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
Hello,
With the current income (both working), everything is quite relaxed.
Regarding the costs, I can imagine that it might be a bit higher.
At a price of 2600€/sqm (about 243 USD/sqft), a considerable amount of personal labor must be involved.
A basement for 40,000€ (about 43,000 USD)? In 2019, I received an offer for 76,000€ (about 82,000 USD) (ok, waterproof shell, with underfloor heating, etc., 90sqm (970 sqft)).
How about additional construction costs? Just the groundwork in 2020 cost us 25,000€ (about 27,000 USD) (and that was without a basement!).
I can only recommend planning carefully here and possibly obtaining quotes now to see if they are close to the plan or if there are significant deviations (some homeowners experienced up to 100% differences on certain items compared to the original estimates during building).
With the current income (both working), everything is quite relaxed.
Regarding the costs, I can imagine that it might be a bit higher.
At a price of 2600€/sqm (about 243 USD/sqft), a considerable amount of personal labor must be involved.
A basement for 40,000€ (about 43,000 USD)? In 2019, I received an offer for 76,000€ (about 82,000 USD) (ok, waterproof shell, with underfloor heating, etc., 90sqm (970 sqft)).
How about additional construction costs? Just the groundwork in 2020 cost us 25,000€ (about 27,000 USD) (and that was without a basement!).
I can only recommend planning carefully here and possibly obtaining quotes now to see if they are close to the plan or if there are significant deviations (some homeowners experienced up to 100% differences on certain items compared to the original estimates during building).
Omitting the basement if in doubt. Keep in mind that with €3600 plus bonuses until the start of construction (assumed 2 years), you could save an additional €86,000. These funds can be used to cover risks or immediately afterwards for extra mortgage payments. Especially at the beginning, they have a very significant impact.
Yes, without going into financing, the cost estimate seems a bit too conservative to me. Where the price per square meter on the market ranges between 600 and 1000 EUR, construction costs tend to be higher as well. Therefore, I would rather calculate with 3000 per square meter.
I also hardly ever believe in basements. Of course, depending on the finish level, but even a basic utility basement is usually about twice that cost. This excludes any special features.
Additional construction costs? I didn’t see those accounted for at all. I would estimate around 10%. Especially with a basement (earthworks and disposal were already mentioned).
A garage is fine, but we have also had carports here that cost more.
More information would be needed, but at first glance, the calculation needs to be revised, and then the budget will be tight.
I also hardly ever believe in basements. Of course, depending on the finish level, but even a basic utility basement is usually about twice that cost. This excludes any special features.
Additional construction costs? I didn’t see those accounted for at all. I would estimate around 10%. Especially with a basement (earthworks and disposal were already mentioned).
A garage is fine, but we have also had carports here that cost more.
More information would be needed, but at first glance, the calculation needs to be revised, and then the budget will be tight.
H
hauskauf198724 Jun 2022 13:11Good income, very strong equity
I would do it
I would do it
P
Pinkiponk24 Jun 2022 14:03Julchen7393 schrieb:
Although the building plot is probably a unique opportunity, the feasibility in the current situation makes us very uncertain, and we would appreciate your assessment.Julchen7393 schrieb:
We have been wavering for days between "seizing the unique chance for an affordable building plot in town" ...I agree with the previous commenters and, in your position, I would take the opportunity and buy the land first. If construction costs do not significantly decrease before the building obligation kicks in, you could still save on certain things (like a basement?). And even if, in the worst case, you later decide to give the plot back, the financial loss from returning it—considering your financial situation—(this is my very subjective opinion) would still be more bearable than regretting missing out on this chance, especially when your two children arrive.*Welcome to the forum, 🙂 please keep us updated.
*Edit: I’m saying this also because you currently live in a terraced house, not an apartment, and without children. Once you have children, you will want a larger home.
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