Dream property as a bargain: Sell or own a home

Hello everyone,

We are about to purchase a 1100m² plot of land in a small town in SH, which is built upon with a roughly 160m² single-family house + full basement from the 1960s. The plot has been fallow since the early 70s and the building has not been inhabited.

According to the Sparkasse’s valuation, the value is at least €120,000. This is the price at which the Sparkasse would put the property on the market. Similar plots have achieved significantly higher prices (€180,000-230,000 nearby), but I am only counting on the €120,000.

The owner, a good family friend without major financial interest, has agreed with us on a purchase price of €50,000. Since the owner is somewhat special (the decision to sell the plot took 4 years, the transaction will now be completed in two weeks), we are facing many questions.

The plot is located in a development plan area from 1960. Kindergartens, primary schools, secondary schools as well as vocational schools are all within a 3-minute walk. We currently live in the same town renting. Our families also live directly or nearby.

Our dream would be to build there. Depending on the structural analysis and costs, a timber frame construction (shortened construction time, ecological, shell construction also in winter) of about 160m² living space is planned to be built on the basement. The planning and construction management will be taken over by our neighbor, an experienced architect with whom we have a very good relationship and good chemistry.

Our financial situation:

Married tax classes 3+5
M33: €3400 net, employed project manager
W32: €1300 net part-time, employed businesswoman
Two children aged 2 and 4 years

We have €1800 per month available for discretionary spending
2x cars, €700 cold rent and living expenses are very well calculated.

€10,000 equity

Our wishful dream:

Build 160m² at €1800/m²     €288,000 (incl. €10,000 - €15,000 demolition)
Land                                        + €54,000 gross
                                             + €18,000 buffer
                                             = €360,000

With saved money and muscle power I can provide a maximum of €20,000 equity.
Regarding the planning: We know exactly what we want and largely agree on floor plan, materials, and special features so that the decision-making process can be kept short.

The house bank accepts the difference between the land value of €120,000 and the purchase price of €50,000 as equity.
With financial advisors, it looks different.

Therefore, from my point of view, the only option for building a home is the variant in which we take out the total amount of around €360,000 from a credit institution.
And here there is a corresponding time problem. The notary appointment will take place within the next two weeks and €54,000 will be due.

The monthly rate should be €1300. Minus child construction allowance (Baukindergeld), we would be at €1100 for the next 10 years. With the tariff adjustments of recent years, the €200 Baukindergeld that will drop off after 10 years should thus be offset.

After 20 years fixed interest, about 1.7-2% interest and 3% repayment, approximately €120,000 remaining principal will remain with a total duration of about 27-29 years.

Due to precedent cases, the plot is also suitable for building in the second row. A building pre-application for building in the second row is currently being prepared.

Another possibility is of course to build bigger and cheaper and rent out two residential units.

Or whether, given this purchase price and the actual value, the plot should be sold directly in order to then acquire another plot with the equity.

I hope to get an outside perspective from this post. Once on whether our “wishful dream” is realistic and which decisions regarding building or selling outsiders would choose.
Due to the house planning, we are extremely biased when it comes to discussing a possible rental of a two-family house or a sale (Dad already sees himself in the home cinema and programming the KNX, Mom in the sewing studio and dressing room).

Many thanks for reading and best regards

Hinni

Everything is a bit confused and the construction costs are calculated too tightly, I think. What about all the incidental costs?

Why not just get the land cheaply first and then see from there if it's really that great?

I would do it similarly to what lastdrop says. First buy the property and then see how things go. Calmly tear down the old shack and then think about what you really want in your own house.

Demolition 10-15k€. Is there already an offer for this?

The owner, a good family friend without any significant financial interest, agreed with us on a purchase price of €50,000.

Why is your friend giving away €70,000? Is he just stupid, or do you not know the catch with the property yet (e.g. high demolition costs)? In my experience, it's more likely the latter...

The house bank accepts the difference between the land value of €120,000 and the purchase price of €50,000 as equity.
With financial advisors, this looks different.

The advisors and almost all banks will have their problems with the purchase price and the "actual" value of the property.

160m² at €1800/m² build costs €288,000 (incl. €10,000 - €15,000 demolition)
Land + €54,000 gross
+ €18,000 buffer
= €360,000

Are you sure that’s enough?

Regarding planning: We know exactly what we want and largely agree on the floor plan, materials, and special features so that the decision-making process can be kept short.

Until you start building and get many new ideas and the special requests come...

Demolition 10-15k€. Is there already an offer for that?

Independent assessment after house inspection by a real estate advisor from the Sparkasse, an architect, and a civil engineer.

Why is your friend giving away T€ 70? Is he just stupid, or do you not know the catch with the property yet (e.g. high demolition costs)? In my experience, it’s rather the latter...

Legitimate question. I can rule out traps because: we were able to thoroughly inspect the property and the building. The inspection with an architect and a civil engineer was very helpful: clear case for demolition / partial demolition since a complete renovation would be too costly. Doing everything once and then still having a house from 1960 at the cost of a new build doesn’t make sense.

The situation is as follows: It concerns an older gentleman without family who lives in Berlin. He inherited a large estate from his parents, including several properties. He has already sold many of them. He himself is very peculiar and shy but has had a very close relationship with my mother-in-law for 20 years (don’t ask me why, they just get along). She takes on initial caretaking duties for him.

The idea that his parents’ house is now passed on to a young family at a good price motivated him.
"Seller’s quote: The emotional burden of this property over the past years ultimately led me to finally let go of it. The thought that it now serves as a new home for such a likeable young family pleases me, that’s why I’m offering you the property for €50,000."

Are you sure that’s enough?

That will be revealed in the construction cost calculation. Of course, I am not certain at this point. €1800/m2 living area is a common value for rough cost estimation of a new build in our area, so all-inclusive. (Builder and architect)
Matches the prices for houses in our neighborhood, a new development area.

Until you build and get many new ideas and the special wishes come...

Here I can definitely say that we are very well prepared. I have basically planned the house including materials to be installed. Corresponding room lists are available. Generally, I exclude nothing but feel well equipped to handle major change requests.