Build or wait a little longer?

Hello,

we (my wife 26, me 29) have been pondering for a few months now whether we want to realize our planned construction project already or if we should wait another 2 years as originally planned.

Currently, we are in the following situation:
Two years ago, we bought a condominium for €176,000 which we are paying off with a monthly installment of €856. Currently, about €150,000 is still outstanding as we have already paid off €7,500 once with a special repayment. We bought the apartment without equity. Only the incidental costs were paid from our own funds.

In September last year, we had the one-time opportunity to get a plot of land in our home village for €76,000 (including incidental costs) (580 sqm). We are currently paying this off with a variable loan at a rate of €700 per month.

Since we had already thought about building before buying the condominium but could not get a plot of land in our home village (or the surrounding area), we are now considering whether we want to fulfill our dream now due to the continuously rising construction costs.

The following problem:
Since we both graduated from university only two or three years ago, we have almost no equity and whatever we had went into the apartment or the plot of land. Currently, we only have €25,000 in savings.
However, we both earn very well. My wife (tenured teacher) earns about €2,800 net monthly and I (engineer) earn about €4,600 net. Besides the €1,556 we currently pay together for the apartment and the plot of land, we also save at least €1,200 per month and can still live very, very well. So a desired monthly rate of €1,600 to €1,800 for the construction financing should not be a problem.

We are therefore currently considering whether we should save the €1,200 for another 2-3 years (possibly also pay the money into a building savings contract) and then have €50,000 to €60,000 equity available (and the plot of land and apartment will also already be further paid off) or whether we can basically build now without equity. You hear from every corner that construction costs (although already extremely high) are expected to rise even more strongly and even faster than the equity we are currently saving up.

That means:
If we want to realize our construction project now, which should have a volume of about €450,000 to €480,000 (including land), we would have to do it basically without equity. We would like to keep the condominium and rent it out. I can adjust the rate again so that the rental income covers the loan installment. (Interest included as advertising costs)

I know no one can look into a crystal ball here to see how construction costs will develop, but we would be interested in how you see the matter.

1. Is a volume of €450,000 to €480,000 possible with a loan installment between €1,600 and €1,800?
(Currently we still plan with €7,500 special repayment per year. However, this will not always be possible, especially in the first years when children are around.)

2. Would you keep or sell the condominium (built 2011 - 90 sqm maisonette)? I am lucky to have bought the apartment relatively cheaply and the planned rental income should cover the loan installment. The risk of problem tenants and unforeseen costs remains, of course. (Although we have at least built up reserves of €8,000 in the homeowners' association (3-party community). So a broken heating system or something similar can be covered by this.)

3. If a construction project does not make sense at the moment, how would you invest the money we are currently simply saving? Maybe a building savings contract or are there other sensible ideas on what to do with it knowing that we want to start in no more than 2 years?

I thank you in advance for your answers and apologize for the information I may have forgotten to provide here. Just write what you need for a better assessment and I will try to supply everything possible.

Best regards
Peter

Well, you have a very good income and save alongside both financings. So it could make sense. 2 depends, if it can be rented well and with low risk, then yes, otherwise sell it. By the way, you avoid the prepayment penalty when switching properties. But the bank must agree and you would be tied to them. Hardly anyone goes into the subordinated loan. What does family planning look like and the income afterwards?

Hi,

thank you for your quick response
The apartment will rent out very well and the cold rent I have currently set is also calculated very conservatively. It should still be possible to get more.

The fact that the prepayment penalty is waived when switching properties sounds very good, of course, and I was not aware of that before. Currently, the bank would be our first point of contact anyway.

From a gut feeling, we are rather of the opinion that we should keep and rent out the apartment because it is freshly renovated and, due to the young age of the apartment, we do not expect any major repairs for now. (But, as is well known, the unexpected often happens).

Family planning is of course still to come, and for us, it doesn’t have to take any longer than that. But regardless of whether we build now or in 2 years, it would not make a big difference. We would probably still “buy in” a change to the repayment rate with the new loan.

I would be interested to know, based on your experience, whether construction costs will definitely rise again next year. We were already at Viebrockhaus for consultation last year and they had already announced there that they would definitely increase their prices for this year and next year. This year, they raised them exactly as announced.

We are a bit afraid that especially due to the Baukindergeld and the still low interest rates, construction costs will increase significantly more and that in 2 years we will practically no longer be able to afford to build.

Best regards

Of course, I don’t have a crystal ball either. But if I HAD to bet, I would bet on a drop in prices within the next 3-5 years.

At the moment, politics is doing everything so that the masses bring the (borrowed) money into circulation. At the same time, companies are cashing in like never before.

At some point, this will come to an end. And in my opinion, that will happen within the next 5 years.

However, I doubt whether the effects will be the same in metropolitan areas as in less densely populated cities.

And before anyone here comes again and says, "Look at London, New York, etc...". Yes, I do. And what do I see? Exactly! Namely not London and NYC and so on. But rather Stuckenborstel, Uwaldsloe, Uelzen, Kirchheim am Holzberg, and Reienredder am Buk. But definitely not New York or London.

Na na na, inflation alone will fix it. My crystal ball says that prices will not come down. Why should they? Salaries etc. also need to be paid. Only the rate of inflation will flatten.

What exactly is your construction project supposed to look like? 480k including the land is not generous in the current times when you add all the additional costs, garage, outdoor area, and furnishings. I would first clarify what exactly I want and what it currently costs. You already have the most important thing. Land prices will continue to rise. With the relatively low price per square meter for land, the question is how well you could rent out your apartment. Rental income must be taxed and additional costs cannot be fully passed on to the tenant. You also need to have sufficient capital in reserve to cover vacancies or pay for repairs. If the apartment definitely pays for itself, keep it (which I doubt). Otherwise, dispose of it. I agree with Farilo regarding construction costs. Within the next 5 years, things will normalize somewhat again (defaulted loans, economic situation, increased supply of properties due to the older generation dying, separation....) However, this is still so far away that it will certainly conflict with your family planning. Therefore, start planning to get a feeling for what you want and what you can/want to afford. Good planning is 80% of construction. Don’t let a general contractor push you into signing or unsettle you with impending price increases. You might find that it’s better to build with an architect or with another general contractor. By the time planning and optimization are done and you have a permit, 1 1/2 years will have quickly passed.