Building a house as a temporary solution (for about 10 years) reasonable?

  • Erstellt am 2013-02-25 23:59:39

spocky80

2013-02-25 23:59:39
  • #1
Hello,

my question is probably not clear and concrete enough to answer. Nevertheless, I would appreciate opinions. I hope some people find time to read through my text. :)

My current situation: I live with my wife and a child in a rental apartment for just under 600 euros cold rent.

Long-term planned future: We will take over my grandparents' house. Of course not as long as my grandparents are still alive. Naturally, I wish them a long time with us and they are still very fit for their 80 years. The takeover of this house is therefore difficult to estimate in terms of timing.

Short-term planned future: We have considered the possibility of buying or building something of our own for the transition period. Two aspects led us to this idea: 1. We find 600 euros rent less desirable than paying off our own property. 2. We are not sure if our savings in the bank will still be worth as much in some time as they seem to us today. The typical "real assets instead of money" thinking.

The idea behind the idea is as follows: We now build a small single-family house as cheaply as possible - and I really mean cheap - for the transition period. Cheap because later we want to move into another property anyway. So the house now should only serve to no longer pay rent and to convert money into real assets. If in about 10 years we then take over the other house, we would like to rent out the house now built.

The house is to be built in the vicinity of Braunschweig (just over 10 minutes to the city center), train station in the village with a fast connection to Braunschweig and Hannover. Highway a few minutes away. Shopping facilities, gas stations, doctors, kindergartens and all types of schools are directly in the village. The cheap Town & Country house is estimated at 140,000 (approx. 110m² living space), all other costs including land have been calculated by ourselves and with the bank in a plan including possible necessary financial reserves for forgotten items. The loan is calculated so that it is paid off in 15 years (interest fixed for the entire term) and our installments do not exceed our current cold rent.

I am aware that many would advise against such a low house price. Considering that it is "only" a transitional house for us, I think building so cheaply makes more sense than for someone who builds a "forever" house. For a "forever" house we would also spend more money, no question.

The project would only be pointless for us if it became apparent that the house could not be rented out or sold at all after the assumed 10 years, which would also be an option to consider. Strictly speaking, after 10 years we would have saved 72,000 in current rent alone. So such a "loss" from selling would naively not be a loss.

Now I have already used the keyword in the last sentence: Is our plan too NAIVE or is it basically a good plan to save rent during the transition period and protect our savings from financial uncertainties?

I would appreciate any feedback - whether objective or subjective, short or detailed.

Best regards Sebastian
 

Fiddy

2013-02-26 03:38:49
  • #2
The tenant savings immediately catch my eye in your calculation. Of course, the cold rent disappears. What about the interest on the installment for the house? €72,000 in tenant savings can very quickly become €72,000 in interest.
Don’t forget that construction or ancillary purchase costs cannot be included in the value of the property.
Furthermore, the bank would demand a prepayment penalty of a non-negligible amount if the house is sold before the end of the fixed interest period.

In your place, I would save over the indefinite period and invest the money in the probably necessary renovation or refurbishment of the existing property. That way you benefit more than if the money is tied up in the credit of the interim solution.

Greetings from the Palatinate
 

karliseppel

2013-02-26 07:39:54
  • #3
Somehow I don't quite want to understand this.... Even if I leave interest aside for now, with a 600€ repayment I still don't come anywhere near 140k after 15 years. Especially not including incidental costs, outdoor facilities, etc. Somehow I'm also missing the land on which the "transitional house" is supposed to stand in the consideration. I might consider building "the" house for you right now in this low-interest phase, which fully meets your needs. Financing and paying it off. Whether you can really get far with 600€ / month you have to calculate, I find it - to put it mildly - extremely tight. Should the grandparents’ house actually become available for natural reasons in a few years, then you can also rent it out and use the rental income accordingly. Of course, you cannot claim interest expenses for tax purposes in this case, but maybe a capable tax advisor still knows one or the other possibility.

A completely different aspect, on the other hand, is the time until the grandparents pass away. There is already lively speculation about the assets here, but whether the grandparents might still need these assets themselves in their remaining lifetime, for example for care, cannot be ruled out.
 

Musketier

2013-02-26 09:52:12
  • #4
A lot has already been said. Maybe there are also other alternatives. Depending on where the property is supposed to be located, one could also consider relocating the grandparents. Such a nice small disability-friendly bungalow instead of a large house could also potentially become interesting for the grandparents. Of course, you can't just take the grandparents away from their environment so that they no longer find their way around. Besides, a few tax planning options come to mind, but I cannot post them here. For the time after that, I can imagine that such a disability-friendly bungalow would also find interested parties again, especially given the aging population structure in Germany. Whether as buyers or tenants.
 

Der Da

2013-02-26 12:26:56
  • #5
Honestly, the idea is way too naive. First of all, the catalog price of €140,000 probably won't be the end of the line. Then you probably forgot about the interest. I also don't understand how the loan is supposed to be paid off after 15 years with a €600 installment, without you possibly putting in €80,000 of equity.
Renting out is, of course, an idea, but who wants to rent 110 sqm? What kind of rent do you get for the house in that area? And are there enough tenants? In case of vacancy, you cover all the costs yourself, worse if you have a tenant who doesn’t pay.
I would advise you, if you want something of your own for the transition, to buy an apartment. It’s easier to rent out and also easier to get rid of again. And if the crazies on the real estate market keep going like this, maybe even with a profit.
A friend bought a small 2-room apartment here in Karlsruhe 8 years ago and sold it last year with a good profit because he moved abroad.
So if anything, I would only tie myself to an apartment... a house carries too many risks.
Maybe, as Musketier has already mentioned, you should talk to the grandparents. Renting a small apartment can also be nice, especially when you get older—you might not manage to clean the house anymore. Asking for help is also not common in this generation. I would look for an open conversation before you patch something together.
 

ypg

2013-02-26 13:17:41
  • #6
hm...
You should, on the one hand, expect that your grandparents will eventually move into age-appropriate housing. This requires money; usually, the existing property has to be sold in order to buy in or to afford the monthly costs of a care home.
You simply cannot make a decision now for 15 years from now because so much can change.
Personally, I would also not be comfortable living cheaply and simply for most of my life if I could do otherwise.
A cheap house is also not easy to sell later. I would not plan to rent it out—at least not as planned—because, in my opinion, there are too many uncertain factors. Renting out is an option to still put a house on the market that cannot be sold.
Therefore, independent of the family situation, I would create something nice of my own where you can imagine living for a large part of your life.
Whatever your situation in 10/15 years may be... it always turns out differently than you think anyway.
You see this again and again: a couple in their mid-20s plans a house and three children. Either it stays with one child, then the house is too big, or at the latest after the children move out, the house is too big.
Habits and life situations change, and you want to change. Or a separation forces you to change.

Another option would be, if the planning is to stick with (Haus der Grosseltern), to buy the land to have an investment that can later be sold for a profit. But that would not be possible in a new development area because you are obliged to build within a certain period there.
 

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