House sale - New construction - Bank plays along - Risk?

Following situation:

we have built and want to sell and build again (we have the land commitment), because we do not feel comfortable due to various factors. I have already disclosed the reasons for this in another thread. Therefore, please no discussion on this.

Since the topic sale and new construction has not yet been sufficiently discussed, I would like to open a separate thread on this:

We have now been to the bank and discussed the matter. They were very open to our plans, which honestly surprised us. We thought they would rather dismiss us. But the opposite... they worked out an immediate solution with us and even cautiously encouraged us to do it. In the end, we left the conversation with a great feeling, but still uncertain, as the bank of course does not do this purely out of goodwill.

It could proceed as follows:

The bank gives us a second loan, say for example €500,000. Interest either variable or fixed for e.g. 2 years. With this loan we could buy the land and build the house.

2. We would then have to sell our current house over time. The money from the sale of the house flows into the repayment of the second loan, with which we built the new house.

3. We keep our current loan from the current house. This is only transferred to the new house after the house is sold. Advantage: conditions remain the same, repayments made remain, no prepayment penalty. - I don’t see any disadvantage here, do you?

4. During the construction phase we would have to service the existing loan + the interest on the new loan. We could do this easily, since both full earners.

5. The bank would even, if things get tight, allow the current loan to be repayment-free for up to 2 years. Meaning, we would only pay interest. Of course, the term would be extended.

6. For a while we would have mortgages of over 1 million until the house is sold *phew* :)

Now to the risks we see:

1. if we realize less from the sale of the house than planned, we would have to take on the difference in the form of additional debt. Example: house brings in less than 500k for the new build, say only 470k, then we would have to take on and repay an additional 30k. Probability 50/50?

2. If we do not get the house sold, we would have to rent it out and cover the difference between missing rent and payable loan. Probability 30%?

3. Interest rate risk: with a variable interest rate for the new loan, we would be exposed to possible interest rate fluctuations during the construction phase – but since we are "only" paying interest, this should be manageable.

4. Bypass road at 20-30m distance a sales risk? Location itself is great (close to universities, universities of applied sciences, supermarkets, doctors, many jobs, large cities, nature) and the desired price comparable to existing properties. Older houses from the 70s go for similar prices or more plus need for renovation. Still, we cannot estimate to what extent the road is a hindrance here. We consider ourselves very sensitive to noise. Visitors and relatives have not heard the road so far. What speaks for our house is the equipment and architecture praised multiple times from many sides (architects, construction supervisors, craftsmen, friends).

What have we overlooked? What risk do you see? Is this a good deal? For us it sounds like a fair deal, where the bank of course also profits, but ultimately lets us come out of it fairly well... e.g. no prepayment penalty.

Or, what do you think?!

So a brand new building has a problem. Either you like it as it is or you don't. You don't really start to live out your ideas. After all, the place is expensive enough. That can be a problem because it significantly reduces the circle of interested parties.

The other thing is, of course, that every potential buyer suspects you are in an "emergency situation" or that something is wrong with the property; in other words, you have to keep your nerves. Do you want to sell it yourselves or through a real estate agent?

2. Wenn wir das Haus nicht verkauft bekommen, müssten wir es vermieten und die Differenz aus fehlender Miete und zu zahlendem Kredit leisten. Wahrscheinlichkeit 30%?

Cold rent is not equal to actual income regarding renting.

And what you completely left out; the tax office. Because it also wants to tax your sale; of course only if you made a profit from the sale and of course if you sold too quickly.

Since you built it yourself, a tax advisor is helpful here to explain possible pitfalls to you more closely. (e.g. regarding the topic of personal contribution etc.).

We built with a general contractor, not by ourselves. Own work was not a major issue.

Speculative profit should also not be a topic. Our goal is to sell at break-even. Even if a profit were to arise, it would not be taxable at the time of the house sale. We have already checked that.

How do you see the bank's offer and the risk regarding the financial situation?

Whether we sell with an agent or by ourselves is still open. I could easily do it myself, which would save the buyer a commission. I think that if the sale is plausibly explained, anyone can understand the reason for the sale. The fact is, we do not feel very comfortable in the area, and I think that can be argued. We can refute any suggestion that there is something wrong with the house. We had appraisers who accompanied and documented the construction. The general contractor is also a renowned, very well-known company and has an excellent reputation in Bavaria. Therefore, that should not be an argument against it.

The risk is quite clear: you will not achieve the desired price.

From this, the following questions arise:
1. What is the pain threshold for the selling price?
2. How high is the risk of landing below the pain threshold?
3. Is there a Plan B and how well does it work?

Number 1 you must answer for yourselves. The more honest, the better.

Number 2 can be researched/experienced to some extent. With gut feeling and 50/50, the risk would be much too high for me!

Number 3 renting out the house could work, but it could also go wrong. The question is how tight is the housing market? How high would the cold rent be and could you not rather pay off your own house with that money? You could also have bad luck with tenants. Do you have enough reserves to survive several months of vacancy? Can you do repairs yourself or do you have to hire a craftsman every time? What remains from rental income must be taxed...
For me Plan B would at most be to calm myself down, but it would not really be feasible.

I would mainly focus on Number 2: assess/minimize risk.
- Is it possible to sell the house before the 2nd construction project (with handover after construction period): hardly any risk, but possibly financial losses.
- You can invest in an appraisal and have the house evaluated. -> Estimate risk
- You can show the house to a few real estate agents and ask them from their experience to say at what price they would sell. Of course, they would tend to estimate too high, but you get an approximate direction.
- You can research how many plots of land are available in the area. An almost new house competes more with new builds than with houses from the 70s (different customer group).

At least that is how I would proceed. Too much is at stake for me to rely on gut feeling.

Best regards

The fact is, we don’t feel very comfortable in the area, and I think that can be argued.

From the buyer’s perspective, it’s rotten in the state of Denmark when it comes to an almost new house. At least if it’s not due to the property itself; one assumes a "personal" emergency situation.

From my own personal experience during viewings, the 3 houses we looked at (maximum 2-3 years old) were very suspicious.

Of course, the price expectation was also a problem. And that for two reasons.

First, to pay the new price for a house you didn’t configure yourself.
Second, Father State who wanted the property transfer tax on the entire price.

We much preferred the houses due to a death in the family.

Even if significantly more would have had to be done there.

Or exactly the other way around: I bought a 2.5-year-old house. I was willing to pay a lot of money for it because I didn’t really feel like/have time for building a house, landscaping the garden, paving terraces, driveway, etc. Probably even above the construction cost price. Of course, the house has to fit in the main points ...