ᐅ Is it practical to build a house as a temporary solution (for about 10 years)?
Created on: 25 Feb 2013 23:59
S
spocky80
Hello,
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
Strictly speaking, after 10 years you would have saved 72,000 euros (about $78,000) in current rent alone. From a naive perspective, such a "loss" on the sale would therefore not really be a loss.Strictly speaking, that seems like a rather simplistic calculation to me ^^
Since you can't pay off 140,000 euros (about $152,000) in 15 years with a 600-euro (about $650) monthly payment, I assume you intend to use a significant amount of equity.
For this equity, you could potentially earn interest income, which you lose out on if it's tied up in the property!
At the same time, the 600-euro (about $650) payment does not just cover principal but also an interest portion, which, similar to rent, should be considered a "loss" as well...
So that 72,000 euros (about $78,000) will be significantly reduced.
Thank you all for your opinions. I would like to add some collected comments and explanations to your posts to clarify my situation a bit more.
@Fiddy
The interest costs for our project would amount to almost exactly 13,000 euros. Thanks to the fixed interest rate for the entire period, this is predictable. If selling the house actually turns out to be the better option, we could also do that only after the loan term ends, if an early sale would cause real financial difficulties.
Fortunately, a full renovation of my grandparents’ house is not necessary – that’s why it’s so attractive to us. My grandparents are constantly working on modernizations. In the last two years, they have installed triple-glazed windows, a completely new roof, and six solar collectors with a gas condensing boiler. I would guess these are not the last improvements planned for the house.
@karliseppel
I do not have to repay 140,000 euros to the bank, only 80,000 euros. (The rest for the house, land, and other costs is luckily equity.)
The fact that my grandparents still need the capital from their house for care crossed my mind as well. Thanks to a high pension and substantial financial reserves, this should not be a problem – although, of course, nothing can be guaranteed. There is indeed a small risk here that I still need to think through a few more nights.
@Musketier
A truly interesting idea with the accessible bungalow. I hadn’t thought about it that way yet. That will definitely be taken into consideration as a possible scenario during our planning. 🙂 Thanks!
@Der Da
As mentioned above: fortunately, we have significantly more than 80,000 euros in equity. This explains the loan term and interest.
Indeed, for the reasons you mentioned, we also initially considered buying a condominium. However, the apartments here in Braunschweig are simply not affordable with a clear conscience. Here, I would have to pay more than double for a reasonable 4-room apartment without a garden and without a parking space than for our new house with a garden and carport (admittedly somewhat outside Braunschweig). We do not want to invest that much at the moment.
@ypg
You hit the nail on the head regarding what bothers me exactly: If only I knew what the situation would really be like in 10 to 15 years, my decision would be much easier. It’s a really tricky situation and that’s exactly why we’re still so uncertain about which path is the right one.
@Shism
Okay, I admit it, the simplistic calculation is exposed. 🙂 I just wanted to show the tendency that I’m not necessarily looking for a high return, but also want to hedge our own financial uncertainty somewhat by investing in tangible assets. If, in the end, I break even, that would still be acceptable to me. Of course, I would gladly take more if it works out – that’s logical. But for me, it would be enough without major worries to save on rent and to at least recover what I invested through a possible sale price or rental income. The saved rent can therefore be calculated into the house’s depreciation value – with whatever deductions apply.
By the way, many thanks to everyone for giving me such good and serious suggestions and advice. I was already worried that I would only be met with a few meaningless phrases. 🙂
I’m happy to read more comments. 🙂
Best regards,
Sebastian
@Fiddy
The interest costs for our project would amount to almost exactly 13,000 euros. Thanks to the fixed interest rate for the entire period, this is predictable. If selling the house actually turns out to be the better option, we could also do that only after the loan term ends, if an early sale would cause real financial difficulties.
Fortunately, a full renovation of my grandparents’ house is not necessary – that’s why it’s so attractive to us. My grandparents are constantly working on modernizations. In the last two years, they have installed triple-glazed windows, a completely new roof, and six solar collectors with a gas condensing boiler. I would guess these are not the last improvements planned for the house.
@karliseppel
I do not have to repay 140,000 euros to the bank, only 80,000 euros. (The rest for the house, land, and other costs is luckily equity.)
The fact that my grandparents still need the capital from their house for care crossed my mind as well. Thanks to a high pension and substantial financial reserves, this should not be a problem – although, of course, nothing can be guaranteed. There is indeed a small risk here that I still need to think through a few more nights.
@Musketier
A truly interesting idea with the accessible bungalow. I hadn’t thought about it that way yet. That will definitely be taken into consideration as a possible scenario during our planning. 🙂 Thanks!
@Der Da
As mentioned above: fortunately, we have significantly more than 80,000 euros in equity. This explains the loan term and interest.
Indeed, for the reasons you mentioned, we also initially considered buying a condominium. However, the apartments here in Braunschweig are simply not affordable with a clear conscience. Here, I would have to pay more than double for a reasonable 4-room apartment without a garden and without a parking space than for our new house with a garden and carport (admittedly somewhat outside Braunschweig). We do not want to invest that much at the moment.
@ypg
You hit the nail on the head regarding what bothers me exactly: If only I knew what the situation would really be like in 10 to 15 years, my decision would be much easier. It’s a really tricky situation and that’s exactly why we’re still so uncertain about which path is the right one.
@Shism
Okay, I admit it, the simplistic calculation is exposed. 🙂 I just wanted to show the tendency that I’m not necessarily looking for a high return, but also want to hedge our own financial uncertainty somewhat by investing in tangible assets. If, in the end, I break even, that would still be acceptable to me. Of course, I would gladly take more if it works out – that’s logical. But for me, it would be enough without major worries to save on rent and to at least recover what I invested through a possible sale price or rental income. The saved rent can therefore be calculated into the house’s depreciation value – with whatever deductions apply.
By the way, many thanks to everyone for giving me such good and serious suggestions and advice. I was already worried that I would only be met with a few meaningless phrases. 🙂
I’m happy to read more comments. 🙂
Best regards,
Sebastian