factors. Renting can be an option to put a house on the market if it cannot be sold.
Therefore, regardless of your family situation, I would create something nice and of your own where you can imagine living for the majority of your life.
Whatever your situation will be in 10 or 15 years... it always turns out differently than you expect.
This is something you see again and again: a couple in their mid-20s plans a house and three children. Either they end up with only one child and the house is too big, or at the latest after the children move out, the house is too large.
Living habits and life circumstances change, and people want to change as well. Or a separation forces changes.
Another option, if you want to stick to the plan (grandparents’ house), would be to buy the land as an investment with the intention of selling it later for a profit. However, this would not be possible in a new development area, since there is usually an obligation to build within a certain time frame.
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