Building a house financially feasible or a pipe dream?

We are on the waiting list in our community in the new development area. They will be allocated at the end of 2017. As community residents with children, we have very good chances of getting one – we are currently one of 76 applicants for 16 building plots, which, as mentioned, will be allocated according to various criteria. According to the head of the building authority (whom we know), we will almost certainly be awarded the contract – but we then have to decide within 3 months.

In addition, there are still 54 other plots from private individuals available for purchase – some of which are already listed on various portals today, although they cannot/must not be built on yet.

Land will certainly not be the problem in the coming years. A lot is currently being developed here.

And when such figures are assumed here, I wonder who even wants to build.

With €3,000 net, I belong to the top 15% in terms of income in Germany. If I can’t afford a new build, then where do all the new buildings come from?

New buildings often come from couples where both partners work (see our example) or where a lot of equity was available or simply smaller was built. You can only look up to the front door with them.

Pick out a plot of land now. Think about a high site coverage ratio or sufficient width.
A plot where you can just barely build a single-family house is no use to you.

Then go to the bank and roughly outline the financing.

Look at floor plans! What would fit for you and cautiously check with house providers what they would charge you to build it.

If then the approval for a plot comes, you can either take it without much hassle or politely decline.

Oh, and mentally say goodbye to a lot of personal labor. You have 2 small children plus possibly a third soon. We have a toddler at home and without grandma and grandpa, we would hardly have been able to complete the normal finishing work (wallpapering, painting, laminate). Save your energy for the exterior work.

I haven’t read everything, but when I look at your numbers, you currently have a debt level minus [Bausparguthaben] of €170k. Against this stands a sale price of about €300k. Effectively, that means €130k available capital, from which taxes and [VFE] may still be deducted. If you primarily offset this capital against the lifelong right of residence and thus against the additional 80m² to be built at a construction price of €1600-1800, then zero equity remains for your apartment share. That is of course a different matter than if a family with the same income were building 160m². Valuation-wise, this is not quite correct, as the statistical life expectancy is presumably only 10-15 years, after which renting out with corresponding income increase would be possible. The question is, do you want tenants in your house afterwards or should the apartment remain for the children. Why did you actually grant the right of residence if you then bought the apartments anyway?

I don’t count too much personal effort.

We were actually thinking primarily of outdoor facilities. We would largely subcontract flooring and painting work to a friendly contractor who would certainly offer a good price.

We still have 2 electricians in the family who could do a large part of the electrical installation work. Not a huge amount, but it saves money – they are even allowed to carry out the house connection.

Otherwise, my father is a very good tiler; he would tile the kitchen and bathroom.

I don’t see much more personal effort.

I haven’t read everything, but when I see your numbers, you currently have a debt level minus... building savings credit of 170K€. Opposed to that is a sale price of about 300K€. So effectively 130K€ available capital. From that, taxes and transfer fees might still be deducted. If you primarily offset this capital against the lifelong right of residence and thus against the additionally to-be-built 80m² at a construction cost of 1600-1800€, then there is zero equity left for your apartment share. That’s why it’s, of course, a different ballgame than if a family with the same income were to build 160m². In terms of valuation, that’s not quite correct, since the statistical life expectancy is probably only 10-15 years and thereafter renting out with corresponding rental income increase would be possible. The question is, do you want tenants in your house afterwards or does the apartment remain for the children.

Why did you grant the right of residence if you then bought the apartments anyway?

The right of residence does not appear anywhere in the land register. That is an agreement in the purchase contract. The house was transferred to me for a small amount (actually basically for 0€), in return it was agreed that both parents can live rent-free in the apartment for the rest of their lives.

They would also have no problem changing/terminating it if there were legal or other problems with it. A bank will see none of this and thus will not be "affected."

I will most likely not bring tenants into the house. Possibly my sister with family, if it should ever come to that – after all, one hopes the parents will live a long time.

Your problem is your parents and your handling of money. In the end, you have tied yourself to a huge burden, namely the maintenance of two adults. The equivalent is not entirely clear to me, €100-150,000 virtually given away in the old house. Economically, that was a very, very bad deal; personally, it is certainly to be judged differently. Then you obviously still took out a loan on the house and used it for consumption. This situation distinguishes you from other builders with your income. They don't have to build a granny flat for their parents, who don't even contribute to the financing. They get €100k in cash from their parents and can put that in as equity into their own house. I don't see a new build of that scale with your income. Either the extension solution or think about whether your children are not more important than your parents.