Sebastian1986
2022-06-22 23:23:49
- #1
Hello everyone,
I am a silent reader and have already once presented my financing plan here for discussion. The result was a borderline situation. Meanwhile, some things have changed, and I would like to hear your opinion on them.
At the core, my question is how we should proceed. Our starting point is that we have a plot of land (638 sqm; purchase price: 121K EUR; about 190 EUR per sqm, standard ground value: 230 EUR) in a good location. I am now considering whether to A) build now, B) postpone the construction, or C) buy a used property in 3 years.
A) Build now.
We have found a good general contractor with a fairly secure fixed price commitment, no matter what happens. The contract literally states that quantity changes and price changes go at the expense of the contractor and cannot be passed on.
The house has 138 sqm of living/usable space and costs 350K EUR. Many ancillary building costs are already included here.
Our financing offer (annuity) currently runs at 2.87% nominal interest with 1.65% repayment interest. The installment is 1690 EUR. The loan amount is 450K. Interest rate lock for 15 years. We contribute about 90K equity. Of the 450K, we actually only need 400K. However, a recalculation would be a completely new financing and then the interest rate would currently be 4.2%. Therefore, we plan to include a special repayment of 50K.
If we build now, we would have 638 sqm of land and a house with 138 sqm at total costs with capital service of about 640K EUR. Advantage: house in a good location. We are planning it ourselves. Disadvantage: The amount worries me because of the sheer size. It is simply an enormous amount of money and I will spend my life putting everything into this house.
B) Build later
The plot remains as it is, only that we pay off more here and the equity would probably be 130K after 3 years instead of 90K.
Construction costs would probably decrease slightly. However, I am uncertain about this. According to some people from the Home Builders’ Protection Association, they assume the peak has been reached. I cannot assess it.
Average construction interest rates will rise. Our Sparkasse Mittelthüringen assumes that by the end of 2022 we will be at about 4-5% and next year probably around 6%. After 4-5 years, the interest rate should normalize to about 3.xx%. I can imagine that.
The total price probably wouldn’t really change. I would have more equity in the financing but also a significantly higher nominal interest rate. I consider this scenario the most unfavorable.
C) Acquire a used property in 3 to 4 years
I have tried to talk to brokers, real estate financiers (not financial brokers), and Home Builders’ Protection Association advisors in our region. They gave me the following statements:
Currently, the used market in our region is bad. There are hardly any properties, and those available are overpriced. Example: Outskirts, 250 sqm plot with a 140 sqm house about 30 years old for 400K EUR. Ten years ago, the price would have been 180K and about 300K a year ago.
In 2-3 years, it will recover again. There are first signs of this. Interested parties are decreasing. Interested parties make counteroffers instead of accepting prices. Inflation means less money. Wage development is stagnating in our area.
The people I spoke with expect an increase in available properties due to demographic change (death), low immigration to our region, and a decreasing number of potential buyers (inflation, high construction interest, wage development).
They estimate that prices could fall by about 10 - 15% per year. There probably won’t be a huge discount either because concrete is still gold and no one sells below value unless they have to.
However, they also say that there will not be a real oversupply of used properties. Due to the long low-interest phase, many interest locks run until the end of the term or are linked to a home savings contract. So, the currently rising interest rate will not affect them because they are financed. Only illness, death, divorce cases, and unemployment could result in a house coming onto the market.
Now I am considering paying off the plot as much as possible and then selling it. Brokers estimate the resale value at the standard ground value plus about 10-20% surcharge. So about 180K. Adding our equity (90 (current) + 40 (in 3-4 years)) minus the purchase price (120K), I arrive at equity of about 200K. Maybe it will be more because the location is popular. Assuming a comparable property with land then costs 300K and I plan 100K for remodeling and renovation (without funding), roughly only a financing of 200K would be necessary instead of about 400K. The advantage here is clearly the much lower financial burden. The disadvantage is that the house is used, we have to accept compromises with location and house (instead of planning it ourselves), and there is a certain uncertainty. This scenario is interesting to me but somewhat uncertain.
I am fully aware that many crystal balls are at work here and no one knows how the coming years will develop. I also have no idea about the subject. I will probably only do this once in my life and lack experience. Therefore, I try to talk to as many people as possible who can contribute something and hope for your experiences and assessments.
