Good morning, dear forum!
I have been quietly reading here for a while and have been hesitant about whether to share my thoughts. But now the time has come, as I need external input, whether friendly, constructive, or even critical.
I live in northern Lower Saxony, near the Emsland region. Salary levels and construction costs here seem to be well below the forum average.
About my situation:
35 years old, single, no children.
Income: 1800€ net
Expenses: 800€ per month
Equity: 15,000€ in stocks/crypto
1,800m2 (0.44 acres) plot with an old house (fully paid off)
Land prices per m2 are between 60-80€/m2, and the average rent per m2 for newly built homes is about 6-7.5€.
My plan:
Renovating the old building would cost as much as a new build. The roof, all windows and doors, the heating system, and the facade would have to be replaced—barely worthwhile.
Of course, I would like to build a small house according to my own ideas.
However, over the past few years I have realized that, as a working professional, the plot is too large and requires too much maintenance.
I could sell part of it, but then I would lose control over the new neighbor or building project. Since I do enjoy the freedom and quiet of the 1,800m2 (in a residential area), this is a dealbreaker for me.
Alternatively, I have thought about building a single-story two-family house on part of the plot and renting it out.
If financially feasible, this could provide additional security, especially in retirement.
The house would cost about 130,000€ per 85m2 (915 sq ft) unit (painting and electrical work would be done entirely by myself). Additional costs would include utility connections, permits/planning fees.
So roughly 300,000€ for the whole project.
Due to my age and the local rent index, financing would only be possible over 30 years (including fixed interest period).
If I extend the calculation, with 30 years and an effective interest rate of 1.5%, the monthly payment would be about 1,033€.
The new KfW subsidy of 18,000€ per unit should be considered, which would theoretically reduce the monthly payment to around 900€ (would I realistically get 1.5% interest?).
According to the rent index (7€/m2), the cold rent would only be about 1,200€ total. That leaves little room for maneuver at first.
What are the general requirements or rules regarding rental properties?
With interest tax deductions as operating expenses and depreciation on construction costs at 2%, some financial reliefs come into play later, but should these be factored in from the start?
Furthermore, the loan amount will be gradually devalued by inflation over time, while rental prices are expected to rise.
Assuming this option is feasible, how would a bank view a subsequent new build for personal use 1-2 years later, especially since the land (as equity) would theoretically already be tied up in the rental property?
Best regards
I have been quietly reading here for a while and have been hesitant about whether to share my thoughts. But now the time has come, as I need external input, whether friendly, constructive, or even critical.
I live in northern Lower Saxony, near the Emsland region. Salary levels and construction costs here seem to be well below the forum average.
About my situation:
35 years old, single, no children.
Income: 1800€ net
Expenses: 800€ per month
Equity: 15,000€ in stocks/crypto
1,800m2 (0.44 acres) plot with an old house (fully paid off)
Land prices per m2 are between 60-80€/m2, and the average rent per m2 for newly built homes is about 6-7.5€.
My plan:
Renovating the old building would cost as much as a new build. The roof, all windows and doors, the heating system, and the facade would have to be replaced—barely worthwhile.
Of course, I would like to build a small house according to my own ideas.
However, over the past few years I have realized that, as a working professional, the plot is too large and requires too much maintenance.
I could sell part of it, but then I would lose control over the new neighbor or building project. Since I do enjoy the freedom and quiet of the 1,800m2 (in a residential area), this is a dealbreaker for me.
Alternatively, I have thought about building a single-story two-family house on part of the plot and renting it out.
If financially feasible, this could provide additional security, especially in retirement.
The house would cost about 130,000€ per 85m2 (915 sq ft) unit (painting and electrical work would be done entirely by myself). Additional costs would include utility connections, permits/planning fees.
So roughly 300,000€ for the whole project.
Due to my age and the local rent index, financing would only be possible over 30 years (including fixed interest period).
If I extend the calculation, with 30 years and an effective interest rate of 1.5%, the monthly payment would be about 1,033€.
The new KfW subsidy of 18,000€ per unit should be considered, which would theoretically reduce the monthly payment to around 900€ (would I realistically get 1.5% interest?).
According to the rent index (7€/m2), the cold rent would only be about 1,200€ total. That leaves little room for maneuver at first.
What are the general requirements or rules regarding rental properties?
With interest tax deductions as operating expenses and depreciation on construction costs at 2%, some financial reliefs come into play later, but should these be factored in from the start?
Furthermore, the loan amount will be gradually devalued by inflation over time, while rental prices are expected to rise.
