Concerns regarding own construction intention

Hello!

Actually, my partner and I wanted to buy a building plot at the beginning of 2010. For this purpose, a building society contract, which has been in the allocation phase since this month, was to be used. A 100sqm bungalow (solid construction, turnkey) with solid equipment was planned to be built in about two to three years. We (30/31) are both civil servants (LZ) and have an average net income of 3600,- per month (one with 20h due to child), whereby this amount will continue to increase in the coming years (at least within the scope of a normal inflation adjustment). At the moment, we have no payments to make and are generally not big consumers. However, the more I search the internet about this topic, the more doubts I have as to whether this is financially feasible at all. Thoughts of a semi-detached house/ end terrace house are already coming up. Is this uncertainty before the crucial step of "buying a plot" normal or are my doubts justified? After all, you don't want to plunge the family into misery. I would be very grateful for your thoughts and experiences.

Best regards

Hello MisterTheo in Berlin,

Hopefully, I can contribute some food for thought & experiences, even if I have to financially “out” myself a bit. Since you have concerns about new builds, perhaps the alternative of living in an existing property is more of an option?

Here we have a family income of about 3,800 euros net (are your 3.6 per person or total? :-). When we started realizing our “dream of a house” four years ago, it was still hundreds of euros less. New builds were out of the question for us because, in our opinion, they are too expensive and unattractive. We wanted a house with soul. Berlin itself, including the surrounding commuter belt, is, as far as I know, completely overpriced. In these areas, it is probably difficult to get an inexpensive existing house. Since this is the case in all cities, we very quickly looked only in the surrounding area. Buying in existing stock is initially cheaper exactly when you pay only for the land but not the house. The house in such cases is in need of renovation.

Now the question is what you can better live with: laying down hundreds of thousands all at once and bleeding for 30 years, in the worst case even having to go through years of lawsuits to claim construction defects in a new build and possibly losing money for poor or no performance.

Or keeping the initial investment manageable, e.g. buying a renovation property at a low purchase price, incurring little debt so that the installment does not hurt, and then renovating step by step, i.e., determining the pace and amount of follow-up investments yourself. Of course, there are many ifs and buts, so just our case as an example:

In the surrounding area, a 400 sqm villa, 120 years old on 3,000 sqm of land for 41,000 euros, plus property transfer tax, notary, and all the others who wanted to make money, then 48,000 euros.
KfW loan for the most necessary renovation work (roof, windows) of 35,000 euros.
In just under 4 years of renovation (among other things, the rear half of the building had to be gutted from the roof to the basement ceiling over 3 floors) 99% in own work for a total of 56,000 euros including the 35,000, i.e. 21,000 euros scraped together “on the side.”

Because it is to become our “family seat,” we naturally spared neither material nor effort. Our son was born 1.5 years ago; my wife was at home on parenting allowance for 1 year. Tough time, construction only progressed as fast as there was money for materials. The equity ratio for the total volume so far of 104,000 euros is 40%. We still have the rent alongside, but thanks to the mini-loan compared to new builds, that is no problem.
Our motto is: bake small financial rolls and always keep an overview + reserve.

What do you get for 130,000 euros (expected final volume until the entire house is ready to move in)? A 100 sqm cardboard house? 900 sqm of land in the city?

When the house is finished, we will not even have invested as much as the land would cost at the official land value, meaning in the event of a sale (which of course we would NEVER do) we would get our investment back (of course not the time).

Our example may be somewhat extreme. It also has the disadvantage that you have to do a lot yourself and especially grit your teeth for a few years. But we have never had the situation that the expenses for the house hurt us. When roof & windows are finished, i.e., the house is “tight,” then you can set the construction speed yourself and thus also the expenses. In new builds, it’s always about large sums, hit after hit. But for that, you might have your dream ready to move in in just a few months.

Depending on very subjective needs, you just have to find your very own way...

Hope I have given some suggestions,
good luck + Merry Christmas!

Hello MisterTheo,

that entirely depends on the total financing amount and the amount of equity you invest.

Basically, with the initial conditions you mentioned (3,600 EUR income and civil servant), I would advocate for a homeownership solution.

After all, you have to continue paying rent, and with that, you are essentially paying off your landlord’s property.

If you can keep the total monthly payment from getting too high (and by that I mean without having to accept significant cuts in your quality of life), you should look for your own property.

The current interest rate level and the price development of recent years actually provide a very good starting point for that.

Best regards M. Thiemann