Build and rent a 3-family house?

Hello,

I have searched for a long time but unfortunately found nothing about my question, so I wanted to ask briefly here.

I live in beautiful Bavaria (west of Munich) and have a building plot available.
For some time now, the idea has been on the table to build a 3-family house (approx. 300m²) on it
and then rent it out completely.

Key data:
Age: 32 years
Permanent job
2,500 € net
Building plot available
House costs would be approx. 550,000 €
Equity 50,000
Rental income upon completion approx. 2,500-3,000€

I can hardly find any info on the entire internet about private individuals who have completely newly built a multi-family house
and then rented it out. Is this so rare?

I have not yet been to any bank to inquire about a loan etc.
Would the above-mentioned project be feasible from your point of view or possibly completely crazy???

Salary and equity are of course very expandable. Finding tenants should normally be no problem at all in this location near
Munich. (I am of course aware that you can also have bad luck with tenants).

I am grateful for any opinion, even if it is negative

A free plot of land for a multi-family house in Munich is of course quite attractive in the current market situation.

Regarding the equity capital point: Well, this is debatable, especially as a private person. Institutional investors try to involve as little equity as possible to achieve a higher equity return. For a private person, the risk is naturally quite high due to the capital invested, so it can make sense to invest more equity to keep interest and repayment low – even if that reduces deductible expenses. But for both types of investors, a high (liquid) equity capital is important to absorb risks. Therefore, a buffer of equity capital should be available. At the same time, the bank will require the contribution of equity into the financing – this is regularly at least the legendary 20%. Now, the value of the plot will probably be sufficient for that.

Regarding the income point:
Don’t take it the wrong way, but 2,500 EUR is unfortunately rather low for Munich (I hope I’m not starting a fundamental discussion) and besides, there is only a single income, which means the risk is comparatively high (or is there someone else you can bring on board?). Accordingly, it may be that the bank requires more equity or that they fundamentally consider the risk too high. Rental income naturally creates a new income, but this is also associated with risk – especially rental default. In addition, cost points such as maintenance (initially not so high for new construction), non-allocable operating costs, administration, and rental default risk must be taken into account. Additionally, further costs such as legal consultation fees may arise.

Basically, I would dare to say that you have a chance to get financing on good terms =)

Annuity:
550,000 EUR; 2% interest; 3.0% repayment
= approx. 2,300 EUR/month

Income:
Rent: 300 sqm x 10 EUR = 3,000 EUR/month
Salary: 2,500 EUR
= 5,500 EUR/month

So if one tenant falls through, you have to cover 300 EUR yourself for a while. Two tenants defaulting hurts a lot. Or the equity capital buffer must be correspondingly large enough. That will be a balancing act – for you and also for the bank.

The amount of construction costs seems realistic to me (as a LAYPERSON!):
1,400 x 300 sqm = 420,000 EUR
Ancillary construction costs = 70,000 EUR
Leaves approx. 60,000 EUR for landscaping, carport or garage, and possibly a fitted kitchen.

Maybe the rental costs are even set too low? 10 EUR for Munich isn’t particularly much? How far is the plot from the city center? (If you want to name the district, that would of course be even better).

With 1,400 I believe you won’t get far for a long time. We live in such an [MFG] and it cost around 1,000,000 DM about 20 years ago. I think you can assume pure construction costs of 550k without additional costs.

What is the value of the property? Purchased or inherited/gifted?

I also consider the ratio of liquid income to investment amount to be the key point. Without the rental income, there is very little money available to cover major repairs or compensate for rental losses. Therefore, it is important to quickly build up a buffer. In addition, there is a significant concentration risk.
Hence, once again the question of how much the property is worth. If necessary, it might make sense to rather sell it and invest part of the proceeds in one or two condominiums, diversifying the rest more broadly.

How much is the property worth? Does it belong to you?

The OP lists their profession as bank ......... hmm you should realistically assess this project. The financing relies solely on rental income. If something serious happens here, you won't be able to cover it with €2,500.

I would abandon the project.