Sell a house or build something new?

Real Estate
1

Hi everyone,

A few years ago my wife has bought a plot via family “privileges” with a 1 family house in the outskirts of Fribourg.

The surface plot is around 800m2 and the house is 120m2 excluding the basement

It has a mortgage of 450000chf

It is a fairly old house with renovations to come (electrosystems for 15000chf and possibly heating system for 35000chf)

It is actually rented to a family for about 2300 chf per month.

We are wondering about possible scenarios:

  • Selling the house in a few years to profit from tax advantages
  • Put the house down and build a small appartment building (once the current mortgage has dimished)
  • Keep the house as it is and make the necessary renovations.

Important thing to note is that we do not plan to move and live over there, since we are very confortable in our current city.

What do you think? Has anyone some experience dealing with this kind of scenarios? We know real state is not great return of investment but anyways nice to have.

Thanks in advance!

2

depends on the house, it’s state and potential renovations. i’ve seen some renovations that would have been much cheaper to do a full knock down and re-build.

i suspect knock down and rebuild would make more sense.

3

You need to put numbers behind each scenario. Do not forget to take into account the time required to get the permits and the works done.

Prior to that, the only way to discuss this is if there is an option you already want to pursue regardless of the investing sense it could make, which doesn’t seem to be the case.

I would request quotes from a general contractor to have a rough idea of the costs of tearing down the house and replacing it with a building. If the purpose is to rent appartments out, it should be possible to standardize it (though you should still plan for potentially big surprises).

4

Where I live, you’d rather sell the property… Then it’s up to the highest bidder and local rules whether it stays a single house, gets split into 2-4 plots, or an apartment building.

Given you don’t want to live there, and unless you want to double as landlord or get into real estate, I’d sell it.
For sake of fairness maybe offer the current renters to buy it at market conditions.

What’s the tax difference for waiting? With plans to sell, I wouldn’t rush it with a low offer, but not wait for years just for tax advantages, either.

1 Like
5

Which tax advantages do mean exactly?

2300 for a whole house sound like a bargain deal for the tenants :slight_smile:

In any case, I would probably sell the property and invest the money in global ETFs. My thoughts:

  • The current renovation plans might only be the beginning. Once you start on renovations, other areas might come up that will also need repair.
  • Rebuilding the house will take a while to make you break even.
  • Don’t underestimate the additional amount of time that you will need to invest for renovation or reconstruction.

Having written that, if you find pleasure in dealing with renovation or reconstruction, or if you are financially already well off so that this real estate is not the largest part of your assets, you might want to consider doing the reconstruction.
My lowest preference would be the renovations.

6

I assume the tax advantage is that capital gains tax rates diminish over time.

7

Thanks for all of your input. It’s much appreciated. We don’t want to make a rushed decision, so we’ll take our time to carefully weigh all the available options. Speaking with a contractor sounds like an interesting idea that we hadn’t considered yet.

8

Yes, exactly.