ᐅ Should I buy a plot of land now to start building in 2023 or 2024?
Created on: 7 May 2022 15:18
R
rifoxa4902
Hello everyone,
I’ve been following this forum for a few weeks now and I’m currently finding it very difficult to make a decision regarding our house building plans. There have been similar posts here over the past days/weeks, and as far as I can tell, I am not alone in facing this kind of decision.
A bit of background:
Last year, we initially tried to find an existing property. However, many rather unpleasant experiences with the houses on offer, the agents, and bidding processes led to frustration on my part, and I ended up investing a lot of energy into searching for a building plot instead.
In the search for a plot, I seem to have had either a lot of luck or skill (or both), as I now have the opportunity to buy a municipal plot under good conditions (however, unfortunately with a building obligation requiring construction to start no later than 2024 and completion within 3 years plus 2 years).
As it often happens, I got the confirmation for the plot at roughly the same time interest rates increased sharply and the Ukraine crisis began.
Right now, we are quite unsettled due to the currently unpredictable construction cost situation. We would rather not start building this year and are considering whether to secure the plot for a building start in 2023 or 2024 instead. Or possibly to abandon the idea of building altogether, although existing properties are not getting any cheaper either.
Some key facts about us:
- Desired house size (single-family home): 100-120 sqm (simple standard, nothing fancy, a basic kitchen is fine, no basement, simple driveway)
- Ages: 43 (male) and 38 (female), 1 child aged 4, no further children planned
- Net income (combined): over 5,300 euros net per month (plus various bonus payments amounting to several thousand euros), the female partner currently works part-time, with an additional net potential of about 800 euros
- Current equity: 210,000 euros (increasing by approximately 20,000 to 25,000 euros per year)
Our rough cost estimate for the house is as follows (feedback on whether this sounds roughly realistic is welcome):
- Plot costs (1,000 sqm (1,200 square yards)) including development, notary, tax: 85,000 euros (price fixed)
- Building location: Schleswig-Holstein
- Pure construction costs (estimated for 100-120 sqm): 300,000 euros
- Additional construction-related costs (estimated): 80,000 euros
- Total cost: 465,000 euros (minus equity leaves a financing requirement of 255,000 euros)
- With a monthly payment of 1,600 euros and an interest rate of 3%, we would need about 17 years to repay and finish before retirement.
Our naive assumption is that building under these calculations, if started now at current interest rates (3%) and construction costs, would work fairly well, but due to the currently unpredictable construction cost situation, it feels too risky (we don’t see much buffer in the loan repayment). Instead, we are considering securing the plot now, accumulating more equity by next year, and then starting to build in 2023 or 2024 (completing the build by 2026 at the latest).
What do you think about this? What would you do in our situation? (I have outlined a few options below.)
I would...
- start building as soon as possible despite the unpredictable construction cost situation (development likely only starting in August)
- secure the plot now despite the building obligation (with a latest start in 2024) and wait for a more cost-predictable situation in 2023 or 2024. If building cannot proceed in 2023 or 2024, simply give up the plot—but at least we would have preserved the opportunity to build
- not buy the plot at all, as construction costs and interest rates are expected to rise so much and so quickly that households with incomes like ours will no longer be able to build in the near future
- ...
Many thanks in advance for your evaluations and opinions.
I’ve been following this forum for a few weeks now and I’m currently finding it very difficult to make a decision regarding our house building plans. There have been similar posts here over the past days/weeks, and as far as I can tell, I am not alone in facing this kind of decision.
A bit of background:
Last year, we initially tried to find an existing property. However, many rather unpleasant experiences with the houses on offer, the agents, and bidding processes led to frustration on my part, and I ended up investing a lot of energy into searching for a building plot instead.
In the search for a plot, I seem to have had either a lot of luck or skill (or both), as I now have the opportunity to buy a municipal plot under good conditions (however, unfortunately with a building obligation requiring construction to start no later than 2024 and completion within 3 years plus 2 years).
As it often happens, I got the confirmation for the plot at roughly the same time interest rates increased sharply and the Ukraine crisis began.
Right now, we are quite unsettled due to the currently unpredictable construction cost situation. We would rather not start building this year and are considering whether to secure the plot for a building start in 2023 or 2024 instead. Or possibly to abandon the idea of building altogether, although existing properties are not getting any cheaper either.
Some key facts about us:
- Desired house size (single-family home): 100-120 sqm (simple standard, nothing fancy, a basic kitchen is fine, no basement, simple driveway)
- Ages: 43 (male) and 38 (female), 1 child aged 4, no further children planned
- Net income (combined): over 5,300 euros net per month (plus various bonus payments amounting to several thousand euros), the female partner currently works part-time, with an additional net potential of about 800 euros
- Current equity: 210,000 euros (increasing by approximately 20,000 to 25,000 euros per year)
Our rough cost estimate for the house is as follows (feedback on whether this sounds roughly realistic is welcome):
- Plot costs (1,000 sqm (1,200 square yards)) including development, notary, tax: 85,000 euros (price fixed)
- Building location: Schleswig-Holstein
- Pure construction costs (estimated for 100-120 sqm): 300,000 euros
- Additional construction-related costs (estimated): 80,000 euros
- Total cost: 465,000 euros (minus equity leaves a financing requirement of 255,000 euros)
- With a monthly payment of 1,600 euros and an interest rate of 3%, we would need about 17 years to repay and finish before retirement.
