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
Pinkiponk schrieb:
To be honest, your predictions and so on are a bit scary for me personally.That’s probably why it’s already in the past again 😎 … No one intends to frighten you!B
Benutzer 10012 Jul 2022 00:05Snowy36 schrieb:
In my entire life, the Sparkasse has never emailed me saying they expect rising interest rates to continue and that I should consider a home savings contract... Sparkasse Munich! Are they conspiracy theorists now?! Well, the Sparkasse has always tried to sell home savings contracts :-)
And to terminate the old ones using prohibited methods.
D
danielohondo2 Jul 2022 08:52BackSteinGotik schrieb:
I’m not sure if I would insist anywhere that inflation will clearly drop. It’s also not entirely clear to me where the FED is supposed to apply the brakes.
What is certain, though, is that the economy is currently slowing down. A recession is coming, and with it inflation will ease. That’s why bonds are being bought and their yields are falling. Putting aside the doomsayers—“winter is coming.” After that, we’ll know more.
What we already know is that the property boom phase of the real estate cycle is ending worldwide. Reports come from AU, CN, US, GB, and many EU countries. That was more focused on the USA, and yes, a recession is looming both there and here in Europe.
It is widely expected that the FED will have to start cutting interest rates again as early as spring.
B
BackSteinGotik2 Jul 2022 09:35danielohondo schrieb:
It is widely expected that the Federal Reserve will have to lower interest rates again in the spring."One" probably refers to some money blogs and mega traders who still want to offload their losses by clinging to hope? Bullwhip Twitter? Sounds like quite alternative facts.
Powell has clearly stated that the priority is to bring down inflation, even at the cost of a recession.
C
Chrisddorf16 Jul 2022 07:05Hi,
we’re in a similar situation (searched for a long time, bought the plot at the end of 2021, have done a lot of planning and tendering with an architect so far, both high earners, mid-30s, solid equity, and an 8-month-old son, …) and maybe our experiences can help you. Sorry in advance for the long message.
First of all: if I were you, I would start sooner rather than later. Ultimately, the house seems to be part of your lifestyle (home, place of comfort) with your family, just like it is for us. If you wait longer, you lose some of that time.
Also, inflation is not only working against you but can also work in your favor. A currently high mortgage payment will take up significantly less of your monthly net income after a few years of salary increases. Overall, I can only advise you to engage deeply in the planning process; otherwise, you might not be able to realize many things you actually want during construction due to cost.
A few insights on planning/costs:
- Plan for minimal DIY work. We cleared out and gutted a property; compared to the actual construction, that was easy, yet still a lot of effort to save some money. With a child, it’s no longer that simple, and you actually want to spend your time outside of work with your child (which is a lot of fun!). Building planning already takes up a considerable part of our weekends.
- Definitely don’t forget additional construction-related costs (often called “building permits / planning permissions” fees, connection fees, inspections, etc.) and run through everything you might have to pay – these costs can be significant.
- Instead of calculating roughly based on 2,600 euros per square meter or a general quote from the contractor, it’s better to write down your expectations for each trade and get separate estimates. Especially for trades that are difficult to estimate roughly because they strongly depend on individual preferences. We currently get cost estimates quite quickly and unfortunately see big differences in some trades compared to rough calculations (especially technical equipment like heating, electrical, ventilation, etc.) – you should get your expectations priced out accordingly, as well as windows and flooring. For some other trades, rough estimates are more acceptable. We learned that “high standard” is interpreted very individually, so better define it clearly in advance to avoid unpleasant surprises later.
- Consider how to proceed in a modular way in case construction costs turn out much higher than planned (finishing later parts like garage, garden, attic/basement conversion, or different floor quality on upper floor/attic/children’s rooms…); this creates flexibility and room for adjustment. Important: don’t leave all modular parts out beforehand.
- Financing: we only finalized financing after getting the building permit. Since we’re building in an area without a zoning plan, I would do it the same way again. Otherwise, the loan agreement might become invalid and costly to reverse. With a zoning plan, you can probably be more relaxed. Definitely go personally to the building authority with your plans before signing the loan agreement. This does not guarantee anything but gives direction.
