Build now or wait?

Hi everyone,

after many people have shared different opinions with us in the last few days, I am turning to you as a competent forum with a financial question. :-)

Actually a simple question: build now or wait?

We are both in our mid-20s, net income together > 4000€/month. Equity is rather low shortly after graduation, but probably something could be arranged within the family. In addition, we are willing to do floors and painting work ourselves.

We need a plot and a single-family house for 4 people + a study for 2. We definitely want to build with a basement to accommodate a guest room, possibly also a garage.

After some talks with various potential developers, we were told several times that 300T will not be enough, with basement and plot at least 350T.

What is your assessment? Are the current interest rates an argument to start quickly? Or should we rather wait 2 more years and hope that construction costs go down? The plan is to build in the Cologne area, but not in the city itself (rural surroundings).

Many thanks for your assessments!

Difficult question. Personally, I would probably wait a bit longer to save up some equity. I am also not a fan of saying that one should definitely build now because interest rates are low. That is certainly an argument in favor, but not THE argument. However, I do not see construction costs decreasing in the next 2 years. Rather the opposite.

Actually, I want to give you a few tips, some things you should consider before starting such a project:
1. You are in your mid-20s, so still quite young. Do you want to commit to one location already at the beginning of your working life? How certain is it that you want/can stay there? How secure is your job?
2. No equity is rather bad. At least you should be able to pay the ancillary costs out of your own pocket. The more, the better and the lower the risk.
3. I also consider the planned 350,000 euros very ambitious. I think it will probably be more - but that is just a layman’s opinion, as I do not know the prices in your region and of course do not know what your expectations are.
4. And the frequently mentioned topic: What about children? Planned/wanted? What about your income then if part of the money is lost?

Thank you for the initial opinion, I want to answer the questions directly for now...

My wife is a teacher, civil servant from August, and location-bound. The civil servant status obviously helps with the interest rates, until we actually start building we can save another 15-20K well – even though we will start planning soon. Otherwise, as mentioned, it can also come from the family environment, certainly 20K.

My workplace is in Cologne, permanent and, in my opinion, very secure. Of course, not as secure as being a civil servant, but still feels secure enough for building a house – especially since my wife's salary alone could probably cover the repayment for a few months.

Children are planned, about 2, in 5-8 years. But then only parental leave, afterwards both continue working.

Additional point: we currently live in Cologne, monthly rent 930 + utilities. Those will of course continue as well... ;-)

Do these details change your impression?

You have to decide that. I am not saying that it is not possible. And being a civil servant is always good in that case.

But (if it stays that way) 350k euros is still a lot of money with 0 or nearly 0 equity. You can calculate roughly 500 € per 100,000 € loan, so you can expect to pay at least 1,500 € or more as interest/repayment. You should at least do that, so you don’t have to be paying off the loan still after 40 years. And personally, I find that quite intense, even if the salary is certainly good.

And on the topic of parental leave: the loss of income with parental allowance is just a fact. But even then, you have to be able to pay off the loan. And you should always have a buffer, for example if childcare is not secured immediately after the parental allowance ends, because there isn’t an immediate daycare spot, etc. These are just food for thought and things you should include in your planning.

Make a plan – first a household budget. How much do you realistically have left each month. Then make a "worst-case" plan. What happens if? For example, the scenario if one child or then a second comes. If all that still works out, I don’t want to discourage you from building. It’s just that in the current situation, it would be too risky for me. I would first save up a bit more equity, because 20k euros is nothing with this investment amount and is just a small buffer for unforeseen expenses.

The risk is clear to us, which is why we are hesitant to take the big step.

Our plan at the moment would be to pay down 2% annually and have 10-15K or so as a flexible repayment at the end of each year. That way, we would be done in 30-35 years. Financially, this would be possible; the financial plans for civil servants are very stable and well predictable, the monthly rate would be fixed at about 1000-1200 and manageable, and then we can repay additionally in a flexible way depending on the year and life situation.

Of course, we would also clarify the financial situation with financial advisors and so on, as they always have a good opinion on this.

But as long as the market continues to rise, no new building plots will be available soon, and in addition inflation and rent outweigh the saved equity capital twice over – is there any sense in not building?

You would have to get an interest rate of about 2% for the loan to meet your requirements. I’m not very familiar with civil servant loans, but is that realistic? For full financing?

Basically, it certainly makes sense for you to build. The question is: Does it have to be now? Or in a few years.

Your last paragraph are not arguments for me. What you write is certainly correct. But if the (financial) fundamentals are not right (this is not necessarily aimed at you, but generally at many who keep bringing such arguments, but whose financial background is simply not good enough), then I simply cannot build at this moment.