Terraced mid-terrace house in Baden-Württemberg needing renovation, financial feasibility

General Information About You:

[*
Who are you?
[LIST]
[*]A family of four in southern Germany


[*]How old are you?


[*]34, 32, 3, 0


[*]Are there children?


[*]two


[*]Are more children planned?


[*]no more


[*]What do you do for a living?


[*]Software developer & marketing manager


[*]Are you employed, self-employed, retired, housewife, househusband, etc...?


[*]employed, wife currently on parental leave


[*]How many hours do you work?


[*]40, 0

Income and Asset Situation:

[*
What income do you have (gross/net)?
[LIST]
[*]~ €5100 (item 3)
[*]€1100 rental income (cold rent)
[*]~ €300 capital gains (after taxes)
[*]I will leave out tax refunds


[*]How much child benefit do you receive?


[*]€510


[*]Other transfer payments such as parental allowance, sickness benefit, etc.?


[*]~ €1800 parental allowance


[*]How much equity do you have?


[*]~ €140k, but earnings would have to be taxed
[LIST]
[*]~ €75k in money market ETF
[*]~ €15k in cash
[*]~ €10k in a home savings contract
[*]~ €40k in stocks/ETFs that can be liquidated


[*]~ €160k still in stocks that we would prefer not to touch


[*]~ €150k in ETFs that are not to be liquidated
[*]~ €10k in stocks that are not to be liquidated

[*

How much equity of this do you want to invest in the house project?


[*]€140k

Housing Costs:

[*
Current cold rent
[LIST]
[*]€630


[*]Current warm rent


[*]€950


[*]Electricity


[*]€150


[*]Gas


[*]billed through additional costs


[*]Water, sewage, waste fees, street cleaning


[*]€80 waste fees


[*]Telephone, internet, mobile phone


[*]€45 internet

Mobility Costs:

[*
Monthly ticket for bus and train (also for the children!)
[LIST]
[*]€0


[*]Car loan (or savings rate for a new car)


[*]€520 company car (all-inclusive leasing)
[*]Second car will be disposed of when broken


[*]Insurance


[*]€42 fully comprehensive


[*]Taxes


[*]€21


[*]Fuel


[*]€17


[*]Repairs


[*]€75


[*]Others


[*]-


[*]Is there a second car, motorcycle, scooter? Please specify all points again!


[*]A company car as well as a mid-class station wagon that spends most of the time in the underground garage

Insurance Costs:

[*
Private health insurance (also additional health insurance, daily sickness benefits, etc.)
[LIST]
[*]€0


[*]Liability insurance (also pets)


[*]€6


[*]Capital or term life insurance


[*]€0


[*]Pension insurance (also Riester, Rürup, etc...)


[*]€0


[*]Disability insurance


[*]€0


[*]Accident insurance


[*]€0


[*]Household insurance


[*]€0


[*]Legal insurance


[*]€23


[*]Other insurances (e.g. travel insurance, funeral insurance)


[*]€3 foreign health insurance

Living Expenses:

[*
Groceries
[LIST]
[*]€630 (incl. diapers, cosmetics, etc.)


[*]Restaurant costs


[*]€250


[*]Care/drugstore


[*]€0 (included in groceries)


[*]Pets (food, vet, medicine, stable costs)


[*]€0


[*]Medications


[*]€34


[*]Clothing


[*]€130


[*]Furniture


[*]€0


[*]Daycare/school fees (and meal money)


[*]€360


[*]Tutoring


[*]€0


[*]School supplies and books


[*]€0


[*]Club fees/gym


[*]€5


[*]Babysitter


[*]€0


[*]Toys


[*]€25


[*]Cleaning


[*]€0 (included in groceries)


[*]TV/video/audio/CDs/DVDs


[*]€9 Amazon Prime
[*]€18.36 GEZ


[*]Tickets (football, cinema, concerts, etc.)


[*]€0


[*]Donations


[*]€0


[*]Others


[*]€400 pocket money man/woman
[*]€50 gifts

Savings:

[*
Vacation
[LIST]
[*]€300


[*]House


[*]€1250


[*]Retirement provision


[*]€1250 (would like to continue after house purchase)


[*]Hobbies/gifts


[*]Included in expenses

Other Expenses:

[*
Maintenance payments?
[LIST]
[*]€0


[*]Loans?


[*]€580 for rental property (interest + repayment)


[*]Others?
[*]Anything forgotten? Please specify here at the latest!

Total Income and Expenses:

[*
Total income
[LIST]
[*]~ €8800


[*]Total expenses


[*]~ €7000


[*]Balance


[*]~ €1800


[*]Of which sum cold rent and dispensable savings (e.g. saving rate for house)


[*]~ €1900

General Information About the Property:

[*
How large is the plot?
[LIST]
[*]280 m²


[*]What is the land value?


[*]€350/m²


[*]New build, old building (year built), house type?


[*]Old building 1984, terraced house (middle)


[*]Garages?


[*]Garage without electricity + additional outdoor parking space


[*]How big is the house? (living area / usable area)


[*]141 m² living area + cellar (approx. 60 m²)


[*]What is the market value of the plot and house after completion?


[*]Good question, I estimate €750k

Construction or Purchase Costs:

[*
Additional acquisition costs (notary, court, property transfer tax, broker)
[LIST]
[*]€60k


[*]Construction or purchase costs (incl. architect, structural engineer)


[*]€550k


[*]Renovation and/or refurbishment costs


[*]€140k


[*]Outdoor facilities/terrace, paths, garden design, fences, etc.


