Sell apartments or keep them?

Good day,

I need your advice regarding financing. I have to give a bit of background:

Personal situation:
He and she, both 28 years old, both federal civil servants for life in the upper service level, currently earning about €2,200 net/month each (from September each about €2,400 net/month). Equity currently amounts to about €150,000, of which most (about €100,000) is held in overnight money accounts and in building savings accounts ready for allocation. Additionally, each of us has a Riester contract as well as additional private retirement provision products. However, these should not be touched (tax issues).

Construction project:
We live in Cologne (right bank of the Rhine) and want to build within a radius of max. 20 km (Bergisch Gladbach, Odenthal, Kürten, etc.). We do not own land but have been searching for a while. We want a detached single-family house with about 180 sqm of living space including a basement. Due to current prices, a total budget of €600,000 (including land and all ancillary costs) for mid-range equipment is the minimum. Probably even more...

Now to my actual problem:

In addition to the equity mentioned above, which is directly available to us, there is additional equity:

Besides a larger single-family house in a rural area with a huge, dreamlike plot of land (my father’s parents’ house, estimated value: about €200,000), which I will inherit together with my brother once, I am part of a community of heirs.
The object of the community of heirs consists of two multi-family rental houses. Both houses stand next to each other on the same street. They are well-renovated old buildings (built in 1903 and 1905). Each house has 5 apartments of 130 sqm living space each with large southwest balconies. The gross cold rents of both houses amounted to about €90,000 in 2015 (slightly increasing trend in the coming years).
The houses belong half to my brother and half to me. However, one third of the houses belonged to my mother and one third to my uncle. Both shares were gifted half to my brother and me with lifelong usufruct.
In fact, I have access to one sixth of the current rental income.

I would like to contribute my share to a future financing of the planned owner-occupied home. Therefore, the question arises as to how I should do this most cleverly. One possibility would, of course, be to pay part of the monthly financing amount from rental income and thus increase the financing volume or relieve the family budget. Another possibility would be to include the surplus rental income at the end of a year as a special payment into the financing. This way, the monthly rate could be set relatively high, as no buffer for the special payment at the end of the year would have to be saved (the "standard buffer" for living expenses remains unaffected). A solution in which the family completely retains the houses is preferred, but all participants of the community of heirs can also imagine a partial sale.
Currently, apartments that are very similar to ours in type, size, age, and condition are being offered for €300,000-350,000. For example, it would be possible to sell 2 or 3 apartments of one house to increase one’s equity. However, I have no idea how it works when you want to sell part of the apartments from a building with several apartments of which you are the sole owner. Is it even possible to find a buyer if the majority of the apartments are still held by one owner?! You can be outvoted on all decisions...

My concrete question to the finance experts is:

What would you advise? Keep the houses completely and use the houses only as collateral and for repaying the installments, or sell part and increase equity?

I hope I was able to explain the situation clearly.

Thank you very much for your help.

Best regards

Chris :D

Without being an expert in the field, the following questions arise for me: - Can you even sell individual apartments? I believe you would have to be the sole owner of individual apartments. If each of you has a proportional share in all the apartments, then you can be outvoted. Talk to your relatives about what they think of your plan. - You have only posted gross rents. How much money remains after all deductions, which you can record as your "net income"? I personally would rather hold onto the apartments than sell them, as long as they generate profit.

Oh and one more option: First offer your shares for purchase to your relatives. That way everything stays in the family.

In my opinion, the most sensible thing is to keep the houses and use the rental income to pay down the mortgage. Unfortunately, your salary is not sufficient to cover a corresponding installment alone (e.g., as soon as children come into the picture).

Selling only makes sense within the family. Apartments with registered usufruct are (almost) impossible to get rid of, and if at all, only at a reduced price.

Whether you want to sell the apartments or register a mortgage on them, you would first have to divide the houses. Currently, you own 50% of everything, but it is not defined what exactly. Even if you want to register a mortgage, you have to do this. The problem is that the usufruct is also registered in the land register. The bank always wants to be in first place (before the usufruct). This means that if a foreclosure occurs, the usufruct is subordinate, and your uncle/mother could be evicted from the apartment in the worst case. I would not do that in their case.

That is why I consider it best to use the monthly rental income of approximately 1200 euros directly to pay down the mortgage.

As long as the usufructuary does not step back behind the bank, you can only use the additional security for the bank to a limited extent, or you have to expect corresponding discounts.

In my opinion, this will not be worthwhile.

Better to keep it (as long as it generates a small income) and use the profit as a special repayment, or to make life nicer, whether through investment in vacation, furniture, or your own garden.

Good day,

Construction project:
We live in Cologne (right bank) and want to build within a radius of max. 20 km (Bergisch Gladbach, Odenthal, Kürten, etc.). We do not own a plot of land but have been searching for some time. We want a detached single-family house with about 180 sqm of living space including a basement. Due to current prices, a total budget of €600,000 (including land and all additional costs) for a mid-level finish is the minimum. Probably even more...

Besides a larger single-family house in a rural area with huge, dreamlike plot (my father's parents' house, roughly estimated value: about €200,000) which I will inherit together with my brother, I am part of an inheritance community.

If you are considering selling, my first tip would also be: try to find a buyer within the family. However, I believe that as extensively as you have described the situation here, this possibility has already been thoroughly discussed and is not feasible.
Otherwise, a sale would be difficult. Are your shares actually to be understood as a percentage of the whole or are you assigned income from certain apartments (possibly including a registration)? In the second case, perhaps the apartment from which you receive rent could be sold – in the first case it is too complicated and a potential price reduction would probably be too high (a sale would not be worthwhile).

Last point:
Is your father's plot + parents’ house located in the building area you have chosen? Would it be an option to build another house there (plot subdivision and house construction)? Then you would have already significantly reduced your building costs, since you would not have to buy a plot of land.