ᐅ Our Home Construction Planning – Realistic or Just a Dream?

Hello everyone,

we’ve finally registered here, even though we have only just started planning...

A little about us:

We’re a young couple, 28 and 30 years old, unmarried, without children.

Our dream has always been to someday own our own house. By chance, we recently came across our dream home and haven’t been able to think about much else for weeks. We even visit "it" regularly :-) Every day we’re searching online to gather as much information as possible, and now we’re planning to schedule an appointment at a bank just to get some info.

We found a stone-built house with 350 sqm (plus garages, an old barn with about 70 sqm possibly for conversion, and a basement) on a 1400 sqm plot. One 70 sqm apartment is currently rented out, and we plan to build another one of about 110 sqm to rent to my parents. Deducting common areas (hallways, staircases, etc.), about 150 sqm would remain for us to live in. For now, it’s just the two of us, but we plan to have two children in the coming years. The space fits well for that :-)

We’ve estimated the total costs for all renovation work and upgrades at around 350,000 €, of which about 200,000 € relate to the purchase price.

So far, I’ve only been able to calculate the loan amount online since we haven’t had a bank appointment yet, so I don’t really know if the calculation is realistic.

What do you think, based on your experience?

We currently earn a gross monthly income of 5,400 € (paid 13 times per year), which results in about 3,500 € net. Our current base rent is 700 €, plus 200 € for utilities, and we could “comfortably” afford to add another 300 €.

For the calculation, we would also factor in the rental income from the two apartments:
The 70 sqm apartment should bring in about 300 € base rent. Since you should set aside one-third, that leaves about 200 €.
The larger apartment for my parents could bring in approximately 400 € base rent, so I include about 260 € of that in the loan calculation. I’m not sure about the utility costs yet.

For the house, including our utilities, we therefore have roughly 1,660 € available.

Of course, I don’t know how high the utility costs for this house will actually be. Part of them (the tenants’ share) can naturally be passed on, while our own share and any costs that can’t be charged to tenants would be added on top.

From your experience, what should utility costs realistically be for a house like this? And roughly what portion of those costs can be passed on to tenants? Can one say something like: “Estimate X amount per sqm for utilities,” and “You can pass on about 90% of the utility costs for rented space to tenants”?

I’m quite worried that I might have to work with very different numbers from what we’re currently calculating.

At the moment, I estimate utility costs of about 400 € for us, with the tenant costs added on top accordingly.

That would leave about 1,260 € for the loan, roughly speaking.

There’s a great calculator on Immobilienscout, and it says:

Are such figures and especially the calculator’s results even reliable?

What are realistic, current interest rates?

I’m a bit afraid these are just optimistic figures that look different in reality. What experiences do you have with banks and effective annual interest rates? What do beginners often overlook?

Since we plan to renovate with accessibility and energy efficiency in mind, we might qualify for favorable loans from the KfW bank and possibly even grants. Has anyone had experience with this, and do banks count these as equity or include them as loans?

What collateral do you have to or should you provide to the bank to get the best possible loan terms? We have a fully paid savings contract worth 10,000 € (listed here as equity) that can be cashed out immediately, two others that are still running, and life, accident, and death insurance policies that currently have relatively low values (a few thousand euros) due to our young age. When paid out at retirement age, these would amount to nearly 100,000 €. We also have a guarantor with equity and a fully paid home, but that is only a last option.

What do you think of our plans in general? Is this feasible or just wishful thinking we should set aside?

One downside: fixed-term employment contracts. Although I’ve read that this is less important nowadays and might be better left unmentioned. Both of us are currently in our second fixed-term contracts, meaning each has been extended once. After 24 months of fixed-term contracts, the contract automatically becomes permanent. I would have a permanent contract in 12 months, and he in 8 months.

Should we just not mention this until asked, or does it even matter since we earn enough?

Any other tips you can give?

Oh dear, so many questions.

THANK YOU ALL FOR YOUR REPLIES!!! :-)

Best regards,
Betty

These example calculations for buying or building a house (like those on real estate websites) always look nice but are often far from reality.

