ᐅ How to Best Approach a Project Involving an Existing House When Using Own Equity
Created on: 9 Oct 2022 10:33
A
AJAM_2022
Hello everyone,
I need some fundamental advice on how to approach our planned project, as we are currently a bit overwhelmed with where to start.
Starting point:
Existing house owned by my parents-in-law.
Valued at €680,000 (approximately $730,000) four years ago.
Major renovation completed in 2018.
Debt-free.
The plan is to build a single-family house plus an extension for my parents-in-law.
My wife and I have a monthly net income of about €9,000 (approximately $9,700).
We are debt-free and have saved around €100,000 (approximately $108,000).
One question:
What is the best way to determine the budget for the new build?
The existing house will be used as “equity.”
Ideally, we would sell it beforehand to know exactly how much we will get.
However, that may be difficult timing-wise, as the buyer probably won’t want to wait until our new house is completed.
If we arrange bridge financing and sell the existing house later, it is uncertain how much we will actually get for it.
Especially in the current market, no one knows where real estate prices are headed.
We look forward to an engaging discussion.
Sunny Sunday greetings
I need some fundamental advice on how to approach our planned project, as we are currently a bit overwhelmed with where to start.
Starting point:
Existing house owned by my parents-in-law.
Valued at €680,000 (approximately $730,000) four years ago.
Major renovation completed in 2018.
Debt-free.
The plan is to build a single-family house plus an extension for my parents-in-law.
My wife and I have a monthly net income of about €9,000 (approximately $9,700).
We are debt-free and have saved around €100,000 (approximately $108,000).
One question:
What is the best way to determine the budget for the new build?
The existing house will be used as “equity.”
Ideally, we would sell it beforehand to know exactly how much we will get.
However, that may be difficult timing-wise, as the buyer probably won’t want to wait until our new house is completed.
If we arrange bridge financing and sell the existing house later, it is uncertain how much we will actually get for it.
Especially in the current market, no one knows where real estate prices are headed.
We look forward to an engaging discussion.
Sunny Sunday greetings
What I don’t quite understand yet is how the equity is supposed to work. The existing house belongs to your in-laws, right? So you have equity of 100,000 and your in-laws have the value of the existing house. Of course, they can transfer the exemption amount to their daughter (or you pay inheritance tax), but how is that going to be reflected in the new house? Will your in-laws be listed in the land register or not?
This needs to be clarified first. Because as I understand it now, that’s your in-laws’ equity, not yours. And the bank will see it that way too. As long as the house isn’t sold, you can only register a mortgage lien up to a certain amount.
So I would sell, transfer the value to your daughter (or more, or whatever), and you finance your new house on your own. With your income, that should be possible. Short term (10 years) with the option of high prepayments. If the money is available later, you can pay it in via prepayments and settle the rest when the loan ends.
Do your in-laws really want to give up everything? They would be giving up all security—are they aware of that? If they appear in the land register, they can help pay down the mortgage with their equity (from the sold house). That would also mean higher monthly payments.
There are many options, consider them all. But at the moment, you only have 100,000 in equity. Or does your wife already own her parents’ house?
And also clarify whether your in-laws really want to give up their entire assets—are they aware of this? To avoid problems down the line.
This needs to be clarified first. Because as I understand it now, that’s your in-laws’ equity, not yours. And the bank will see it that way too. As long as the house isn’t sold, you can only register a mortgage lien up to a certain amount.
So I would sell, transfer the value to your daughter (or more, or whatever), and you finance your new house on your own. With your income, that should be possible. Short term (10 years) with the option of high prepayments. If the money is available later, you can pay it in via prepayments and settle the rest when the loan ends.
Do your in-laws really want to give up everything? They would be giving up all security—are they aware of that? If they appear in the land register, they can help pay down the mortgage with their equity (from the sold house). That would also mean higher monthly payments.
There are many options, consider them all. But at the moment, you only have 100,000 in equity. Or does your wife already own her parents’ house?
And also clarify whether your in-laws really want to give up their entire assets—are they aware of this? To avoid problems down the line.
AJAM_2022 schrieb:
The existing house is to be used as "equity."
Ideally, we would sell it beforehand so we know exactly what we will get.
However, that will be difficult timing-wise, as the buyer probably won't want to wait until our new house is finished.
If we arrange bridge financing and sell the existing house later, it’s uncertain how much we will actually get for it.
Especially in the current market, no one knows where property prices are headed. Do you already have a plot of land? And do you really have to sell the existing house given your income?
As soon as we bought our renovation project, we sold another house. I can only recommend this if the sale price doesn’t dictate the budget—right now, I find the market too uncertain for that.
A
AJAM_202210 Oct 2022 15:48Thank you for your tips so far.
The existing house will now be transferred to my wife as a gift.
The parents-in-law will have lifetime residential rights in the new house and will live there rent-free.
That is the plan for now. They are aware that by doing this, they are giving up their security.
We don’t have the plot yet but are currently searching thoroughly.
The existing house will now be transferred to my wife as a gift.
The parents-in-law will have lifetime residential rights in the new house and will live there rent-free.
That is the plan for now. They are aware that by doing this, they are giving up their security.
We don’t have the plot yet but are currently searching thoroughly.
The exemption for gifts from parents to children is currently €400,000; the house value exceeds this amount. You should consider gifting part of it now (namely the €400,000) and then the remainder in 10 years. This way, you can avoid the tax (which applies to the remainder and is as high as 25%).
Additionally, the parents-in-law will still retain some ownership.
Additionally, the parents-in-law will still retain some ownership.
S
Sunshine38710 Oct 2022 18:34And regarding the right of residence: that is quite good, but a usufruct right is much more secure and comprehensive.
S
SaniererNRW12310 Oct 2022 19:03Sunshine387 schrieb:
Regarding the topic of residential rights. While it is quite useful, a usufruct right is much more secure and comprehensive.However, for a bank, this is likely no longer financeable. At least when such a right is registered as a priority—if it is subordinate, it has no value for the beneficiary... Such a right is a double-edged sword.