My Construction Financing - Which Financing Model to Choose?

  • Erstellt am 2019-04-22 08:37:49

Ausbilder

2019-04-22 08:37:49
  • #1
Hello home builders!

I am happy to have found my way to you – I have been reading along for several months now, and things are becoming a bit more urgent.

About my starting position:
Currently, I already have a property under financing (2 units – residential + commercial unit), which still has a term of 2 1/2 years (out of 5 years), remaining loan amount 55K€ (out of 110K€).
Yield 6%, therefore uncritical in the follow-up financing. However, currently I am paying out of my own pocket because the commercial unit is not rented (burden approx. 250€/month).
This property is located in Bavaria.

I live myself in a large city in Lower Saxony with 170,000 inhabitants, suburban location, about 7 minutes by bike into the city in a tranquil residential area that is currently developing into the "top residential area for families."

The two-family house I live in (upstairs) is now to be sold. I have expressed my interest and we will most likely come to an agreement. I would primarily buy the house so that as long as I still live in Lower Saxony, I have a nice apartment, and afterwards I can rent out the entire building (built in '38 – good condition, rentable, one can renovate every year ;-)) as a capital investment. Why all the hassle? The plot and the equipment are truly indescribable, hillside location with east-facing view etc...

I am the sole earner and have a net income of about 3400€ monthly; realistically, I expect to have about 4000€ net by the end of the year. I deliberately want to exclude my partner’s income as the purchase is to be made solely in my name.
I have expenses of about 1200€ monthly including rent, insurance, etc...
Equity available in the short term 70K€, medium-term another 150K€ (though I would rather not touch that, very high emotional value), emergency solution via parents’ house would also be possible (VERY reluctantly, as I like to stand on my own feet).

The house including incidental costs should cost 430K€, I want to put a down payment on the ancillary costs (plus possibly a small bonus for the house value to reduce interest), i.e. 30-40K€ to keep the rest as a repair reserve.

For the part of the house not occupied by me, I can realistically generate rent of 1200€/month; combined with my current rent, I can therefore finance the loan with 3-3.5% repayment solely through the income and would have to cover payment default only with private assets.

Now my questions:
- Which financing model would you choose in my place? Traditional loan with a long term? Loan split with 10Y -15Y division? Use of a KfW loan for the owner-occupied unit?
- What interest rate would you consider good for this project? (Info: positive credit rating)
- How realistic do you assess the project overall?

Thanks already.
Wishing you a nice Easter Monday :)
Peter
 

HilfeHilfe

2019-04-22 08:50:58
  • #2
Hello and welcome. It depends on your risk appetite. With the low interest rates, repay as much as possible for as long as possible. I think a 15-year fixed term would be ideal. Especially since you also lose on the investment.
 

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