Thank you very much.
lgb
I am a silent reader and have already once presented my financing plan here for discussion. The result was a borderline situation. Meanwhile, some things have changed, and I would like to hear your opinion on them.
At the core, my question is how we should proceed. Our starting point is that we have a plot of land (638 sqm; purchase price: 121K EUR; about 190 EUR per sqm, standard ground value: 230 EUR) in a good location. I am now considering whether to A) build now, B) postpone the construction, or C) buy a used property in 3 years.
A) Build now.
We have found a good general contractor with a fairly secure fixed price commitment, no matter what happens. The contract literally states that quantity changes and price changes go at the expense of the contractor and cannot be passed on.
The house has 138 sqm of living/usable space and costs 350K EUR. Many ancillary building costs are already included here.
Our financing offer (annuity) currently runs at 2.87% nominal interest with 1.65% repayment interest. The installment is 1690 EUR. The loan amount is 450K. Interest rate lock for 15 years. We contribute about 90K equity. Of the 450K, we actually only need 400K. However, a recalculation would be a completely new financing and then the interest rate would currently be 4.2%. Therefore, we plan to include a special repayment of 50K.
If we build now, we would have 638 sqm of land and a house with 138 sqm at total costs with capital service of about 640K EUR. Advantage: house in a good location. We are planning it ourselves. Disadvantage: The amount worries me because of the sheer size. It is simply an enormous amount of money and I will spend my life putting everything into this house.
B) Build later
The plot remains as it is, only that we pay off more here and the equity would probably be 130K after 3 years instead of 90K.
Construction costs would probably decrease slightly. However, I am uncertain about this. According to some people from the Home Builders’ Protection Association, they assume the peak has been reached. I cannot assess it.
Average construction interest rates will rise. Our Sparkasse Mittelthüringen assumes that by the end of 2022 we will be at about 4-5% and next year probably around 6%. After 4-5 years, the interest rate should normalize to about 3.xx%. I can imagine that.
The total price probably wouldn’t really change. I would have more equity in the financing but also a significantly higher nominal interest rate. I consider this scenario the most unfavorable.
C) Acquire a used property in 3 to 4 years
I have tried to talk to brokers, real estate financiers (not financial brokers), and Home Builders’ Protection Association advisors in our region. They gave me the following statements:
Currently, the used market in our region is bad. There are hardly any properties, and those available are overpriced. Example: Outskirts, 250 sqm plot with a 140 sqm house about 30 years old for 400K EUR. Ten years ago, the price would have been 180K and about 300K a year ago.
In 2-3 years, it will recover again. There are first signs of this. Interested parties are decreasing. Interested parties make counteroffers instead of accepting prices. Inflation means less money. Wage development is stagnating in our area.
The people I spoke with expect an increase in available properties due to demographic change (death), low immigration to our region, and a decreasing number of potential buyers (inflation, high construction interest, wage development).
They estimate that prices could fall by about 10 - 15% per year. There probably won’t be a huge discount either because concrete is still gold and no one sells below value unless they have to.
However, they also say that there will not be a real oversupply of used properties. Due to the long low-interest phase, many interest locks run until the end of the term or are linked to a home savings contract. So, the currently rising interest rate will not affect them because they are financed. Only illness, death, divorce cases, and unemployment could result in a house coming onto the market.
Now I am considering paying off the plot as much as possible and then selling it. Brokers estimate the resale value at the standard ground value plus about 10-20% surcharge. So about 180K. Adding our equity (90 (current) + 40 (in 3-4 years)) minus the purchase price (120K), I arrive at equity of about 200K. Maybe it will be more because the location is popular. Assuming a comparable property with land then costs 300K and I plan 100K for remodeling and renovation (without funding), roughly only a financing of 200K would be necessary instead of about 400K. The advantage here is clearly the much lower financial burden. The disadvantage is that the house is used, we have to accept compromises with location and house (instead of planning it ourselves), and there is a certain uncertainty. This scenario is interesting to me but somewhat uncertain.
I am fully aware that many crystal balls are at work here and no one knows how the coming years will develop. I also have no idea about the subject. I will probably only do this once in my life and lack experience. Therefore, I try to talk to as many people as possible who can contribute something and hope for your experiences and assessments.
Thank you very much.
lgb