Ok, so I have a crazy idea to build a house for early retirement. This could either be my most brilliant financial move ever, or my dumbest. Help me decide.
For background, I live in the SF Bay Area and make ridiculous SF Bay Area money. Well, my wife makes most of it, and I contribute a decent chunk. I'm close to quitting my job for a variety of reasons, and I'll share more on that in a future post if/when it happens.
One of our biggest life decisions has been whether to stay in the Bay Area or not. Being here while working has turbo-charged our savings plans (our net worth increased $250K last year), but with real estate prices where they are, buying a house isn't even on the horizon. Rent at $2,800/mo is a bargain here while working, but is ridiculous for retirement planning.
The biggest item holding us back from moving is family. My family lives close by, and my wife's family is in LA. We see them often, and want our daughter to be a big part of their lives while they're still mobile. That just won't happen out of state.
Enter the home building option.
My mom lives on a 1 acre lot in the deeper suburbs (~1hr from SF). The house is on half the property, and the other half is essentially ranchland. I may have the opportunity to buy the second half of the property (currently a single parcel) from the family for home construction. This property is jointly owned between my mom and two of her siblings.
I'm just starting to do research, so this is pretty rough, but my estimates are:
-I would have to spend ~$50K in various fees and surveys to subdivide the land and get permits. This could go up if the existing house needs to be disconnected from the existing septic system and moved to city sewer.
-I would probably have to pay my family ~$50K-$100K for the land, and give up future inheritance for the family to agree. Similar buildable property just down the street sold for $500K just last month, so this is still a good deal.
-Building a 2,000sqft house would cost +/- $400K. I realize some construction could be done cheaper, but I would pay more for things like roofs that will last as long as I do, passive solar design, and quality plumbing. I don't really care about fancy fixtures and finish though.
-This gives an all-in total cost of $500-$550K. Not great for ER calculations, but pretty impressive for remaining in the bay area.
Pros:
-It's an option to live close to family and still have some type of early retirement. While this would delay FIRE more than moving out of state, it would allow it in the Bay Area (which is mostly unheard of)
-I would "build" significant home equity. Comparable homes in the area are selling for $700-$800Kish.
-I could (maybe) build a separate in-law unit as a short term Airbnb unit for some side income. Comparable Airbnb units look to have good economics at first glance. Of course, this could turn into a major negative if the "in-law" aspect of the unit is taken too seriously.
-In case things don't work out, we could rent or sell the house for a profit (given the family dynamics, this is NOT an option unless the financial situation is dire).
Cons:
-$550K still ain't cheap, and the economics aren't certain
-Building a house is stressful and a pain. And badass too (ok, half pro, half con).
-I want to live close to family, but having an adjoining yard might be over the line
-We are assuming (big assumption) that at least one of us can find good local employment in the suburbs. My wife can probably start her own company doing what she does now for similar money, but that is a gamble.
Specific hurdles to get this done (that I know about so far):
-I have to get the three sibling owners to agree to this crazy plan. They don't have a history of seeing eye-to-eye.
-The property is currently mortgaged for about 33% of estimated value. I need to get the bank to agree to let the subdivision go through.
-I don't know how far the septic leech field extends on the property. My best guess is that it's not on the area that I want to purchase, but I need to find out for sure. Suburbs have now grown up around the house, so sewer would be available for a big price.
-The city and county I'm doing this in are known for Byzantine planning/permitting processes.
Thoughts? Crazy or brilliant?