Author Topic: Are we crazy? Advice needed.  (Read 5959 times)

Guitarguy

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Are we crazy? Advice needed.
« on: February 20, 2013, 05:58:05 AM »
Hi everyone,

My wife and I recently went running and found a 1.03 acre lot that's within biking distance to where I work. My wife will be done with her masters this December and all but has a job offer from the agency where I work. She's done two internships so far and just got offered a paid internship this summer. We decided that we both really like where we work, the schools here are great, but the main reason we didn't see ourselves living here was due to the higher cost of living. We wouldn't even be considering this venture unless we were perfectly happy dying on this property, (and we would be.)

So this lot is about $86,000. Not cheap. What we want to do is build a tumbleweed house on the right side of the property for about $65,000. This would leave us a mortgage around $120,000 with a $30,000 downpayment. (We could easily have the downpayment by next december.) Our monthly payment would probably be $100 less than our total rent because we're currently paying $650+ utilities, for about $750-800 total per month. The payment for this loan would be roughly $650+less utilities because the house would be energy efficient.

Our plan would be to live in this house for the next 5+ years and then save up the cash to build a larger house further back on the property, then convert this to a rental for young professionals. (We live 5 miles from the only two office parks in the area.)

Does anyone here have experience or advice about how we can make this happen? Or advice on construction to perm mortgages in particular? I'm sure there's a bunch of stuff that we haven't thought of but we're still 1.75 years out from this decision anyway. Any advice would be greatly appreciated. Here's the house we want to build, which will eventually convert into a rental: http://www.tumbleweedhouses.com/products/whidbey/#ad-image-0

At some point we'd like to be that backpacking traveling couple in retirement, so we'd eventually move back into the rental house and rent out our bigger property once the kids were grown up.
« Last Edit: February 20, 2013, 06:00:50 AM by Guitarguy »

Nate R

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Re: Are we crazy? Advice needed.
« Reply #1 on: February 20, 2013, 06:09:56 AM »
Sounds great in theory, but zoning may be an issue. Minimum facade widths, often 2 seperate structures that are primary residences aren't allowed on the same lot, setbacks, etc. So I guess I'm saying you need to carefully look into whether it's even remotely legal in your area to build that small a house, and if you can add a completely separate house later.

Also: Is the cost of bringing utilities onto the property part of that 65K? (Sewer/septic, water/well, electricity)
Not sure if you're planning on building it yourself or contracting that out?

And are you factoring the cost of property taxes and insurance into the $650?

Just a few things that come to mind right off the bat on feasability here.

tooqk4u22

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Re: Are we crazy? Advice needed.
« Reply #2 on: February 20, 2013, 08:15:12 AM »
Sounds great in theory, but zoning may be an issue. Minimum facade widths, often 2 seperate structures that are primary residences aren't allowed on the same lot, setbacks, etc. So I guess I'm saying you need to carefully look into whether it's even remotely legal in your area to build that small a house, and if you can add a completely separate house later.

Also: Is the cost of bringing utilities onto the property part of that 65K? (Sewer/septic, water/well, electricity)
Not sure if you're planning on building it yourself or contracting that out?

And are you factoring the cost of property taxes and insurance into the $650?

Just a few things that come to mind right off the bat on feasability here.


+1

Zoning/approvals may be your biggest issue - if the property is not currently zoned/approved for what you want to do - it could take a lot of time and money to make this happen, if at all.

The zoning/approval and access to utilities is the value in the land.  As an example there is a one acre parcel near me that is approved for a SFR that will go for around $200k and right in the same area there is a 8-acre parcel also approved for a SFR that will go for about $450k.  Big difference in per acre price. 

DoubleDown

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Re: Are we crazy? Advice needed.
« Reply #3 on: February 20, 2013, 08:49:43 AM »
Another consideration is the ability to resell later. Even if you are able to get zoning approval, my guess is that it could be very difficult to resell the property with the houses configured as described. Unfortunately there is only a very small segment of the population looking to buy tiny houses, and particularly with two houses on one lot.