[*]€0


[*]Financing costs (e.g. fees or commitment interest)
[*]Total costs €760k

Cost Breakdown:

[*
Total costs
[LIST]
[*]€760k


[*]Deductible equity


[*]€140k


[*]Financing amount


[*]€620k

We are currently in contact with our bank advisor and later also with a loan broker; we do not yet have a concrete offer. Online calculators give me values around 3.4% interest for 20 years fixed. We would rather not let the rate rise above €2500. According to these data, the project should be feasible, but the numbers still feel quite overwhelming to us.

Additionally, the income situation will change from August for about 6 months:
for two months approximately €1500 net income will be lost, the next four months €900 net income will be lost.
After that, income will be around €1400 + €5100 long term.

Bonuses, Christmas bonuses, etc., I have left out.

(Core) renovation will mostly be done by ourselves. We have already done this with the rental property, so we can estimate the time and cost frame quite well.

What we want to know: Is this feasible? Is it sensible?
If the purchase price dropped by €50k, it would already be much more feasible from my point of view.

Additionally, starting in August, the income situation changes for about 6 months two months with approximately €1500 net income lost, the next 4 months with €900 net income lost.

Irrelevant.

I left bonuses, Christmas bonuses, etc. aside.

Why? Guaranteed payments like Christmas bonuses are part of the income and can be counted. The money comes every year.

If the purchase price dropped by €50k, in my opinion it would be much more feasible.

LOL – we are talking about €200 per month with a long-term income of over €7,000 per month. Given the income (rental income and capital income and bonuses/Christmas bonuses not included), I rather wonder how one should not manage to cover living expenses with over €4,000 per month. Although some expense items might still change (should), for example

[*
Accident insurance [LIST] [*]€0
[*]Household insurance
[*]€0
[*]Furniture
[*]€0 [LIST] [*]Tickets (football, cinema, concerts, etc...) [LIST] [*]€0

[/LIST

[/LIST] And so on. The kids will get significantly more expensive (school, class trips, clothes, hobbies, bikes, etc.) But that does not change the fact that the project – provided the numbers don’t change – is quite feasible. If something doesn’t fit, there is enough in reserve (with €160k in liquid assets, you can do quite a lot. Either on the property or for some time in case of job loss or other extraordinary events).

Whereas some expense items might still change (should), e.g.

[*
Accident insurance
[LIST]
[*]0 €


[*]Household insurance


[*]0 €


[*]Furniture


[*]0 €


[*]Tickets (football, cinema, concerts, etc...)


[*]0 €

We (imho) do not have insurable household goods. We took over the Ikea fitted kitchen 5 years ago for 3500€. Other furnishings were also quite inexpensive. We will only (partly) renew them when the kids are out of the worst phase. For tickets, I actually forgot the family annual pass for the zoo (which costs 5€/month).

And so on. The children will become significantly more expensive (school, class trips, clothes, hobbies, bicycles, etc.)

But that does not change the fact that the project – as long as the figures do not change – is quite feasible. If something doesn’t fit, there is enough reserve available (with 160k liquid assets, you can do quite a bit. Either on the property or for some time in case of job loss or other exceptional events).

The entire (liquid) equity will be gone with the financing. Clearly, by the time the purchase is completed, there will be enough again. We would just prefer not to end up at around break-even every month. What I also forgot to mention: we are reckoning with about a 2-year renovation period. During that time we also have to continue paying rent. The capital gains will be halved (well, the savings rate on A1T8FV is still ongoing), since most comes from the money market ETF.

We (imho) do not have insurable household contents.

No furniture, no clothes, no decorations, no kitchen, no electrical appliances, no bed, etc.? I dare to doubt that...

we are expecting a renovation period of about 2 years. So we will have to continue paying rent.

Then postpone the start of repayment. Saves liquidity.

I also find the distribution of the insurance very suspicious. Instead of necessary insurances like supplemental health insurance, disability insurance, or household insurance, there is a litigation insurance and a fun insurance. In your place, I would check what should be in place to have advantages. Because if I read this here, you are probably mistaken

We (imho) have no insurable household goods.

Other furnishings were also quite inexpensive.

It is about getting an insured subsidy for necessary new purchases. Even if your sofa, for example, was bought used for €60 from an acquaintance, you need a new one if, for instance, your apartment is blackened by a short circuit or defect in the electrical system. Ultimately, everything then has to be new, and that can put a heavy strain on the household budget.

No furniture, no clothing, no decoration, no kitchen, no electrical appliances, no bed, etc.? I dare to doubt that...

It is worth calculating everything, including bed linen, technology, hobbies, etc.

But the question was not about the usefulness of household insurance; however, a sentence like

the numbers do seem quite overwhelming to us.

does show that you have a rather wrong view of your money. You save here and there, have managed to build up very high reserves, good salaries that are increasing again after parental leave... everything looks quite good. What I find a bit lacking, however, is the financial perspective: You write that the second car is being acquired, although mobility should be provided with two children. Then not factoring in costs for the kids, I also do not think is right. When you are finished with the renovation, one child will go to school and costs will likely increase. But that was already said. It doesn’t hurt to make a realistic cost calculation again when the child starts school.

Why?

Because one likes to have something like that as a buffer to pay for other things.

I am not a professional....

But maybe then look for a property without renovation measures etc?

Bring in more equity? For a better interest rate?
3.5% interest... That means you have to generate a safe 5% per year (capital tax solidarity surcharge)

We find our loan, for example, annoying and want to be free again as soon as possible.
3.65% effective
That could also be your approach.

And without rent, only with low ongoing costs, you can reduce working time, have enough money to invest again, etc.

(at interest rates around 1-2% I would have chosen the ETF option as well)