If I were you, I would simply go to your trusted bank and explain the situation without getting too specific. That way, you can at least find out how realistic it is to take out a loan and for what amount with a fixed-term employment contract. Hiding the fixed-term contract doesn’t make sense, especially not in the case of any future disputes.

Basically, you should always plan for some leeway and also consider the "worst case" scenario in projects like this: what happens if you don’t have a tenant for one (or even both) of the apartments for a while. Can you survive such a dry spell? So don’t calculate the house financing too tightly. Unexpected expenses can always occur, whether it’s a suddenly broken heating system, water damage, or road maintenance where the municipality demands contribution.

Or, what if you have children and one partner can no longer work or has to take a break?

What would a house without an accessory apartment(s) cost in your area? The rent level doesn’t seem very high to me; you should consider whether the higher purchase price for a multi-family house is worth the increased risk for you.

marv45 schrieb:
These example calculations for buying or building a house (like on real estate platforms) always look nice but are often far from reality.

I suspected as much...

Basically, you should always allow some margin, or even consider the "worst case" scenario for such projects: what happens if you don’t have tenants for one (or even both) apartments for some time? Can you endure such a dry spell?

Thanks for the advice. We actually discussed this topic at the beginning but then completely lost sight of it. There is something called rent loss insurance. Depending on the coverage and insurance company, it costs between 5 and 15 euros per month. We would definitely insure it right away, since we would depend on it.

So, don’t budget the house financing too tightly. Unexpected expenses can always come up, whether it’s a suddenly broken heating system, water damage, or road renovations where the local authority demands a contribution. Or what happens if you have children and one partner can’t work or has to take a break?

That is something whose impact I don’t really grasp yet. Basically, the person who stays home gets 65% of their income. For us, it’s clear that we only want to have children when we earn at least the same as we do now, even with just 65% income—that means we would have to earn at least 35% more than currently. Still, this plan could go seriously wrong, and then we would have to see whether it’s still affordable, possibly with a side job or similar... A really important topic that we will definitely have to address more thoroughly.

We hope to have factored unexpected expenses into a contingency buffer. Since we plan to take care of the worst issues (heating, windows, doors, in 2 of the 3 units also electrical and water lines, and part of the roof—the rest was replaced only a few years ago), we hope to be protected from the worst at the start. The point about the local authority is really interesting and one we completely overlooked. A friend of ours had to come up with €20,000 for exactly such a case last year. Is that really possible? It’s outrageous that you have to plan for something like that... It’s almost impossible, isn’t it? But it’s definitely a topic to look into more closely :-)

What would a house without separate apartments cost in your area? It seems the rental prices are not very high; you should consider whether the higher purchase price for a multi-family house is worth the increased risk.

We live in North Rhine-Westphalia (NRW), and here houses based on the desired size range widely from 20,000 euros to 1,000,000 euros depending on location and condition. I couldn’t give an exact figure. Generally, for a detached house of 140–200 square meters with a basement, in a relatively good location, and a slightly larger lot (it doesn’t have to be 1300 square meters (14000 square feet) :-) ) with certain features, you are looking at approximately 250,000–300,000 euros. Poor condition is cheaper but would require an equivalent investment.

Basically, we believe that two- or multi-family houses are usually cheaper in our area. Since unfortunately my parents are not blessed with good health or wealth, it is important to me to provide them with accommodation somehow and so we are mainly looking for a house like the one we found.

It needs a lot of work, but that’s exactly what we were looking for. We don’t want a cookie-cutter house. We are aware that we will dedicate every free minute to the house in the coming years and will curse it more than once, but it will be worth it to us.