SunshineGirl

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Re: Are we crazy? Advice needed.
« Reply #4 on: February 20, 2013, 09:03:22 AM »
I live on a house/guesthouse property and they are quite common in my neighborhood. I love the flexibility they provide for different stages of life. Having said that, the way you described the proposed configuration gives me pause. The main house should really be front and center, or it will hurt future sales potential. I also think a tumbleweed house might limit future sales potential. Other than that, I agree with the "check zoning" advice.

Jack

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Re: Are we crazy? Advice needed.
« Reply #5 on: February 20, 2013, 10:23:20 AM »
Instead of a tumbleweed house I'd suggest you think "carriage house" (a detached 2-car garage with a ~400 sq. ft. apartment above it). Even then, I think you'd still have issues trying to build it separately prior to building the main house.

It might also be easier to bring in something with wheels (i.e., a trailer home or motorhome) because it would be less likely to trigger building permit problems, although there could still be zoning or HOA issues.

Guitarguy

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Re: Are we crazy? Advice needed.
« Reply #6 on: February 20, 2013, 11:58:58 AM »
Sounds great in theory, but zoning may be an issue. Minimum facade widths, often 2 seperate structures that are primary residences aren't allowed on the same lot, setbacks, etc. So I guess I'm saying you need to carefully look into whether it's even remotely legal in your area to build that small a house, and if you can add a completely separate house later.

Also: Is the cost of bringing utilities onto the property part of that 65K? (Sewer/septic, water/well, electricity)
Not sure if you're planning on building it yourself or contracting that out?

And are you factoring the cost of property taxes and insurance into the $650?

Just a few things that come to mind right off the bat on feasability here.


+1

Zoning/approvals may be your biggest issue - if the property is not currently zoned/approved for what you want to do - it could take a lot of time and money to make this happen, if at all.

The zoning/approval and access to utilities is the value in the land.  As an example there is a one acre parcel near me that is approved for a SFR that will go for around $200k and right in the same area there is a 8-acre parcel also approved for a SFR that will go for about $450k.  Big difference in per acre price.

It's already zoned, staked, and has access to utilities. (Although I need to double check on the utilities part ) We're still a good year away from this decision, so I appreciate any additional angles that we need to research- we have plenty of time to figure it out but I want to get rolling with the checklist.


Another consideration is the ability to resell later. Even if you are able to get zoning approval, my guess is that it could be very difficult to resell the property with the houses configured as described. Unfortunately there is only a very small segment of the population looking to buy tiny houses, and particularly with two houses on one lot.
We are not ever going to sell this property if we buy it. If we decided to buy, it is where we're going to live, otherwise we probably would never buy a house and instead invest the money.


Instead of a tumbleweed house I'd suggest you think "carriage house" (a detached 2-car garage with a ~400 sq. ft. apartment above it). Even then, I think you'd still have issues trying to build it separately prior to building the main house.

It might also be easier to bring in something with wheels (i.e., a trailer home or motorhome) because it would be less likely to trigger building permit problems, although there could still be zoning or HOA issues.

This is actually what my wife initially thought we should do. I'll check with the locals and see if it's legal.
« Last Edit: February 20, 2013, 02:40:41 PM by Guitarguy »

Forcus

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Re: Are we crazy? Advice needed.
« Reply #7 on: February 20, 2013, 03:40:23 PM »
We are not ever going to sell this property if we buy it. If we decided to buy, it is where we're going to live, otherwise we probably would never buy a house and instead invest the money.

I don't know you at all but I know I personally have said this or a variation of sooo many times but things are so different for me year to year, I've learned that "locking yourself in" might limit your possibilities later. This is why I'd love to live close to work but I am not willing to sacrifice all to do so because of the multiple locations of my company and the possibility of moving later to a totally different area. Again, I don't know you at all, so it may not apply, but I'd hate to lock myself in to buying this expensive property, putting up a tiny house that has a very limited buyer's market, and if something happens you can't get out of it. Please note I trend towards the conservative side, so this may just be me.

Spork

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Re: Are we crazy? Advice needed.
« Reply #8 on: February 20, 2013, 03:52:43 PM »

What we started out with was a 1200sqft metal shop -- 600sqft finished/600 open.  We lived in that for 6 years while we built up the money to build the main house (in front of it). 

The long term plan is to tear out most of the finished space and convert it to a nice shop area.

