ᐅ Is Buying Land and Building a House Too Risky in the Current Situation?
Created on: 24 Jun 2022 10:14
J
Julchen7393
Hello everyone,
After quietly reading along for a long time, I finally want to reach out to you with my first post to ask for advice.
My partner and I currently live in an end-terrace house (end townhouse) that we rent cheaply from my boyfriend’s parents – who inherited the house themselves. Since the size of the house is not sufficient for our long-term plans and a lot of money would be needed for renovations, we have been looking for a plot of land to build our own home for some time.
Now, a building plot in a new development area of our municipality has been returned, and we are eligible to apply for it. Because the plot is provided by the municipality, it is significantly cheaper (€420 per m² (approx. $440 per sq yd)) than the market price (€600–1000 per m² (approx. $630–1050 per sq yd)). All other plots are already developed or have building permits/planning permission applied for, so it’s unlikely that any more plots will become available.
Although the plot is probably a unique opportunity, we are very uncertain about the feasibility under the current circumstances and would appreciate your assessment.
General information about us:
Female, 29 (Controlling) and Male, 30 (Engineer)
No children yet, but we plan to have two children within the next 4-6 years (which is why we want more living space)
Financial situation:
Net income: €7000 (approx. $7400)
Current expenses: €3400 (approx. $3600)
Surplus: €3600 (approx. $3800)
Equity: €250,000 (approx. $265,000) – of this, we plan to put €200,000 (approx. $212,000) into financing; part of the remaining €50,000 (approx. $53,000) is tied up in retirement savings and should remain there
Construction costs:
Plot: 621 m² (6679 sq ft) at €420 per m² (approx. $440 per sq yd): €260,820 (approx. $277,000)
Additional purchase costs: €18,257 (approx. $19,400)
House construction: 150 m² (1615 sq ft) at €2600 per m² (approx. $270 per sq ft): €400,000 (approx. $425,000)
(We have an appointment with a construction company next week to see if this is feasible with significant DIY work)
Basement: €40,000 (approx. $42,500)
Garage: €25,000 (approx. $26,500)
Kitchen: €25,000 (approx. $26,500)
Outdoor facilities: €30,000 (approx. $32,000)
Total costs: €800,000 (approx. $850,000)
Financing requirement:
€800,000 - €200,000 = €600,000 (approx. $425,000 - $212,000 = $638,000)
The bank would approve a loan with our desired monthly payment of €2,500 (approx. $2650), but depending on interest rate changes, the repayment period without early repayments would be between 30 and 35 years.
We are particularly worried that our estimated construction costs are too low and that significant price increases may follow.
Also, the long loan term concerns us – given the planned children, we find it difficult to consider a higher monthly payment, especially since we both earn roughly the same and will face significant income reductions due to parental leave benefits.
For days now, we have been torn between “taking this once-in-a-lifetime chance to get an affordable building plot in town” and “the financial risk is too high in the current situation.”
We would be grateful for your thoughts on our plan and the expected construction costs.
Best regards,
Julia
After quietly reading along for a long time, I finally want to reach out to you with my first post to ask for advice.
My partner and I currently live in an end-terrace house (end townhouse) that we rent cheaply from my boyfriend’s parents – who inherited the house themselves. Since the size of the house is not sufficient for our long-term plans and a lot of money would be needed for renovations, we have been looking for a plot of land to build our own home for some time.
Now, a building plot in a new development area of our municipality has been returned, and we are eligible to apply for it. Because the plot is provided by the municipality, it is significantly cheaper (€420 per m² (approx. $440 per sq yd)) than the market price (€600–1000 per m² (approx. $630–1050 per sq yd)). All other plots are already developed or have building permits/planning permission applied for, so it’s unlikely that any more plots will become available.
Although the plot is probably a unique opportunity, we are very uncertain about the feasibility under the current circumstances and would appreciate your assessment.
General information about us:
Female, 29 (Controlling) and Male, 30 (Engineer)
No children yet, but we plan to have two children within the next 4-6 years (which is why we want more living space)
Financial situation:
Net income: €7000 (approx. $7400)
- Female: €3400 (approx. $3600) and Male: €3600 (approx. $3800) – both full-time 40 hours per week (with additional variable bonuses not yet factored in)
Current expenses: €3400 (approx. $3600)
- Fixed costs: €2200 (approx. $2350)
- €600 rent, €350 utilities incl. heating, internet, and electricity, €500 car expenses incl. insurance, €400 retirement savings, €350 other fixed costs (insurance, streaming services, etc.)
