House purchase or new construction - What is financially feasible?

Good evening everyone,

we, in our mid-30s, with two children (0+3), are currently exploring the possibilities of buying/building a house.
We currently live in a central location in a big city, have everything right on our doorstep, short distances, a great apartment (4 rooms, 130 sqm). What we/I miss is a garden to spend the little remaining time outside after long workdays in the office and to also teach the children some hands-on skills.

Net income (after parental leave) is about €8,300/month (he €6,300, she (60-70%) €2,000). We both receive annual inflation adjustments of 2-4%.
We do not live extravagantly, but we enjoy the possibilities of life (2 cars, one of which is a company car, 2 major vacations per year, high-quality groceries). About €10-20k remain each year.

We currently occupy a condominium with favorable 1.1% financing (installment €1,500/month). With the sale of the apartment, we have equity of approx. €300k available. Before the sale, we currently have only about €50k in equity. There is no financial support from the family. We expect to inherit about €0.

I assumed that with €300k in equity and a good income, building a house should be possible without problems. However, in recent weeks, after many conversations with construction companies and real estate agents, my dream of a new build has been brought back down to earth.

€560k construction costs (€3,500/sqm * 160 sqm)
€400-500k plot (500-700 sqm) top location (almost impossible to get), 5-10 km from the city center
or
€250k plot (500-700 sqm) outside, 10-20 km from the city center
€50k incidental purchase costs
€100k paving, fence, terrace, kitchen, some shrubs

That puts me at just under a million in the commuter belt where I am always dependent on a car or €1.2 million in a nice city location.
Financing of then €700k-900k at currently offered interest rates of 3-3.1% amounts to €2,900-3,800. That corresponds to 35-47% of our income. For both scenarios, concrete offers from our bank including bridging finance exist.

Existing houses are priced at €600-800k purchase price + renovation at the same level. However, with those, I feel like I’m buying a pig in a poke and not 100% according to my wishes, but mostly in better locations/better plots.

Even though of course we have privileged problems, the thought that the added value of a house cannot really be justified financially frustrates me. Am I missing something, or is this the current reality in the market? How did you psychologically approach the challenge? Doing it yourself seems difficult. After 11-12 hours at work + commuting, I still want to have some time for my wife and children.

Do you perhaps have tips or experiences on how you got good plots at prices that are not completely overpriced?

For a new house in a prime location with a nice plot, you would have to earn more again or have saved more. My colleagues who earn similarly have rather built on about 300m² when new in the city. That wouldn’t be for me, but I can understand it.

Having everything (2x big vacations, 2x cars including an expensive company car (assumption)) unfortunately doesn’t work at the moment anymore because the low-interest phase is over.

We decided on an existing house. But to get everything in shape, I have to work many weekends as well (It’s actually fun and a good balance to work). Today, for example, I finished laying the paving around the house. I’m doing all this before our first child arrives; with you, of course, it’s already more difficult now. In terms of price, we are in a similar region as you describe. 800k including purchase-related costs, 140k renovation so far, and there’s still quite a bit to do over the next years ;-).

Even though we obviously have privileged problems, the thought that the added value of a house cannot really be justified financially frustrates me. Am I making a mistake somewhere, or is this the current reality on the market?

Welcome to life. That’s how the market is currently – and it has already become cheaper. Your problem is your wishes – lifestyle and at the same time building at a high price. It can be done cheaper too, but it will fail because of your wishes… Tip: Transfer the 1% financing to the new house. That helps somewhat.

Do you perhaps have any tips or experiences on how you got good plots of land at not completely exorbitant prices?

As long as the prices are paid, they are not exorbitant. You have to get through that. Or move to the countryside.

Good plots of land for not so much money or from your point of view probably very little money are available in the countryside in various regions of Germany. But you probably don’t want to go there. What surprised me a bit while reading... you write about over €8000 net and then "only" saving €10-20k per year, with a moderate rate for your apartment. Where does all the money go? Or how much do you actually have net at the moment?

Good plots of land for not so much money or from your perspective probably very little money can be found in rural areas in various regions of Germany. But you probably don’t want to go there.
What surprised me a bit when reading... you write about over €8,000 net and then only saving "just" €10-20k per year, with a moderate rate for your apartment. Where does all the money go? Or how much do you actually have net at the moment?

My wife has only worked a total of one year in the last three years due to the two children. I also took parental leave. Therefore, less. Before, we also saved around €35k per year at times.

Since I keep a detailed household budget, here is a summary of the main categories for 2023:

€5,800 cars
€500 bureaucracy
€1,300 health/doctor/glasses
€20,300 household (groceries €8,300 / purchases €3,000 / clothing €1,500 / gifts €950 / hairdresser €500 / daycare €2,200 / contracts TV/music/streaming/phone €1,350)
€20,000 living (of which €18,000 last year was vacation, disproportionately high due to 9 weeks of vacation during parental leave. With 4 people, it will probably amount to €12-15,000 per year permanently for a total of 4 weeks vacation per year)
€2,800 insurance (household contents, liability, life insurance, disability insurance)
€27,000 housing (rate + ancillary costs €6,200 + furniture €1,500 + maintenance)

€77,700 expenses in 2023 with €89,500 actual income, but my wife effectively only had 5 months of income and I was on parental leave. Therefore a few thousand income are missing. I only see this as a minor side issue because with 2 children our planning is complete and the income will stabilize soon.

With a rate of €3,000 per month, this would burden us by an additional €18,000 per year. This can be managed with both incomes and a normal vacation budget. But then nothing would be left over. That actually is not purposeful.

Then nothing sticks anymore. That's actually not conducive either.

Well, then you just have to restrict yourself somewhere.. e.g. on vacation. That's where I got stuck anyway: how many vacation days do you have that you plan 4 weeks of joint vacation in the future when you have a schoolchild in 3 years but then have to cover about 12-13 weeks of holidays plus additional bridge days etc. With the usual 30 vacation days, not even overtime results in 4 joint weeks... Normally. Overall, I find your post a symbol of what today's generation of homebuyers is accused of: they complain that they can't afford a house, but it's the expectations that don't fit: best location, big house and at the same time no restrictions on the previous lifestyle. I'll put it quite bluntly: you spend huge amounts of money on vacation and then wonder why you need such a high loan that the interest makes it an unpleasant monthly burden. You will have to turn a screw somewhere or give up a house. No offense intended... just speaking clearly.