Author Topic: should I build?  (Read 2587 times)

m5mulli

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should I build?
« on: March 13, 2014, 08:41:38 PM »
I am currently living in a ~1900sqft home. We have a 30 yr mortgage with 109k left on it @4%. We refinanced last August.

In my financial plan I am prepared to pay off my mortgage in the next 12 years.

All that said, we have been thinking of building a home and renting out our current home.

Our current payment is 725 (includes taxes, insurance, and pmi). Using estimate sites like zillow I figure we can get rent in the 900 - 1200 a month.

We are thinking of getting a few acres and building a house. We have a good friend that is a contractor and he has offered to run the project for very cheap (we usually get supplies at cost).

Also we could apply any profit on the rental for paying our new mortgage.

Should we do it? Is it acceptable to have a mortgage in retirement?

Milspecstache

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Re: should I build?
« Reply #1 on: March 13, 2014, 09:34:34 PM »
I think it is okay to have a mortgage in retirement, particularly one that is offset by income coming from a paid-off rental.  Of course, I think it would be preferred to have my home paid off and have a mortgage on the rental which would be offset by rental income...

If you have a friend that is a contractor and could help you out and want a custom-built home then it could work out well for you.  If it were me I would still try to find areas to do work myself.  Even something as easy as site cleanup/painting/landscaping would save money.

I would think your question would be to rent or sell your current home.  What ROI are you expecting?  Are you within the thumbrules provided here on the MMM forum?  (I'm not but would certainly try to make my next rental fit the thumbrules better!)

hokiegb

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Re: should I build?
« Reply #2 on: March 14, 2014, 06:40:04 AM »
You should definitely do more research on the true costs associated with renting a house out before you go that route. At a minimum you need to factor in budgets for repairs and vacancies to your numbers to see if you will actually turn a profit on the house. Check out the Real Estate forum here and/or real estate specific blogs like BiggerPockets before you get too far down that road. If you factor in 10% each for repairs and vacancies, which I believe are pretty common numbers, then you will actually be renting your house at a loss if you are at the lower end of your suggested rental scale.

I did something somewhat similar - I had to move for work so I rented out my house, figuring that I couldn't afford to sell it at the time (2009). I had great tenants the whole time, but when I finally sat down and ran the actual numbers I found that my rental property was COSTING me over $300 a month. And that was with good tenants that actually made improvements to the property at their expense. I would not consider the experience a bad one, but I should have run the numbers to see the true costs before I made the decision to rent out my house. It could be a good deal for you, but definitely talk to people in the landlording business and run the numbers before you get into it.

m5mulli

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Re: should I build?
« Reply #3 on: March 14, 2014, 10:50:55 AM »
Thanks for the information. I will definitely need to do more research. My other option is to sell my house.With the upgrades that have been done and the state of the market where I live, I probably have 50 - 60k in equity.

Selling seems like the better option financially. But selling takes time, and I will need to run some numbers to see how bad it will affect me to be paying two mortgages.


Prairie Stash

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Re: should I build?
« Reply #4 on: March 14, 2014, 04:41:20 PM »
Why would you have 2 mortgages? You can sell your house and rent.

How long would it take to build the house? Let's say 6 months. According to your Zillow search that would cost $5400-$7200 for an equivalent place.  Perhaps you could temporarily downgrade and be cheaper. I used your numbers, if they're wrong then there's something wrong with your rent estimates too.

Quite commonly I see people build detached garages or sheds on acreages.  Then they either store possessions or construction supplies. You could use it as storage, put extra stuff in it and sell your house.  Move into a rental for a few months while you build.

The benefit of selling first is it ensures you're not stuck with 2 mortgages for an unreasonably long time. If it's sitting empty it might cost you a lot more in extra payments then 6 months of you living in a rental.

MKinVA

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Re: should I build?
« Reply #5 on: March 14, 2014, 04:53:39 PM »
You are better off not having a mortgage in retirement or as small a one as possible. In your plan, you would have two mortgages, one for the rental and one on the new place. If you are only estimating a few hundred bucks a month profit, I think it's too tight a budget. If the rent paid for both properties then I would do it.
Also, think about what prairie said. A lot of people I know who build a house on their own (not a developer) build a garage first. They then have a secure place for work stuff and equipment and storage for stuff from the old house.

Thegoblinchief

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Re: should I build?
« Reply #6 on: March 14, 2014, 06:05:43 PM »
How DIY capable are you? If you can have it framed/weathertight and finish the rest yourself, you could have a very nice house quite cheaply. If you're paying someone else to do it, even at "cost", it comes down to intangibles like lot, design to suit, etc.