Hello everyone,
I need some help and advice and hope to get a few suggestions on how to proceed.
In 2010, we bought an end-terrace house in northern Berlin in a very desirable location (120 sqm (1,292 sq ft) living space, 250 sqm (2,691 sq ft) garden, 3 floors, parking space, excellent infrastructure) at a very favorable price (bankruptcy sale).
This house is now to be sold for a new construction project, as private circumstances have changed and the house no longer meets many of our new requirements.
What is the best way to proceed here?
How can one coordinate the sale of the current house with the new project?
What options are there to handle this financially in the smartest way possible?
What risks should be considered?
What does a term like “property swap” mean in this context?
There is still an outstanding loan on our current house of about €98,000.
According to our research, the market value is around €200,000. Is it correct to assume that €200,000 sale proceeds minus €98,000 remaining loan and prepayment penalty equals my net profit?
The property has been continuously owner-occupied by us (so no capital gains tax to consider?).
Regarding the new construction project
We have clear ideas about the new house and have set a maximum budget of €350,000 for all related costs.
We have a net monthly income of €4,700, which I believe is above average. Are these assumptions realistic?
It would be great to receive some guidance or suggestions here.
I need some help and advice and hope to get a few suggestions on how to proceed.
In 2010, we bought an end-terrace house in northern Berlin in a very desirable location (120 sqm (1,292 sq ft) living space, 250 sqm (2,691 sq ft) garden, 3 floors, parking space, excellent infrastructure) at a very favorable price (bankruptcy sale).
This house is now to be sold for a new construction project, as private circumstances have changed and the house no longer meets many of our new requirements.
What is the best way to proceed here?
How can one coordinate the sale of the current house with the new project?
What options are there to handle this financially in the smartest way possible?
What risks should be considered?
What does a term like “property swap” mean in this context?
There is still an outstanding loan on our current house of about €98,000.
According to our research, the market value is around €200,000. Is it correct to assume that €200,000 sale proceeds minus €98,000 remaining loan and prepayment penalty equals my net profit?
The property has been continuously owner-occupied by us (so no capital gains tax to consider?).
Regarding the new construction project
We have clear ideas about the new house and have set a maximum budget of €350,000 for all related costs.
We have a net monthly income of €4,700, which I believe is above average. Are these assumptions realistic?
It would be great to receive some guidance or suggestions here.
Dirk Grafe schrieb:
To rent out a property, you simply need to have a professional approach; otherwise, it doesn’t pay off or you take on a high risk. It also involves work if you don’t want to hire a property management company.
Best regards,
Dirk GrafeWhat do you mean by a professional approach? How can I logically test the feasibility with calculations?
This goes beyond the scope here. But first, you would need to know:
1. Approximate market price of the property
2. Local rent levels, expected rental income
3. Backlog of repairs, mortgage burden relative to value
4. Rental potential / risk of vacancy / tenant turnover
5. Location and development of the neighborhood
6. Distance from your residence / time needed for viewings
7. ...
And just as a small note: You are entering a market with very tough competition from professionals who often only achieve about a 4% net return. Returns of 6% or more are usually only found in prime locations or commercial properties.
You also need to be legally up to date; settlements must be prepared annually, and so on. Long story short: Single properties are risky, especially if they are not close to your own home or workplace — I would always advise against them. Selling the property and investing in your own home offers you almost the same — or even more! — financial freedom immediately. If everything goes perfectly, you might earn about 2% more return than the interest on your mortgage for your own house … ask yourself if the effort and risk involved for 2% is worth it!?
A 2% difference corresponds roughly to one week of rental loss per year. For example, if you expect an average vacancy of 0.5 months per year but the property actually stands empty for one month, then your returns for that year are already wiped out. Consider the costs of a three-month vacancy including eviction proceedings as well — and here comes the crucial point:
If you own 10 apartments, one extreme case doesn’t disrupt your overall finances. But if you only have one rental property, the entire vacancy risk rests on that single asset! Think that through carefully, especially if your ability to pay off your own mortgage depends on it...
Best regards,
Dirk Grafe
1. Approximate market price of the property
2. Local rent levels, expected rental income
3. Backlog of repairs, mortgage burden relative to value
4. Rental potential / risk of vacancy / tenant turnover
5. Location and development of the neighborhood
6. Distance from your residence / time needed for viewings
7. ...
And just as a small note: You are entering a market with very tough competition from professionals who often only achieve about a 4% net return. Returns of 6% or more are usually only found in prime locations or commercial properties.
You also need to be legally up to date; settlements must be prepared annually, and so on. Long story short: Single properties are risky, especially if they are not close to your own home or workplace — I would always advise against them. Selling the property and investing in your own home offers you almost the same — or even more! — financial freedom immediately. If everything goes perfectly, you might earn about 2% more return than the interest on your mortgage for your own house … ask yourself if the effort and risk involved for 2% is worth it!?
A 2% difference corresponds roughly to one week of rental loss per year. For example, if you expect an average vacancy of 0.5 months per year but the property actually stands empty for one month, then your returns for that year are already wiped out. Consider the costs of a three-month vacancy including eviction proceedings as well — and here comes the crucial point:
If you own 10 apartments, one extreme case doesn’t disrupt your overall finances. But if you only have one rental property, the entire vacancy risk rests on that single asset! Think that through carefully, especially if your ability to pay off your own mortgage depends on it...
Best regards,
Dirk Grafe
Ok, renting is no longer an issue... obviously it doesn’t make much sense.
Back to the bridge financing... will the expected profit from the sale of my current house be paid out to me in cash so I can use it like equity to cover expenses such as the notary and so on, or does it remain just a virtual figure on paper?
Back to the bridge financing... will the expected profit from the sale of my current house be paid out to me in cash so I can use it like equity to cover expenses such as the notary and so on, or does it remain just a virtual figure on paper?
For the interim financing, you will likely need a mortgage on the new property.
You also need to clarify with the bank whether they cover acquisition-related additional costs with the interim financing or if the interim financing is only available for the actual purchase price/construction costs.
You also need to clarify with the bank whether they cover acquisition-related additional costs with the interim financing or if the interim financing is only available for the actual purchase price/construction costs.