Mountainman75

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Re: Are we crazy? Advice needed.
« Reply #9 on: February 21, 2013, 05:11:52 AM »
I'd look carefully and talk to a lender about the tinyhouse. Typically these are built on a trailer chassis and can be moved, which gets you around zoning issues (so long as they stay registered as a trailer).

But you would have a hard time getting a conventional mortgage on it, since it is technically a trailer. Ask a banker or a broker what the minimum requirements for a conventional mortgage would be. Probably 1200 sq. feet, 2 BD 2 BA I'd guess.

$65k is a big chunk of change for a tiny house, are you going to pay someone to build it for you?
Even the most ornate tiny house is only $30k in materials, most are much less.

$65k would get you a nicely done prefab from studio shed (http://www.studio-shed.com/), on a concrete slab foundation. If you shoot for the minimum requirements for a conventional loan, you might be able to swing a construction loan that would let you buy the land, and build what you want.

Other option would be to buy the raw land, and then build the tiny house on your own time. Problem is the mortgage rate on raw land will be higher than what you might get with a construction or conventional loan.

Spork

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Re: Are we crazy? Advice needed.
« Reply #10 on: February 21, 2013, 10:08:25 AM »
But you would have a hard time getting a conventional mortgage on it, since it is technically a trailer. Ask a banker or a broker what the minimum requirements for a conventional mortgage would be. Probably 1200 sq. feet, 2 BD 2 BA I'd guess.

This was true for us and our metal workshop plan as well.  No one wanted to do a "mortgage".  They DO NOT want to make a loan where the land is worth more than the house that sits on it.

However, I was able to call around the local banks -- you know, the real ones that don't have a branch in every city -- and work out a reasonable deal.  It became a "loan" instead of a "mortgage".   I am not 100% sure what the difference here was, but it was a workable deal with some effort.  Interest rates were slightly (but not ungodly) higher, but our plan was to get it paid off in quick time, so that wasn't too terrible.

$65k is a big chunk of change for a tiny house, are you going to pay someone to build it for you?
Even the most ornate tiny house is only $30k in materials, most are much less.

I thought the same thing, but I also realize housing is ridiculously different depending on location.  Our entire 7.5acres + 300 ft paved driveway + livable workshop space (with septic) was slightly less than the cost of the lot here.

Guitarguy

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Re: Are we crazy? Advice needed.
« Reply #11 on: February 21, 2013, 10:12:23 AM »
But you would have a hard time getting a conventional mortgage on it, since it is technically a trailer. Ask a banker or a broker what the minimum requirements for a conventional mortgage would be. Probably 1200 sq. feet, 2 BD 2 BA I'd guess.

This was true for us and our metal workshop plan as well.  No one wanted to do a "mortgage".  They DO NOT want to make a loan where the land is worth more than the house that sits on it.

However, I was able to call around the local banks -- you know, the real ones that don't have a branch in every city -- and work out a reasonable deal.  It became a "loan" instead of a "mortgage".   I am not 100% sure what the difference here was, but it was a workable deal with some effort.  Interest rates were slightly (but not ungodly) higher, but our plan was to get it paid off in quick time, so that wasn't too terrible.

$65k is a big chunk of change for a tiny house, are you going to pay someone to build it for you?
Even the most ornate tiny house is only $30k in materials, most are much less.

I thought the same thing, but I also realize housing is ridiculously different depending on location.  Our entire 7.5acres + 300 ft paved driveway + livable workshop space (with septic) was slightly less than the cost of the lot here.

http://www.tumbleweedhouses.com/products/whidbey/#ad-image-0 This is what we'd be considering. It's $35,000 in material costs and it's on a foundation- not wheels. I was already factoring in the price of hiring a builder when I was talking about $65,000. So you guys are saying that we'd have better luck with starting with a local bank then?
« Last Edit: February 21, 2013, 10:14:20 AM by Guitarguy »

James

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Re: Are we crazy? Advice needed.
« Reply #12 on: February 21, 2013, 10:23:05 AM »
I didn't see anyone mention it, just wanted to suggest that you do a full comparison shop before settling on a particular plot.  You found this spot by accident, you wouldn't want to purchase it a year later and then find out there are some better options available if you had done the work of searching.  Given your time frame, networking can be very valuable in finding the right site, or at least verifying this is the site.  Talk to this property owner and find out more about their thoughts and plans.  Then search for and look at other possible properties, and look at sites that might come on the market in the future.  Include zoning in your search so you know if certain areas would be better based on zoning laws, though it might all be the same in the area you are looking.