Assuming this option is feasible, how would a bank view a subsequent new build for personal use 1-2 years later, especially since the land (as equity) would theoretically already be tied up in the rental property?
Best regards
N
nordanney15 Mar 2020 17:541. Is it even legally possible to build another two-family house on the property?
2. In my opinion, a 170 sqm (1,830 sq ft) house plus circulation areas/utility or heating spaces and parking spots for 2 residential units cannot be done for 300,000 euros.
3. Why is financing only available for 30 years?
2. In my opinion, a 170 sqm (1,830 sq ft) house plus circulation areas/utility or heating spaces and parking spots for 2 residential units cannot be done for 300,000 euros.
3. Why is financing only available for 30 years?
Fabian007 schrieb:What requirements? Build and finalize the lease according to your preferences.
According to the rent index (7€), I would only get about 1,200€ in cold rent. So there is not much room for maneuver. What are the general requirements for rental buildings?
Fabian007 schrieb:Wrong, the payment does NOT change, only the remaining principal is reduced.
If I extend this, assuming 30 years and 1.5% effective interest, I get a monthly payment of 1,033€.
You should also consider the new KfW subsidy of 18,000€ per unit, which would theoretically reduce the monthly payment to only 900€. (Would I even get 1.5% interest?)
Fabian007 schrieb:Not worth it with your "modest" income. No offense intended.
With interest attributed as operating costs and building costs depreciated at 2% straight-line, additional financial relief may come into play afterwards, but should these be factored in?
Fabian007 schrieb:Assume it is not feasible (I’m telling you as a banker).
Assuming this option were feasible.
Fabian007 schrieb:No chance. Never.
Assuming this option were feasible. What would be the bank’s stance on another new build for owner-occupation 1-2 years later, especially since the land would theoretically already be allocated as equity to the rental property?
I think the idea is definitely feasible!
A 30-year fixed interest rate is a long planning horizon.
Also, the 5% depreciation allowance according to Section 7b of the Income Tax Act can provide you with some initial cash flow support.
Calculate smartly… then it will work out.
A 30-year fixed interest rate is a long planning horizon.
Also, the 5% depreciation allowance according to Section 7b of the Income Tax Act can provide you with some initial cash flow support.
Calculate smartly… then it will work out.
Zubi123 schrieb:
5-%-AfAHow do you arrive at 5%?... I just looked it up. If I understand correctly, it only applies for 4 years, then it drops to 2%? Am I misunderstanding something? It’s not that I get 2% or 5% of the construction cost back, right? Rather, only my taxable income is reduced by that amount?
Zubi123 schrieb:
I think the idea is definitely feasible!
A 30-year fixed interest rate is a long commitment... so it’s a long-term planning horizon.
Also, the 5% straight-line depreciation under Section 7b of the Income Tax Act can give you a bit of initial liquidity support.
Calculate wisely... then it will work out. But what if you end up next to a run-down building? What’s the point of all this?
Fabian007 schrieb:
Alternatively, I considered building a single-story two-family house on part of the plot and renting it out. You still lack control over the rental relationship.
Fabian007 schrieb:
The house would cost about €130,000 per 85m2 (915 sq ft) unit (with painting and electrical work completely done by myself). Additional costs would include utility connections, building permits/planning permission, and design fees.
So, roughly €300,000 for the entire property. ? Never mind...
Fabian007 schrieb:
Would I even get 1.5%? More likely, you wouldn’t get a loan on your own at all.
Fabian007 schrieb:
I just don’t want one or two full floors potentially right next to my garden, maybe even with a party shed near my bedroom. That kind of thing is generally regulated by the local zoning plan.
What is your actual purpose here? What are you hoping to achieve? I mean, why do you want to build and rent out a small house? You’d end up as a supervisor at the garden fence yourself?
Putting that aside, it’s unlikely you’d get a loan on your own.
Pinky0301 schrieb:
How do you get to 5%?... I just looked it up. If I understand correctly, that only applies for 4 years, then it drops to 2%?
Am I missing something? It’s not like I get 2% or 5% of the construction costs back. Rather, my taxable income is reduced by that amount, right? Yes, for the first 4 years, there is an additional 5%. So, in the first 4 years, you can effectively depreciate 28% of the costs as tax depreciation (AfA).
That means a reduction of taxable income (zvE) by 84,000 euros (about 91,000 USD), or 21,000 euros (about 23,000 USD) per year. This leads to the original poster probably getting back most or all of their income tax (LSt) during those 4 years—roughly 4,200 euros (about 4,600 USD) per year. Altogether, that sums to nearly 17,000 euros (about 18,400 USD).
This should represent the liquidity advantage I mentioned for the first years.