ᐅ Living in and Renting Out a Detached House: Request for Opinions and Experiences

Hello,
I’m new here, so first a brief introduction about myself/our family. I’m 36, married, with two small children. So far, we have rented various types of housing across the country. Currently, we live in a semi-detached house as first occupants. We are planning to move to Bavaria next year and finally want to move into our own house. Due to the “interesting” current prices for existing properties, a new build is currently the most likely option for us (even though we would only move in during 2023). We have become accustomed to a modern standard, and I’m (still) not the type to renovate. Also, I cannot estimate the costs for that due to lack of experience and contacts.

Now I have the opportunity to purchase a plot of land. This was offered to me by phone through a timber-frame house provider. I’m still an absolute beginner when it comes to the different cost structures, so at the moment I can only work with rough estimates.
The following framework conditions apply:

Plot: 900m² (possibly extendable), price around 460,000€ (according to the real estate agent)
This leads to several options for me:
1. Single-family house
In prefabricated construction, about 330,000€ according to the provider, I’m simply estimating 400,000€ (exact offer still to be prepared)
+ risk surcharge of another 50,000€
Total investment: 910,000€

2. Semi-detached house
I estimate 2 x 350,000€
+ risk 150,000€
Total investment: 1,300,000€

Now to the financial situation:
Net income: 5,000€ (one income, excluding child benefits), my wife plans to work again after the move, but we do not want to include her salary in the financing.
Equity: 260,000€ (max. 300,000€) in more or less liquid assets. The extra 40,000€ is actually saved for my two boys (for a world trip in 18 years 🙂

Our target monthly payment is about 1,800€. This rules out many offers in the desired region if we want to be done before retirement. Even option 1 with a single-family house will probably push the payment above that.

Now to my thought experiment with the semi-detached house, for which I would like to get your opinions.
I’m trying to finance the remaining 1,050,000€ with a monthly payment of about 3,000€. The local rent index is 8.80€/m² (8.80 €/ft²), so for 120m² that’s roughly 1,000€ cold rent. Because it would be a first occupation, 1,200€ is probably realistic (but I deduct two months’ rent for maintenance and vacancy, so back to an average of 1,000€). The building plot is a 30-minute drive to Munich Airport, the nearest large city is 15 minutes away. However, the location is very rural.
With the rental income, I could almost reach my actual goal: a new house in a reasonable location. The market does not offer that at the moment.
Specifications, offers, etc. will be clarified in the coming weeks. Talks with lenders have gone smoothly up to 800,000€. Next week I’ll ask about a million. To be honest, my interest in the rented semi-detached house is not a minimum return of x%, but rather the potential possibility to move into the desired own house. It would be a great “side effect” if each boy could end up with one half.

Am I a genius or a complete fool?

Do you have any valuable advice for me, perhaps your own experiences, tips, warnings? I am very grateful for any input.

Regards,
MatjesImSemmel

Well, considering that additional purchase-related costs will be added to the land price, and the house itself appears to be only a catalog price excluding the foundation slab and various extras as well as painting and flooring, plus the additional construction costs and landscaping for the outdoor area, and that your equity might be partially reduced by kitchen, furniture, and other expenses, and there is still no carport in place, your rough estimate seems somewhat low and flawed.

Not to mention the taxation on rental income.

For a net income of 5000 with a family, you should still be able to manage a mortgage payment comfortably.

Financial advisors tend to focus on the positive aspects first.

I haven’t seen your semi-detached house, and whether you are smart or not... I would rather say naive. And ignorance is no shame.
However, you need to recognize your own threshold—or better said—your financial limits.

Welcome to the forum.

MatjesImSemmel schrieb:

This was announced to me by phone from a detached house provider.

That immediately sets off alarm bells in my mind about a tied sale. So, already calculate the additional purchase costs on the full amount, not just the land.

How much is the woman expected to earn again? I find 1 million in debt very unhealthy compared to the income, even with rental income.

Regarding the rental property: you need to make it not only turnkey but also ready to move in. That costs over 450,000€ (about 490,000 USD) in total. The rental income simply does not justify that. Sorry, but I don’t see that working out.

MatjesImSemmel schrieb:

This was announced to me by phone from a single-family house provider.

This very likely constitutes a bundled transaction, meaning you will have to pay property transfer tax on both the house and the land.

ONE house:
House price 330,000€
Foundation slab 25,000€
Additional construction costs 50,000€
Floor coverings/painting in the living area 20,000€
Upgrades to the house according to the construction specification 25,000€
Outdoor facilities 20,000€
Carport plus storage room 10,000€
Total: 480,000€ plus kitchen and lighting

For a semi-detached house, multiply everything by 2 (possibly 10,000 to 20,000€ less for additional construction costs)

I’m not assuming you want to build only 100 sqm (1,076 sq ft). If I base it on 160 sqm (1,722 sq ft), then the price per sqm (sq ft) is about €2,200, which is definitely not enough in Bavaria. Except maybe in the Hof area.

I interpret the keyword "real estate agent" here to mean that in this case, not only does the plot of land actually exist, but the seller is also aware of the offer or has even commissioned it—so I don’t need to point out the posts where you can find information using the search term "11ant off-plan sale." Nevertheless, I don’t want to sound too reassuring right away: offering large plots of land to people whose creditworthiness would allow the business opportunity (and then immediately planting the idea of building wealth or retirement savings as small-scale residential developers) is indeed a clever idea—but in my opinion, not for the person who is supposed to act as the builder. In that respect, I strongly support the suggestion made in the question

MatjesImSemmel schrieb:

Am I a genius or a complete idiot?

that you might want to consider carefully that your business partners could at least think the latter of you 🙂

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