Need your assessment for the renovation of a rental property

A warm hello to the forum.
Before I tackle this project, I would like to introduce myself and the house to be renovated and ask for your opinion. I am 55 years old, married with three almost grown men in Hamburg. We live in a replica of an Efficiency House 50, built stone by stone Danhaus Glücksburg. I have some building experience with a new build from 2011 and a small renovation of a single-family house from 1954/roof insulation in 2014.
I know that the times for renovation are difficult, but since I am somewhat running out of time health-wise (eyesight), I would simply like to hear your opinion, also on the economic viability of this renovation project, especially since it is not owner-occupied but a rental property.




The two-family house is unencumbered

[*]2 separated apartments 92m² + 90 m², accessible from the hallway, located in Essen Haarzopf on 460 m²
[*]Plot borders directly on forest, in an almost completely renovated quiet residential street (compared to the other houses) – all very beautifully renovated
[*]Forest at the back; land value 420 euros/m², nevertheless very good nearby infrastructure
[*]Rental income per apartment minimum 750 euros cold rent (apartments currently vacant)
[*]The house was rebuilt after the war, around 1960
[*]Condition is good: roof tight, basement dry, installations such as water, electricity, heating already done
[*]Upper apartment was fully renovated inside: electrical wiring, bathrooms and radiators, laminate
[*]Lower apartment requires 6 radiators, laminate, and possibly bathroom renovation from 1980

Planned works:

- Roof insulation and new roofing, possibly with a dormer, insertion of a chimney up to under the attic floor
- Facade insulation – old plastic brick cladding must be removed, old insulation removed at the back
- All windows to be renewed – currently old aluminum frames
- Replacement of two gas heaters with a central gas heating system with only one burner and heat meter for two apartments (replacement of gas piping inside the house), plus hot water support from the roof for KfW 115/100 house (other heating technologies probably not effective)
- Basement ceiling insulation probably unavoidable for KfW
- Attic floor will have laminate; the floor (screed) is already insulated with Styrofoam and covered with chipboard, possibly 2 radiators + dormer possible + 2 additional skylights with sun protection (providing a DIN area of about 35 m²) usable space for a work area, guest room, play area (not recognized as living space as the staircase is only 75 cm wide)

Investment amount, my rough estimate, is 200,000 euros planned renovation to at least Efficiency House 115 / minus repayment subsidy of 30,000 euros, KfW 430 grant program.
In 2003, 50,000 euros could flow directly into debt repayment as the goal would be to be almost debt-free in 5-6 years. Rental per apartment is realistically set at a minimum of 750 euros; if the attic is added, it could increase.

My alternative would be to rent out as is without doing anything; still, the heating will probably require 20K euros.
Selling the house would bring about 350-380K euros – but lacks inflation protection and a good secure investment form.

What do you think, is such a renovation really feasible at these costs, what should I consider in my reflections?

I see your proposed measures as realistic with 200k.

Thank you Joedreck for the cooperation. In the course of the CO2 price increase on oil and gas, possibly still consider pellet heating? The cellar room(s) would be available. Possibly the goal or the funding can still be increased. (Disadvantages electricity, cleaning, maintenance known) What I do not yet know is how positively a pellet system affects the calculations for the KFW efficiency house.

I don't know if I would put so much effort into an investment property if the stated goal is apparently the fastest possible payback.

- The attic is supposed to get a dormer, windows, heating, insulation, and flooring, but will then remain mere utility space. I'm sure the tenant will find that nice, but would they still want to pay rent for living space because of it?
- Dismantling and insulating the facade will probably cost at least €30,000. The energy savings benefit the tenants, the appearance benefits the neighbors. What do you get out of it?
- Re-roofing will also cost around €40,000. Is that necessary, or could it still last another 15 years?
- A new heating system makes the most sense, as it generates the biggest chunk of future heating cost savings. But why an expensive internal chimney that also takes up living space? For a pure rental property, I think it can just as well hang on the facade in a stainless steel version.
- The same basically applies to the windows as to the facade. It's a comparatively expensive measure whose benefit in the form of lower heating costs goes solely to the tenants.
- KFW will not bring in the stated €30,000 in any scenario. Program 430 provides 15% for the heating system in combination with, for example, windows, and 10% for other individual measures such as facade insulation. Assuming a total investment of €200k (on the assumption it would be fully spent on eligible measures) and €50k for heating/windows (= €7,500 subsidy), you can expect at best €22,500 in subsidies (Efficiency House 115 = €12,500 repayment grant).

More sensible in terms of future rental are things like bathrooms, floors, interior doors, or electrical work (keyword: sockets) and maybe a kitchen.
With heating, one could actually consider a pellet boiler. It is usually comparatively expensive as an investment, but subsequently produces a lot of heat cheaply. So actually perfect for an energetically unrenovated old building.

If you're interested in my personal opinion: sell the place and put the money under your mattress if necessary. The thought "inflation is eating my savings" is just a theoretical construct. Especially since you should also consider that you can currently achieve a much higher selling price than possibly in 10 years and that the renovation itself is anything but a "safe investment." What happens with cost increases, inflated bills, or construction delays and botched work? Will the investment reflect 1:1 in the property's value in the end? What do you do in case of vacancy or problem tenants?
Moreover, such a big savings cushion offers enormous security and flexibility for old age.

In short: sell, or focus on heating and interior appearance when renovating.

Renting out in Essen from Hamburg?
Think about [Makler/Verwaltungskosten].

I wouldn’t do it. Sell.

There is still family in Essen, Dr. Hix. Repayment should be as fast as possible since the depreciation runs over 5 years, then it is gone and the rental income must be taxed. When the repayment is almost done, the tax does not hurt as much as when you are still paying the bank. If we sell the house now, we cannot invest the money sensibly for the next 5-6 years. The property management will then be taken over by the son (lawyer), as with another already renovated house in Hamburg. If the house is not rented out for 5-6 years or the money lies under the mattress, then I can also renovate the house during that time and possibly sell it later. I would have an additional depreciation amount left over in those 5 years that would have a tax-advantageous effect on current additional rental income.
- You probably misunderstood something: The chimney is not in use, there is already one for the heating system, therefore no weak point on the roof and no elaborate cladding if it is taken down to just below the attic floor. Also advantage: more movement space in the attic.

I find your concerns good and realistic, Dr. Hix, and partly there is already experience with disputes between builder and tenant up to the regional court. I don't want to come across as a know-it-all and these questions and concerns had to be asked. In general, our courage as a family has paid off so far to buy, build, and renovate. However, we want to remain realistic, such a comprehensive renovation is something else...

Why little funding with 115 efficiency house with 2 residential units 15% subsidy means for me 2 x 15 K = 30 K. Possibly also BAFA for pellet heating possibly 3.5 K + solar thermal - or am I seeing that wrong?
It will be important in the future to have an efficiency house since no one wants to live uninsulated anymore. I do not want to sugarcoat the project, I also see that the investment only pays off in the long term. Some people dream right away of a 55 KFW house with a lot of personal work...

But your In short: Sell, or focus on heating and interior appearance when renovating. - is exactly the point why I turned to the forum. I would appreciate further opinions and would like to thank Dr. Hix once again for commenting on my reply and correction...