- Variable costs: €1200 (approx. $1265) – budgeted quite generously; we usually spend significantly less
- Living costs, vacations, leisure activities
Surplus: €3600 (approx. $3800)
Equity: €250,000 (approx. $265,000) – of this, we plan to put €200,000 (approx. $212,000) into financing; part of the remaining €50,000 (approx. $53,000) is tied up in retirement savings and should remain there
Construction costs:
Plot: 621 m² (6679 sq ft) at €420 per m² (approx. $440 per sq yd): €260,820 (approx. $277,000)
Additional purchase costs: €18,257 (approx. $19,400)
House construction: 150 m² (1615 sq ft) at €2600 per m² (approx. $270 per sq ft): €400,000 (approx. $425,000)
(We have an appointment with a construction company next week to see if this is feasible with significant DIY work)
Basement: €40,000 (approx. $42,500)
Garage: €25,000 (approx. $26,500)
Kitchen: €25,000 (approx. $26,500)
Outdoor facilities: €30,000 (approx. $32,000)
Total costs: €800,000 (approx. $850,000)
Financing requirement:
€800,000 - €200,000 = €600,000 (approx. $425,000 - $212,000 = $638,000)
The bank would approve a loan with our desired monthly payment of €2,500 (approx. $2650), but depending on interest rate changes, the repayment period without early repayments would be between 30 and 35 years.
We are particularly worried that our estimated construction costs are too low and that significant price increases may follow.
Also, the long loan term concerns us – given the planned children, we find it difficult to consider a higher monthly payment, especially since we both earn roughly the same and will face significant income reductions due to parental leave benefits.
For days now, we have been torn between “taking this once-in-a-lifetime chance to get an affordable building plot in town” and “the financial risk is too high in the current situation.”
We would be grateful for your thoughts on our plan and the expected construction costs.
Best regards,
Julia
B
Baufuchs200030 Jun 2022 12:45You think the 7 percent figure is nonsense. That’s your opinion. I just have a different one.
When I predicted 4 percent back then, I received exactly the same foolish comments. Well, reality has caught up with all of you, and it will catch up again.
Angry comments won’t help either.
When I predicted 4 percent back then, I received exactly the same foolish comments. Well, reality has caught up with all of you, and it will catch up again.
Angry comments won’t help either.
N
Neubau202230 Jun 2022 13:01Julchen7393 schrieb:
Hello everyone,
Thanks for the many responses. We were away for the weekend, so I couldn’t reply to all, but I wanted to give an update after our meeting with the construction company.
Today, we had a very detailed discussion and received a rough cost estimate based on our plans.
For 150 m² (1,615 sq ft) of living space over two full floors plus an attic, a turnkey house would cost around €450,000, excluding the photovoltaic system and garage, which we would have to pay for separately and probably postpone by a few years. The builder sees potential savings of about €20,000 through self-performed work, but recommended not to count on this too much, as additional custom features usually offset these savings.
A basement would cost around €80,000 (which matches well with the cost estimates we received here) and is therefore not affordable for us.
In total, including the land (€260,000), ancillary purchase costs (€20,000), and turnkey construction costs (€450,000), we would be looking at about €730,000, leaving approximately €70,000 as a buffer for the exterior landscaping, driveway/parking space, furnishings, and incidental expenses such as construction electricity, building permits/planning permission, etc.
If we decide to forgo the basement and postpone the photovoltaic system and garage for a few years, this project should be achievable for us.
Now we just have to decide if we are
a) willing to make these compromises, even though we would be committing to a payment of about €2,500 per month for the next 30-35 years (which, as some have pointed out here, would likely force us to return to full-time work right after parental leave and place the children in daycare), and
b) willing to take the risk that interest rates might increase significantly again before the loan agreement is finalized (which may take some time, as the house planning needs to be well considered), potentially requiring us to finance over an even longer term.
Best regards,
Julia €450,000 turnkey does not include ancillary construction costs? I would estimate roughly another €50,000 for these. These include, among others:
- Construction access road
- Insurance
- External construction supervision
- Possibly earthworks
- Construction electricity, water, and sewage
- Utility connections
etc.
D
danielohondo1 Jul 2022 19:04Baufuchs2000 schrieb:
You say that the 7 percent is nonsense. That’s your opinion. I have a different one.
When I predicted the 4 percent back then, I received the same silly comments. Well, reality has caught up with you all, and it will catch up again.
Angry comments won’t help either. The predicted 4% still hasn’t happened. So, which universe are we supposed to be in where that’s the case?
The FED is already slowing down because inflation in the USA is already coming down, and the ECB can’t raise rates that much because of the Southern European countries.
At the moment, German government bonds are being sold and Southern European bonds are being bought by the ECB, but even this hasn’t pushed mortgage rates up to 4%. Currently, yields on German federal bonds are even declining.
B
BackSteinGotik1 Jul 2022 19:50danielohondo schrieb:
The FED is already slowing down because inflation is decreasing in the USA, and the ECB can’t raise rates much due to Southern European countries.
Currently, the ECB is selling German government bonds and buying Southern European ones, but even this has not pushed construction loan interest rates up to 4%. Right now, the yield on German federal bonds is even going down. I’m not sure I would insist that inflation is clearly going down anywhere. It’s also unclear to me where exactly the FED is supposed to be slowing.
What is certain, however, is that the economy is currently declining. A recession is coming, along with easing inflation. That’s why bonds are being purchased and yields are falling. Ignoring the doomsayers — "winter is coming." We will know more after that.
What we already know is that the global real estate boom cycle is ending. Reports on this come from AU, CN, US, GB, and many countries in the EU.