Financing Plan House Purchase General

Hello everyone,

I had already posted a thread here last year – but since a lot has changed since then and for the sake of clarity, I think a new thread is better (if not, just delete it).

We have been looking for a house for over a year, and it is becoming increasingly clear that a house in the city will be significantly more expensive than expected – depending on how prices develop, we will probably soon be facing seven-figure amounts. I would simply like to run through a current example here, where I come to "well doable" based on the household budget, but due to the amortization rate and the loan amount still have some concerns.

General about you:

[*
How old are you? 37, 37, and 2 years old
[*]Are children planned? One more for next year
[*]What do you do professionally? Employees as software developers in the industry (IG BCE in the AT area), tourist professional
[*]How many hours do you work? Full-time (37.5 hours) or planned part-time (20 hours)


Income and asset situation:


[*]What income do you have (gross/net)?
[LIST]
[*]Me: Gross €8000, Net: €4585 (tax class I)
[*]Girlfriend: currently €0, estimated part-time net ~€900-1000 (reorientation as her employer didn’t survive Covid)
[*]Child benefit: €219
[*]Rental income (in my girlfriend’s name):
[LIST]
[*]Single-family house (120 sqm) outside the city: €450 cold rent
[*]Terraced middle house (120 sqm) in the city: €640 cold rent apartment (80 sqm) + €300 shop cold rent (40 sqm rented to a social organization)
[*]Photovoltaic: €219


[*]In total, WITHOUT my girlfriend’s salary, with one child we have about ~€6150 net and with two children about ~€6350 net after deducting rental/photovoltaic tax (since my girlfriend currently has no salary, the tax is accordingly low). With a part-time salary, we should have about €7000 net.

[*

How much equity do you have?


[*]€450,000 cash/stocks
[*]Single-family house value: ~€300,000
[*]Terraced middle house value: ~€300,000


[*]How much equity do you want to put into the house project?


[*]€410,000
[LIST]
[*]€40,000 buffer for expenses on the two owned houses and other unexpected things, as well as initial furnishing

[/LIST]
Expense situation:

Housing costs:

[*]Current cold rent: €980
[*]Current warm rent: €1130
[*]Electricity: €50
[*]Gas: €76
[*]Phone, internet, mobile: €80 (paying the mobile contract for mother-in-law)

Mobility costs:

[*]Monthly ticket for bus and train (also for the children!): €250
[*]Car loan (or savings rate for a new car): 0
[*]Insurance: comprehensive for 1-year-old, paid-off car: €35
[*]Taxes: €15
[*]Fuel: €70 (I take the train and my girlfriend is temporarily not working)
[*]Miscellaneous: ADAC €11

Insurance costs:

[*]Liability insurance (also for pets): €14
[*]Disability insurance: €40 (me)
[*]Household insurance: €15

Living expenses:

[*]Groceries adults: €500 (incl. restaurants and drugstore)
[*]Clothing adults: €150
[*]Daycare/school fees (and meal money): meal money €50 (fees will be relevant only once more for a 2nd child for 1 year: ~€300, then also child benefit and one more year parental allowance before)
[*]Child 1 costs: budgeted €500 (clothing, toys, food, diapers, furniture, class trips, pocket money... depending on life phase)
[*]Child 2 costs: budgeted €500 (clothing, toys, food, diapers, furniture, class trips, pocket money... depending on life phase)
[*]Cleaning: €100/month
[*]Subscriptions: €25
[*]Donations: €5
[*]Tax advisor: €40
[*]Account fees: €5
[*]Contact lens subscription: €28

Savings contributions:

[*]Leisure and vacation: €500 (incl. all leisure activities, clubs, hobbies, annual vacation)
[*]Reserves rental houses: €200
[*]Reserves new house: €150
[*]Furniture and household appliances: €100
[*]Electronics: €100 (laptop, smartphones, cameras, etc.)
[*]Car: €200 (incl. repairs)
[*]Retirement provision: €150 ETF savings rate

Income and expense totals (current):

[*]Total income: 6150
[*]Total expenses: 5090 - 980 cold rent = 4110
[*]Balance: €2040

Income and expense totals (with girlfriend working part-time):

[*]Total income: €7000
[*]Total expenses: 5090 - 980 cold rent = 4110
[*]Balance: €2840

We are aware that the costs and savings are probably estimated rather high, but we do not want to permanently have to restrict ourselves compared to the current standard of living if possible. If 1-2 years of vacation is lost or smaller (e.g., with child 2), that is no problem, but not permanently. We also do not want to end up having to pay for a car in installments, etc.

An exception might be retirement provision, but here the security is extremely good:

[*]I am at about €3000 gross via the statutory pension + company pension. The ETF savings run only on me.
[*]My girlfriend is an only child and will, in addition to the already existing real estate, inherit two more each worth ~€500K.

Construction or purchase costs:

[*]I don’t have a specific property in mind, but it can easily come to €1 - 1.1 million (all inclusive – purchase price, renovation, kitchen, furniture, ...) for a detached single-family house with 150-180 sqm (we have just found this with a property). It may well be €100-200K cheaper, but that would be the maximum we would pay if everything fits (location, neighborhood, land, ...).

Cost breakdown:

[*]Total costs €1.05 million
[*]Deductible equity €410,000
[*]Financing sum ~€650K

We would like to keep the existing properties. The plan would be as follows:

Loan:

[*]Loan amount: €650,000
[*]Fixed interest period: 20 years
[*]Interest rate: 1.28% (offer from ING available)
[*]Financing sum ~€650K
[*]Installment: €2000
[*]Remaining debt after 20 years: ~€290K

The idea is that we pay €2000 for 20 years. When my girlfriend goes back to work, it is not a problem at all and we can make substantial extra payments. After 20 years, we then look at the situation: how high is the remaining debt actually? Have we inherited anything? If we have made no extra payments and inherited nothing at all, we would probably sell one of the houses (inflation in 20 years should have compensated for a potential price decline?) and if that is not enough, pay off the rest or in the very worst emergency also sell the second house.

To me, that sounds quite safe. What do you think? Have we overlooked anything?

Bare number = tight, but plenty of buffer in the savings contributions. However, since you are also saving in the house = repayment, I consider it relatively relaxed.

Do I understand correctly that you have a single-family house worth 300,000 EUR, which generates a cold rent of 450 EUR?

If the rent cannot be significantly increased, I would consider selling it and holding more money in my ETFs instead. After deducting costs and taxes, there might only be a return of 1.5%, if at all, on the rent. You should be able to achieve significantly more with ETFs.

Do I understand correctly that you have a single-family house worth 300,000 EUR that generates a cold rent of 450 EUR?

If the rent cannot be significantly increased, I would consider selling it instead and keeping more money in my ETFs. After deducting costs and taxes, there might be a return of 1.5%, if at all. You should be able to make significantly more with ETFs.

Yes. The house was inherited and the tenant is 80, doesn’t have much money, has lived there for 45 years, and causes zero problems. You could certainly get 700€, which would also provide some buffer for financing. In the other house, there is an additional 100-150€ more possible, but there are also long-term tenants there who cause few or no problems. It's more valuable to us than pushing it to the maximum.

You haven’t taken ancillary costs into account, have you? The €2000 balance is completely used up by the installment.

Is the gas included in the warm rent? Even if not, €150 + €76 + €50 = €280 seems very low to me for an existing building of 180m².

Reserves for the rental houses seem low to me. Costs for children (if the kindergarten is free for you) are very high. Perhaps it balances out. With the rental houses in the background and a possible sale if it gets tight or life does not develop as planned, I find the financing amount manageable. The rental houses are not burdened with loans? Open land charge?