Our naive assumption is that building under these calculations, if started now at current interest rates (3%) and construction costs, would work fairly well, but due to the currently unpredictable construction cost situation, it feels too risky (we don’t see much buffer in the loan repayment). Instead, we are considering securing the plot now, accumulating more equity by next year, and then starting to build in 2023 or 2024 (completing the build by 2026 at the latest).
What do you think about this? What would you do in our situation? (I have outlined a few options below.)
I would...
- start building as soon as possible despite the unpredictable construction cost situation (development likely only starting in August)
- secure the plot now despite the building obligation (with a latest start in 2024) and wait for a more cost-predictable situation in 2023 or 2024. If building cannot proceed in 2023 or 2024, simply give up the plot—but at least we would have preserved the opportunity to build
- not buy the plot at all, as construction costs and interest rates are expected to rise so much and so quickly that households with incomes like ours will no longer be able to build in the near future
- ...
Many thanks in advance for your evaluations and opinions.
Buy!
Budget and income are adequate!
It won’t happen that quickly 😀
Planning and building permits will certainly take until the new year.
Everything will work out!
Now you have the forum as a supportive guide 🙂
Budget and income are adequate!
rifoxa4902 schrieb:
Very uncertain and would rather not start building this year
rifoxa4902 schrieb:
I would...
- start building as soon as possible despite the unpredictable construction cost situation (site development probably only from August)
It won’t happen that quickly 😀
Planning and building permits will certainly take until the new year.
Everything will work out!
Now you have the forum as a supportive guide 🙂
B
Benutzer2007 May 2022 19:25Good starting conditions. Just do it!
And if it gets a bit more expensive, simply take out a bigger loan and repay less.
Who cares if you finish in 17 years or not? If you don’t build now, you might still be paying high rent in 17 years. Better to have a small remaining debt as a retiree.
And if it gets a bit more expensive, simply take out a bigger loan and repay less.
Who cares if you finish in 17 years or not? If you don’t build now, you might still be paying high rent in 17 years. Better to have a small remaining debt as a retiree.
With this income, it is very likely that after 10–15 years a higher repayment rate will be possible. I don’t see any reason for concern at all. You basically only need to finance the house. And in Schleswig-Holstein, properties like that are still relatively affordable. Especially since you don’t have any excessive demands… 😉
R
rifoxa49027 May 2022 19:48driver55 schrieb:
Buy the land and start planning. There won't be any groundbreaking before mid-2023 anyway.
Keeping it simple and small is fine. However, as a homeowner, you should consider that you will need more space than a tenant in a 90 m² (970 sq ft) three-room apartment just because of all the equipment.
Make sure to plan for enough storage space.
And what do you mean by a simple driveway? Is it a sloped site? By driveway, I meant that we would initially forgo a garage and just pave two parking spaces (as required by the development plan). Later, we could possibly add a wooden carport over them. The plot itself is not on a slope but is quite flat.
rifoxa4902 schrieb:
By driveway, I meant that we would initially forgo a garage and just pave two parking spaces (as required by the development plan). Consider this when you start planning: include your available equity of 210,000 (or liquid funds) and the affordable plot of land in your calculations.
Or, if interest rates actually rise, you might want to wait. You will have to decide that yourselves.
X
xMisterDx7 May 2022 21:46May I ask quite directly where this uncertainty comes from—whether you can afford this?
I mean, the plot is unbelievably cheap, and the budget for a 120m² (1,292 sq ft) house with 300,000 plus 80,000 for additional construction costs is really generous.
The only things that could seriously disrupt your plans are if a pile foundation is required or if an ancient Viking settlement is discovered underground... maybe it makes sense to arrange a soil survey soon.
With a net household income of over 5,000 EUR (about $5,400) per month, you are in the top 20%. Who else but the top 20% should be able to take out a 250,000 EUR (about $270,000) loan? 😉
I also understand the desire to repay as much as possible upfront, but I would prefer to set the monthly payment a bit lower. Life can throw curveballs, and it's hard to sleep well if the mortgage payment suddenly amounts to 50% (or more) of the household’s net income.
For my loan, I agreed on a monthly payment of 1,300 EUR (about $1,400), and whatever I can save extra in a given year, I pay as a lump sum prepayment. I’m allowed to pay in 5% of the total amount per year without penalty.
Of course, on average, I aim to increase that to 1,600–1,800 EUR (about $1,720–$1,940) per month... but I don’t have to, and that makes all the difference.
I mean, the plot is unbelievably cheap, and the budget for a 120m² (1,292 sq ft) house with 300,000 plus 80,000 for additional construction costs is really generous.
The only things that could seriously disrupt your plans are if a pile foundation is required or if an ancient Viking settlement is discovered underground... maybe it makes sense to arrange a soil survey soon.
With a net household income of over 5,000 EUR (about $5,400) per month, you are in the top 20%. Who else but the top 20% should be able to take out a 250,000 EUR (about $270,000) loan? 😉
I also understand the desire to repay as much as possible upfront, but I would prefer to set the monthly payment a bit lower. Life can throw curveballs, and it's hard to sleep well if the mortgage payment suddenly amounts to 50% (or more) of the household’s net income.
For my loan, I agreed on a monthly payment of 1,300 EUR (about $1,400), and whatever I can save extra in a given year, I pay as a lump sum prepayment. I’m allowed to pay in 5% of the total amount per year without penalty.
Of course, on average, I aim to increase that to 1,600–1,800 EUR (about $1,720–$1,940) per month... but I don’t have to, and that makes all the difference.
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