Funding in stages over several years

Hello everyone!
As already mentioned in other threads, next year we will start renovating a masonry barn. Since we will do a lot of this renovation ourselves within the family/with friends (we simply have the best machine resources for this and also extensive experience), we will certainly not be able to move in after just one year, i.e. we are expecting a minimum construction phase of 1.5-2 years.
Now, the "modern financing" – as far as I am informed – usually looks like this: part of it is financed partly as KFW funding and the rest fully via a "normal" bank.
Such a model would cause us triple costs after about half a year – rent for the current apartment, commitment interest for the loan, and possibly already the repayment payments.

Yesterday we had a longer conversation with our… "construction supervisor", let's call him that, since he is also known to the family. He suggested an "old-fashioned" financing by applying for several loans one after the other, e.g. for the first half year €50,000 from the bank + X € from the KFW funding; when the money is "used up", take out another loan of X € for the next half year, etc. etc.
Do you have experience with such "DIY" projects and more old-fashioned financing? Have you perhaps also financed "step by step"? How is the best way to approach a bank about this? The banks will surely not jump at it as it is rather inconvenient/complicated. Our insurance broker also told us in a preliminary conversation that banks only allow or accept a certain degree of own contribution – is that correct or was that a fib?

Looking forward to hearing about your experiences! Best regards :)

Aside from whether a bank is willing to do so, it is a risk assessment. Who says that the bank even wants/can give you the 2nd loan? It depends, among other things, on your future creditworthiness, the capital market environment, the financing environment, and how the bank is doing. If yes, on what terms? Interest rate? If no, which bank then takes the 2nd lien?

In my view, significant financing projects should be fully financed from the beginning. That creates planning certainty, which, mind you, is associated with costs. I can only proceed differently if I am exempt from any creditworthiness issues and can obtain liquidity elsewhere at any time.

Yes, but only a credible share of equity contribution is usually accepted.

What does the "Baubetreuer" do professionally?

I consider financing in several steps, also from various banks, to be nonsense. It is a purchase + renovation of an existing property or a collector's item. Few banks will compete to finance you, most likely your house bank.

Can you even set a financing framework? Is there equity? If you need 100% financing anyway (without payment of "own work") and you already know that commitment interest and pure interest on the disbursed loan will hurt you, then.........

quickly reconsider the project and save up equity.

I also think it won’t work without a corresponding share of cash. You will need it to stay liquid in between, to be able to shop in the short term, and so on. Paying out in several installments spread over a certain period of time does not seem unrealistic to me at all. But you can pretty much forget about KFW, see the conditions of the programs regarding call-off times, completion deadlines, and the like. Too bad, because the conversion and energetic renovation with achieving a KFW standard is not exactly unattractive. But it won’t work with a piecemeal approach.

It will then be, as you imagine, that after one year, for example, when the first money is gone, you would have to knock on banks' doors for a follow-up loan: in tow, the status "shed conversion to residential house half completed, bankrupt and in distress." Explanations to the bank will not be heard, rather an endless construction site will be seen because the builder has miscalculated. No one will finance that anymore.

Almost everyone must calculate provision interest, also the double burden of rent/repayment. You cannot avoid it either.
You are in no different situation than a new builder who has to weigh whether to invest equity over a long period or hire an expensive professional.

Ultimately, even a financier wants a conversion to be completed. A sluggish construction with standstill is not exactly seen as good construction ;)

Greetings

Thank you all for your answers. We have a good sum of equity, so of course we wouldn’t need to finance everything. And the commitment interest would hurt us just as much as it would hurt any other liquid borrower – the money can always be used for better things, and therefore we would like to avoid it as much/long as possible. Especially when we think of a construction phase of 1.5-2 years. I had also thought more along the lines of using as little of our equity as possible during the construction phase, only using it in emergencies, and then fully tapping it once the end is basically in sight. That way, even with a follow-up financing, we would still have equity in reserve… that’s my line of thought. I also wouldn’t approach 3 different banks but rather want to finance with just one local bank, and clarify with them in advance that loan 1 is to be concluded now, and within one year loan 2 will be requested/concluded and maybe a third one thereafter. I understand that banks naturally want to see the house finished and want to get their share. But "in the past" people didn’t always have a house standing within three-quarters of a year either. Prefabricated houses surely weren’t mass-produced either – and yet they could be financed. Is there really no more potential for individual solutions!? I somehow can’t imagine that. Of course, we will discuss this with the bank in the end, that’s clear. But having ideas beforehand can also simplify things :) : thanks, I wasn’t aware of the KfW completion deadlines etc. I will read up on that now, thanks!