Building a house financially feasible or a pipe dream?

Hello everyone,

I hope to find good hints, ideas and opinions here for my problem - and of course I am happy about every contribution that includes constructive criticism

Financial situation:
We are married (me 35, her 30) and have two children (22 and 10 months) and are also planning a third child. We currently (2 children) have about €4,000 net – currently with parental allowance, afterwards probably more when my wife works normally again (probably 2021). What is missing in the meantime is made up for by grandma and grandpa – so €4,000 net is basically certain, from 2021 about €500 more is to be expected.

We have a house (estimated market value by the bank ~€250,000) – a friendly architect said you should get €280,000–300,000 for it if you were to sell it. The house was built in 1958, completely renovated in 1992 and 2012 and no major repairs should be necessary in the next few years.

The house contains two apartments – ours (80m²) and my parents’ (~140m², rent-free, lifelong right of residence). The house is financed with two loans (one per apartment) of €85,000 and €115,000. About €30,000 have been repaid. If details are needed, I can gladly provide them. Remaining debt accordingly about €170,000.

Problem:
My parents are approaching 70, so I can’t just "swap" the apartments and move them to the upper floor. But there isn’t enough space on the upper floor – as long as the children are still small that works, but in 4-5 years at the latest no longer – regardless of whether another child follows or not.

Option 1: Extension on the upper floor on the existing extension on the ground floor – cost about €150,000. Plans exist but need to be adjusted to prepare for a third child. Costs should remain about the same, as they were budgeted generously.

Option 2: Sell the house and build/buy new. Assuming you get €300,000, after deduction of the loans including incidental purchase costs there would be about €100,000 equity left, which should be enough in our town for a building plot of similar size. Problem: To have the equity available, the house must be sold before we can buy a plot and start construction. This causes costs again, if you can even find someone willing to pay that amount but only move in a year (or even more) later. Also, I can’t yet imagine a specific amount of money I would need to build a new house with a granny flat (parents).

Roughly estimating costs of €500,000 for plot + new building (including granny flat, turnkey) + additional building costs with equity of €100,000, a financing of €400,000 would be necessary, with €4,500 net income – is that realistic with a maximum 30-year term?

Option 3: Rent out the house. The two apartments should together bring in about €1,000 cold rent per month in my opinion – which exactly corresponds to the currently paid loan installments. So if you have secure rental income, you could cover the costs of the house with it. I would then still have this house as collateral for the bank to finance a new building, but otherwise no equity anymore.

According to the current status and still about €1,000 monthly installments, the "old" house would be paid off in 20 years, by then the big trades (roof, heating, …) should also "hold." The interest rates are largely secured via a home savings contract.

What do you think about that? Are these costs realistic in our situation and current net income? Would you rather sell the house or rent it out?

I requested brochures today at Kern-Haus, but then read mostly negative reviews on various blogs and forums about the quality of this company’s prefabricated houses. What do you think about that? They also offer an "independent financing advisor" – can you trust such people?

Thank you very much for your help!

Regards,
Xor

Are your parents really that bad on their feet? It's only the 1st floor, the stairs can't be that steep. Barrier-free is all well and good, but it involves more than just living on the ground floor. Some exercise is good for you. My grandparents are in their mid-80s and climb stairs daily and work in the garden. Of course, if there is a walking disability, I don't want to have said anything. Otherwise, an exchange would be the easiest option.

In my opinion, the cold rent can generate €1,000 per month - which exactly corresponds to the currently paid installments on the loans.

And what about reserves for repairs / heating costs / taxes etc.

If you don’t sell but rent out, you pay interest on the €100,000 you don’t have; whether that is cheaper you have to calculate.

Furthermore, the rent can also occasionally fail, and then you have to get through the month without the rental income.

My mother has had hip problems for several years now, which are gradually getting worse. Therefore, swapping apartments is a taboo for us that cannot be broken. Also, my father is a smoker, but he does not want to smoke inside the house, rather in the conservatory/terrace.

When I look at the rental prices for apartments around here, there is clearly more potential; I just threw out a number. Apartments around 120m² are offered for €700-900 cold. Apartments with ~80m² for about €500-800 cold. With a total rent of €1300 per month, taxes, insurance, etc. would also have to be covered. That would need to be calculated more precisely, but we currently pay about €120 every 3 months to the municipality, and about €800 for insurance.

Reserves would indeed be low, except for possibly squeezing something out of the rents. But as I said, I think there should be relative peace for about 20 years since everything is relatively new. Afterwards, the rents should be able to cover any renovations, don’t you think?

At least that was my train of thought with the “rent out and build new” option.

Although somewhat off-topic, how does the architect come to determine a value of 280-300K€ when the majority of the area is encumbered by a rent-free, lifelong right of residence? This circumstance massively drags the value of the property down. He probably only looked at the house and nothing else. Unfortunately, nothing can be relied on based on that.

Although somewhat off-topic, how does the architect come up with a value of 280-300K€ when the majority of the area is burdened with a rent-free, lifelong right of residence? This circumstance drastically lowers the value of the property. He probably only looked at the house and nothing else. Unfortunately, nothing can be made of that.

In the case of a sale, the parents of the OP do not retain the lifelong right of residence in the old house, but are granted a new one in the new property. Therefore, this circumstance does not lead to a decrease in value.