Regarding the calculation:

The following items have been included in our rough €150,000 renovation budget:

30 new windows (6-chamber system with triple seals, triple glazing with a Ug-value of 0.6, thermally broken edge bond, with roller shutters on the ground floor)
We deliberately included 5 extra windows and rounded up in case some modifications are necessary.
Material cost approx.: €15,000, installation by ourselves (we have relevant craftsmen among family and friends)
2 new entrance doors: €5,000
2 new staircases from ground floor to first floor: €15,000 (the previous pricing information is quite vague! The apartments of my parents and ours are basically next to each other on two floors, and both need a new staircase. Online quotes ranged from €2,000 to €8,000, so I calculated €7,500 per staircase)
New heating system including radiators (approximately 20 units), currently there is an oil boiler still functioning that might even be kept, but I’m including a new system, preferably pellet/oil combo. Price (I welcome any corrections since I don’t know installation prices and we don’t have a heating engineer yet)
Price: around €40,000 (?)
Complete renovation of the two “new” units, as one is currently a commercial area and the other an apartment. That means new walls, new doors, new wiring, new bathrooms, new kitchen connections, etc. (all done by ourselves, as we have painters, tilers, drywall and plumbing specialists, and electricians in the family)
Estimated price: €50,000

That adds up to roughly, and very roughly rounded: €125,000 with €25,000 as a contingency buffer.[/QUOTE]

What do you think about this initial calculation?
Are we underestimating here or is this a solid basis to work with?
What things are easily forgotten and only come to mind during construction or renovation?

Many thanks for your great help!
As you can see, we have many questions :-)

I admire a bit how ambitious you are, and having dreams is definitely important 🙂

Of course, I don’t want to always play the bad guy here... now comes the BUT... but even if the renovation with your own work—because you know people, etc.—goes as planned, the whole process will take some time. During this period, you will have no income, only expenses.
What you also need to consider is the property transfer tax, which in NRW has been 5% since 2011. So, with a purchase price of 200,000 euros, that’s another 10,000 euros gone right away.
Before you start the entire project, so before the purchase 😀, you should hire a building surveyor. I know from my own experience how easy it is to “view a house through rose-colored glasses.” The surveyor should assess your dream property not only in terms of its current condition but also provide an estimate for renovation costs. Of course, this is an additional expense, probably between 1,000 and 2,000 euros. But it’s better to spend this money than to make a “wrong” decision.

trueillusion schrieb:

We found a stone house with 350 sqm (approximately 3,767 sq ft) of living space (plus garages, an old barn of about 70 sqm (approximately 753 sq ft) potentially for conversion, and a basement) on a 1,400 sqm (approximately 15,070 sq ft) plot. One 70 sqm (approximately 753 sq ft) apartment is currently rented out, and we plan to build another one around 110 sqm (approximately 1,184 sq ft) to rent to my parents. After deducting common areas (hallways, staircases, etc.), about 150 sqm (approximately 1,615 sq ft) remain for us to live in. Currently, just the two of us, but we plan for two children in the next few years. So the space fits quite well :-)

We currently live in a similar "bunker"-style house. It’s a large natural stone house (a former sawmill) nicely situated in a green valley by a stream. Despite thick walls (up to 1 meter (3 feet) at the base), the heat tends to escape to the outside. It’s wonderful in the height of summer. In winter, you can actually see the condensation evaporating above the chimney.
Make sure to inform yourselves thoroughly about the expected additional costs.

You seem to like insurance 😕 (rental loss insurance, life insurance, etc.) Life insurance is usually taken out when no other life insurance is available.

First of all: I admire people who make their dream come true and invest several years into it. You have to take some risks at times – but in this case, only with an expert assessor involved (as you’ve already read here).

Now, here’s my amateur opinion:

I wouldn’t plan to rely on rental income (see above); besides, if the rent is coming in, it should serve as a buffer or reserve. Regarding the rented apartment: you will probably have to evict the tenants due to personal use… that can take time and be stressful, and you will need alternative accommodation. Rental matters also involve tax issues and require a lot of administrative effort.

With your fixed-term contracts and no equity, you are not strong candidates for a bank loan – you have to expect that! Without equity and with additional renovation costs, wouldn’t this be a 100% financing case? Banks are very cautious with that. The best approach in such cases is usually to finance the house using equity for construction costs – but you don’t have that 🙁

What about your parents? Isn’t there some money available there? After all, you want to build a roof over their heads too… maybe the whole thing could be arranged “together”? I mean: not buying together, but perhaps through an early inheritance or something like that?

About the online calculators: some are quite good. The best thing is to try several and adjust the interest rate to around 3% 😉 then take the average result – but of course, that can never replace a direct consultation with an advisor!!!