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
Climbee schrieb:
They are giving up all guarantees – are they aware of that? I have already pointed that out.
ypg schrieb:
The problem I see is that parents-in-law are expected or willing to simply give their retirement savings/assets to their children, just like that, judging by what I read. The “we” here doesn’t hold much weight since it concerns you as the builders. Or maybe you already have other arrangements in mind… but that would all have financial (tax) implications. I think this idea is very naive—to just give away their assets.
Not only would they be left without reserves for potential care costs (we’re not talking about €200 for crutches, but about €3000/month for care), but the authorities could later charge you heavily if they become asset-less and can no longer pay for their care.
AJAM_2022 schrieb:
The parents-in-law receive a lifetime right of residence in the new house and live there rent-free. Hmm. And what if a) they can no longer stay there due to illness? Then you’re back to the previous issue.
And then there are scenarios b) if you separate… the house is practically unsellable because their parents still live there…
…or what if c) one of you dies, for example her: eventually you have a new partner, and the parents feel very uncomfortable because all they have left is the right of residence, which wears on them.
These are not worst-case scenarios; I have experienced all of this, my parents knew an 80-year-old senior who was practically bullied by his new partner, and there are several here in the forum who know how quickly people can grow apart or form new relationships.
But well, everyone has to decide for themselves. You asked. I wouldn’t agree to such a deal as a parent unless there are conditions we don’t know about here.
N
neo-sciliar11 Oct 2022 14:45Sorry, but your plan doesn’t make much sense:
- The parents-in-law are giving up the security of living in their familiar environment for the rest of their lives.
- You will pay (680k-400k)*25% = 70k in taxes to the government.
- As of now, you don’t even have a plot of land.
Where do you intend to build? Honestly, with your current available monthly net income of 9k, build without a separate apartment. Save your money; you can finance it on your own. And when the parents eventually pass away, you can sell their house and use the proceeds to pay off your loan after the fixed interest period expires (maximum 10 years).
- The parents-in-law are giving up the security of living in their familiar environment for the rest of their lives.
- You will pay (680k-400k)*25% = 70k in taxes to the government.
- As of now, you don’t even have a plot of land.
Where do you intend to build? Honestly, with your current available monthly net income of 9k, build without a separate apartment. Save your money; you can finance it on your own. And when the parents eventually pass away, you can sell their house and use the proceeds to pay off your loan after the fixed interest period expires (maximum 10 years).
X
xMisterDx11 Oct 2022 15:26Building a house is one of the most common reasons for divorce. All the stress, extra work, financial worries, delays, uncertainty about when things will move forward, and so on.
On top of that, the current crises...
Even if my in-laws offered me something like that, I would stay away from it. Mainly because I would always feel morally obligated.
“You want to leave? But WE gave YOU so much money 10 years ago…”
On top of that, the current crises...
Even if my in-laws offered me something like that, I would stay away from it. Mainly because I would always feel morally obligated.
“You want to leave? But WE gave YOU so much money 10 years ago…”
M
Myrna_Loy11 Oct 2022 16:17I also wonder why, with that income, one can’t manage on their own and feels the need to take such risks.
J
JoachimG.11 Oct 2022 17:14Given your income situation, from my own experience, I wouldn’t worry too much about the equity situation. Any rights of residence or similar encumbrances on your new house, in my opinion, cause more problems with the bank.
I would
A) first clarify with a tax advisor how to optimize the inheritance tax-wise.
B) generally keep the assets more “separate.” If the parents-in-law want to move into the new house, they can keep their old property, rent it out, and pay you rent for the basement or granny flat. This improves your income situation for the bank without placing any burden on the house.
C) also currently, regardless of income level, avoid building a new house. We decided against it as well and are now renovating an existing property instead. It’s not free either, but significantly cheaper if you keep your eyes open – additionally, the used house market in our area is already consolidating noticeably, with prices dropping around 150,000 in 4 weeks...
I would
A) first clarify with a tax advisor how to optimize the inheritance tax-wise.
B) generally keep the assets more “separate.” If the parents-in-law want to move into the new house, they can keep their old property, rent it out, and pay you rent for the basement or granny flat. This improves your income situation for the bank without placing any burden on the house.
C) also currently, regardless of income level, avoid building a new house. We decided against it as well and are now renovating an existing property instead. It’s not free either, but significantly cheaper if you keep your eyes open – additionally, the used house market in our area is already consolidating noticeably, with prices dropping around 150,000 in 4 weeks...
X
xMisterDx11 Oct 2022 18:08Existing buildings are currently inexpensive mainly because they often still have oil heating and therefore require extensive renovation.
I would also not buy a house with an energy demand of 200 or 250 kWh/m²/a right now, even with a 25% discount...
I would also not buy a house with an energy demand of 200 or 250 kWh/m²/a right now, even with a 25% discount...
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