I certainly like the general idea of your plans, and I think with proper planning and due diligence it could really be a great option!  It certainly limits your choices during the process, so be careful of that, but otherwise I like the idea.

Spork

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Re: Are we crazy? Advice needed.
« Reply #13 on: February 21, 2013, 10:32:20 AM »

http://www.tumbleweedhouses.com/products/whidbey/#ad-image-0 This is what we'd be considering. It's $35,000 in material costs and it's on a foundation- not wheels. I was already factoring in the price of hiring a builder when I was talking about $65,000. So you guys are saying that we'd have better luck with starting with a local bank then?

I do like the look of the little cottage! 

You can certainly ask a traditional mortgage lender.  I'm just saying don't get discouraged if they say no.  There's probably another path that will get you there.

Guitarguy

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Re: Are we crazy? Advice needed.
« Reply #14 on: February 21, 2013, 11:43:37 AM »
I didn't see anyone mention it, just wanted to suggest that you do a full comparison shop before settling on a particular plot.  You found this spot by accident, you wouldn't want to purchase it a year later and then find out there are some better options available if you had done the work of searching.  Given your time frame, networking can be very valuable in finding the right site, or at least verifying this is the site.  Talk to this property owner and find out more about their thoughts and plans.  Then search for and look at other possible properties, and look at sites that might come on the market in the future.  Include zoning in your search so you know if certain areas would be better based on zoning laws, though it might all be the same in the area you are looking.

I certainly like the general idea of your plans, and I think with proper planning and due diligence it could really be a great option!  It certainly limits your choices during the process, so be careful of that, but otherwise I like the idea.

Thanks for the encouragement, James! I have been doing a lot of diligent research on this area and unfortunately there are too many developments with builders who are dictating the $50,000 postage lot with the $200,000 minimum house build. (We rent in a very affluent area but we got a great deal on our apartment) If you add in a 5-7 mile radius from work, (I wouldn't be able to bike any longer on a daily basis because this area is extremely hilly) the options are considerably limited. There are some lots that are 5+ miles northwest of this one, but then we'd automatically nix the biking option.

So far I've got this as a to-do list:
  • Talk to land owner (already tried but the realtor is fielding questions for him because he's exceeding wealthy and always on vacations or something. The owner is willing to do financing but it's a 15 year w/ a 2 year balloon payment- BLECH! I wouldn't be able to sleep at night knowing that I owed $72,000 in a lump sum in 2 years.)
  • Look around for local banks/credit unions who would be more likely to lend for this type of construction loan
  • Find a builder who's willing to build this particular design
  • Check with local authorities on zoning laws and regulations
  • Wait about 1.5 years for the down payment + emergency fund to grow to size
  • Do some comparison shopping for market prices/negotiation power

Did I miss anything? I know I keep saying this, but any advice at all is extremely appreciated. My wife is an economic grad student and her thesis was on the housing bubble, so believe me when I say that we do NOT want to be part of those statistics. This community is a great sounding board and devil's advocate, so thank you so much for all the insight that you've given us up until this point.

Another Reader

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Re: Are we crazy? Advice needed.
« Reply #15 on: February 21, 2013, 12:28:02 PM »
Sounds like you have an unmotivated seller.

If you have never been through the preliminaries of building a house, I suggest you do some research on how the process works, especially how the governmental processes work in your jurisdiction.  Find out what the planning and permitting processes are and how expensive they are.  Where are the utilities and how much to bring them onto the property?  Will a septic system have to be built, or will you have to pay to hook up to a sewer?  What's the water source?  What is the cost of bringing the lot to buildable (finished lot) condition?  Identifying a pretty piece of land priced at an "affordable" $86,000 is not the place to start.

If the property is listed with an agent on the MLS, I would consider finding an agent that specializes in representing folks buying land to build.  The seller's agent only represents the seller's interest, not yours.