Author Topic: Financial fork in the road with short deadline. Need advice!  (Read 1490 times)

sauwan

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Financial fork in the road with short deadline. Need advice!
« on: April 07, 2018, 10:02:07 AM »
Hello Mustachians,

We're in a bit of a quandary. We were recently offered a really good deal on some beautiful land very near to our city, and they need to make a soft bid by april 20th. And we're TORN. Need advice.

But first, let me give you a little intro/background. We're a family of 4 (two kids, 2&4y.o., with officially no more growth). Early 30s. We live in a smallish city (50k people) in the upper midwest, so our costs of living are pretty low (for comparisons sake $100k here is equivalent to $130k in Longmont CO according to bestplaces.net's cost of living comparison). I have a pretty decent job (~$85k/year) and my wife works part time (~$26k/year). I discovered MMM about 11 months ago. Fortunately, we already lived somewhat Mustachian. I've been biking to work year round for about 7 years now. We only own a single car. We own two homes - our family home and a rental. The rental is fully paid off (estimated value ~$120k) and rents for $900/month. Our house mortgage is at about $104k (home value ~ $180k). We've got about $80k in a 401k, and another $30k invested in my company (which was borrowed form our 401k). I've got 15% of my income going into that 401k right now.

Since discovering MMM, I've been more closely tracking spending (we have 11 months of data, so it's extrapolated out one month), with a rough breakdown here:
https://i.imgur.com/ggtmQz1.png

Within 3 years, we should have both kids in elementary school, so childcare costs should decrease shortly.

So, to the crux of the matter. Due to some state politics, my job's a little questionable right now. And our housing market is really hot (only 3 months inventory, whatever that means) so about a month ago we decided to sell our rental and use the proceeds to pay off our main house's mortgage. The lease ends in two months (end of may), so we just let our tenant know we wouldn't be renewing, and they were fine with that (we didn't want to put the house on the market with them in it because 1) they're college guys (who are otherwise great), so their stuff doesn't flatter the house, and 2) it's a smaller house, and they have it packed to the gills, so it feels even smaller.

But on Tuesday, we got a call from a friend who's an organic farmer. Their extended family has some land (~400acres) they're trying to sell, and they want to buy it. We would probably be able to get it for well below market rate ($2500/acre, where the market rate for this might be 2x or 3x that), and it's beautiful land up on a hill crest with amazing views, and about 7 miles from our downtown area. It would be split between 6 families or so. EDIT: We would be buying ~40 acres for $100k. There's a main dirt road that bisects the property, so everyone's land would be accessible via easement. The current land has an operating orchard on it, which would be converted to an organic orchard (about 70% of the trees need to be retired due to age and neglect).

For a long time, I've wanted to buy some land, and build a net zero house on it. My wife is not quite as interested in moving short term, but she likes the idea of the land.

There's some snags here that we see.
  • we would initially be buying the orchard, with the intent of shutting it down and parceling the land. But if we did that, we're not sure if there would be capital gains repercussions, because the land would likely be valued quite a bit higher than what we would be buying it for.
  • we are a bit further behind on our 401k than we would like, and have no college savings to speak of. The intent was to use ~50% of the earnings from the rental to save for college, or, more recently, use the money that would have been going to the mortgage to bump investments more. And once the kids get into public school, we'll have more money available to save every year. But it's time to start saving
  • the bill that puts my work in jeopardy has passed the senate, but is snagged in the house. They have until April 17th to finish all their unfinished business before they recess for the year. If that bill passes, I think we have to pass on the land, just due to uncertainty. If it doesn't pass then we have a decision to make, and 3 days to make it in.

So the question is (considering the state bill doesn't pass), despite the land being a great value and something we both really like the idea of having for us and our kids, are we sacrificing too much? FIRE goal would be in the 10-15 year timeframe, if not a little sooner. Would it make more sense to sell our rental house and buy the land outright? Sell the rental house and pay off our house, and get a loan for the land?

(also, any general comments or suggestions are appreciated!)
« Last Edit: April 07, 2018, 11:14:42 AM by sauwan »

jlcnuke

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Re: Financial fork in the road with short deadline. Need advice!
« Reply #1 on: April 07, 2018, 10:27:47 AM »
Your job is potentially in jeopardy. Your wife isn't 'all-in' on the idea of buying an orchard to begin with.

Without even considering any other thing, those two factors alone tells me it's not a good idea.

sauwan

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Re: Financial fork in the road with short deadline. Need advice!
« Reply #2 on: April 07, 2018, 11:08:04 AM »
Your job is potentially in jeopardy. Your wife isn't 'all-in' on the idea of buying an orchard to begin with.

Without even considering any other thing, those two factors alone tells me it's not a good idea.

Yes. Totally agree.

However, the bill will either pass or not pass by April 17th (that's when the legislators adjourn for the year). We have until April 20th to make a decision. If the bill passes, I totally agree that we walk away. I'm asking about if the bill doesn't pass (guessing that's about a 50-50 shot right now).

I forgot to mention - we would be getting ~40 acres for about $100k. I'll edit the main post.

And my wife was actually the one who brought it up. I think she's very interested; she just wants to make sure it's not a poor financial decision that we're making in haste. I would likely want to build on the land in ~5 years. She's more inclined to wait 10-15 years once the kids are nearing college. But we both want that at some point and recognize that we probably won't have a better opportunity to buy anything like this in our lifetime.

ToTheMoon

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Re: Financial fork in the road with short deadline. Need advice!
« Reply #3 on: April 07, 2018, 03:30:24 PM »
Will your 40 acres be subdivided off & separately titled or are you looking to purchase this land with 5 other families?  If the latter is the case, that seems like a recipe for trouble down the road.

If they are subdividing the land and selling the parcels separately, why would they sell it to you at such a heavy discount?

sauwan

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Re: Financial fork in the road with short deadline. Need advice!
« Reply #4 on: April 07, 2018, 04:05:34 PM »
Will your 40 acres be subdivided off & separately titled or are you looking to purchase this land with 5 other families?  If the latter is the case, that seems like a recipe for trouble down the road.

If they are subdividing the land and selling the parcels separately, why would they sell it to you at such a heavy discount?

The total acreage is 400 acres. We'd (my wife and I jointly) be buying a 40 acre lot that would be parceled off separately.

Thegoblinchief

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Re: Financial fork in the road with short deadline. Need advice!
« Reply #5 on: April 07, 2018, 04:53:03 PM »
Do you have a desire to own that much land, and all the work that comes with a property that large?

Any concept of the costs of developing the land for housing? Utilities, septic, well drilling, etc. Even if you plan to be off grid the jurisdiction may not be amenable to that. 

Any guarantee the jurisdiction itís in will let you do all the dividing, zoning, etc to parcel it out, build houses, etc.

Thereís a lot of due diligence in property purchases, particularly rural ones, I would NOT want to be rushed in making that decision.