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
Buying land and building a house in the current situation too risky?
My assessment:
You both have excellent incomes and a relatively good amount of equity (very good equity would mean already owning the land). With your income, any project can be realized if you adjust the loan term accordingly.
The only thing I would find concerning in your position is the very high monthly payment over such a long loan term.
If I were you, I would skip the basement and build smaller. With an efficient floor plan, you can fit two children’s bedrooms even in 140 sqm (1,507 sq ft).
For example, we preferred 1) to have the house fully paid off by age 50 and 2) a monthly payment we could manage even if one of us lost their job. We achieved this goal simply by building smaller.
Of course, this always depends on your priorities.
Since retirement planning is also important to you: The best retirement plan is to live as soon as possible without any monthly housing payments.
We do live in very turbulent and crisis-prone times right now, and your question invites a look into a crystal ball.
If I look into the crystal ball, I would predict that politically there will be a clear shift away from single-family houses.
The motto of the future will be densification and less living space per person. If you want a house: now or never.
My assessment:
You both have excellent incomes and a relatively good amount of equity (very good equity would mean already owning the land). With your income, any project can be realized if you adjust the loan term accordingly.
The only thing I would find concerning in your position is the very high monthly payment over such a long loan term.
If I were you, I would skip the basement and build smaller. With an efficient floor plan, you can fit two children’s bedrooms even in 140 sqm (1,507 sq ft).
For example, we preferred 1) to have the house fully paid off by age 50 and 2) a monthly payment we could manage even if one of us lost their job. We achieved this goal simply by building smaller.
Of course, this always depends on your priorities.
Since retirement planning is also important to you: The best retirement plan is to live as soon as possible without any monthly housing payments.
We do live in very turbulent and crisis-prone times right now, and your question invites a look into a crystal ball.
If I look into the crystal ball, I would predict that politically there will be a clear shift away from single-family houses.
The motto of the future will be densification and less living space per person. If you want a house: now or never.
We’ll all be surprised when the cost balancing comes into play (-: and with the Greens in power, it will only get more difficult to build single-family homes… it just doesn’t fit with their plans. We live as two people in 190m² (2,045 sq ft); if they knew that, they’d be shocked… I can imagine two scenarios: a) building with good conditions will never be possible again, so it was better to go through with it now; b) everything goes downhill, and soon there will be many about 10-year-old nice houses on the market.
Which one will happen: who knows.
That’s why, if it’s your dream, there’s really no good or bad time. Just get started.
Which one will happen: who knows.
That’s why, if it’s your dream, there’s really no good or bad time. Just get started.
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Pinkiponk26 Jun 2022 14:41Snowy36 schrieb:
... b) everything is going downhill here, soon there will be many nice houses about 10 years old on the market That is assuming there are reasonable alternative apartments available for the former homeowners. I believe that forced evictions leading to homelessness are very difficult, even for the banks holding the mortgages, and I think I have already read court rulings confirming this.
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WilderSueden26 Jun 2022 15:12Those who built their homes 10 years ago are relatively unaffected. They financed at significantly lower costs with similar interest rates to those currently available, and house prices have increased substantially since then. Even with a discount and a certain rise in interest rates, this will hardly unsettle most of them. Those who were smart have already locked in a forward contract by January or February of this year at the latest.
Of course, if you lose your job and become unemployed for years, the interest rate won’t help you anymore. But otherwise, I don’t see a major drop in value for newer houses at the moment. I expect that more with grandmother’s house from 1970, which requires extensive renovations.
Of course, if you lose your job and become unemployed for years, the interest rate won’t help you anymore. But otherwise, I don’t see a major drop in value for newer houses at the moment. I expect that more with grandmother’s house from 1970, which requires extensive renovations.
H
HilfeHilfe27 Jun 2022 05:56It's good that you question everything critically. You have excellent equity and income. I would realistically calculate assuming 1-2 children are added. What will your income be then, and what additional costs will you have? Children are fun but also come with quite a few expenses 🙂