- We had good experiences with savings banks (similar to community banks) in structurally weaker areas. They offered a very fair interest rate because they less frequently have loans of this size (yes, I negotiated with all common mortgage brokers and also directly contacted several banks).
- Handyman and contractor availability is currently very limited; it’s difficult to find free capacity. However, it will improve soon for many trades (especially those dependent on new construction). I work a lot in the chemical industry with building materials as a key customer segment. Order intake is dropping significantly among customers – this will impact availability for construction trades considerably; so it’s worth looking for a forward-looking craftsman or builder.
- Many people advise against having a basement, which is probably financially sound advice. We both grew up with basements, have clear ideas about how to use it, and don’t want to miss it in family life. So consider what a basement means for you.
Hope this helps a bit.
we’re in a similar situation (searched for a long time, bought the plot at the end of 2021, have done a lot of planning and tendering with an architect so far, both high earners, mid-30s, solid equity, and an 8-month-old son, …) and maybe our experiences can help you. Sorry in advance for the long message.
First of all: if I were you, I would start sooner rather than later. Ultimately, the house seems to be part of your lifestyle (home, place of comfort) with your family, just like it is for us. If you wait longer, you lose some of that time.
Also, inflation is not only working against you but can also work in your favor. A currently high mortgage payment will take up significantly less of your monthly net income after a few years of salary increases. Overall, I can only advise you to engage deeply in the planning process; otherwise, you might not be able to realize many things you actually want during construction due to cost.
A few insights on planning/costs:
- Plan for minimal DIY work. We cleared out and gutted a property; compared to the actual construction, that was easy, yet still a lot of effort to save some money. With a child, it’s no longer that simple, and you actually want to spend your time outside of work with your child (which is a lot of fun!). Building planning already takes up a considerable part of our weekends.
- Definitely don’t forget additional construction-related costs (often called “building permits / planning permissions” fees, connection fees, inspections, etc.) and run through everything you might have to pay – these costs can be significant.
- Instead of calculating roughly based on 2,600 euros per square meter or a general quote from the contractor, it’s better to write down your expectations for each trade and get separate estimates. Especially for trades that are difficult to estimate roughly because they strongly depend on individual preferences. We currently get cost estimates quite quickly and unfortunately see big differences in some trades compared to rough calculations (especially technical equipment like heating, electrical, ventilation, etc.) – you should get your expectations priced out accordingly, as well as windows and flooring. For some other trades, rough estimates are more acceptable. We learned that “high standard” is interpreted very individually, so better define it clearly in advance to avoid unpleasant surprises later.
- Consider how to proceed in a modular way in case construction costs turn out much higher than planned (finishing later parts like garage, garden, attic/basement conversion, or different floor quality on upper floor/attic/children’s rooms…); this creates flexibility and room for adjustment. Important: don’t leave all modular parts out beforehand.
- Financing: we only finalized financing after getting the building permit. Since we’re building in an area without a zoning plan, I would do it the same way again. Otherwise, the loan agreement might become invalid and costly to reverse. With a zoning plan, you can probably be more relaxed. Definitely go personally to the building authority with your plans before signing the loan agreement. This does not guarantee anything but gives direction.
- We had good experiences with savings banks (similar to community banks) in structurally weaker areas. They offered a very fair interest rate because they less frequently have loans of this size (yes, I negotiated with all common mortgage brokers and also directly contacted several banks).
- Handyman and contractor availability is currently very limited; it’s difficult to find free capacity. However, it will improve soon for many trades (especially those dependent on new construction). I work a lot in the chemical industry with building materials as a key customer segment. Order intake is dropping significantly among customers – this will impact availability for construction trades considerably; so it’s worth looking for a forward-looking craftsman or builder.
- Many people advise against having a basement, which is probably financially sound advice. We both grew up with basements, have clear ideas about how to use it, and don’t want to miss it in family life. So consider what a basement means for you.
Hope this helps a bit.
Similar topics