Holding Land to Build House

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BluecollarKen
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Holding Land to Build House

Post by BluecollarKen »

Hello, just wanted to stop by and throw my thoughts and plans out to a group of savvy intellectuals such as yourselves! Hopefully I can learn a thing or two or maybe just get told "how stupid can you be?!?!"

A little info on me before I begin:

32 male single that makes on average 110k a year, can make 140k if I work crazy hours.

So I'm currently in the process of closing on a nice parcel of land in a medium cost of living area "unincorporated" thankfully. The land is pretty much perfect for my needs and I'm in a position that allows me to bank most of my money and am in no rush (other than buying this parcel).

I wanted to wait till the perfect plot of land opened up but after talking to a construction to perm loan lender they said it would be very difficult (in this market) to find a plot of land that seller that would wait for their extensive requirements for the land to be "lender approved" for the loan and this plot of land was just too good to pass up. So I ended up applying for a land loan and currently in the process of closing on the deal.

My target date for starting the process of building the home is February 1st 2024. I will have around 120k liquid cash to fund the project. The land is 136k and the house price I'm looking at is between 230k to 280k. My target budget is 450k to 470k for the complete build. Thankfully this plot of land is 85% ready for construction to begin so the extra cost of site prep will be cheap.

What do you guys think of this plan? I know its a gamble holding onto the land but I'm super worried about the coming recession and crazy high mortgage rates. I'm hoping by 2024 that the mortgage rates will be in the 4-4.5% range and building prices and supply chain issues will be somewhat resolved. Or things will be 10x worse in 2 years.... who really knows.

Anyways thanks for reading my ramblings!
HomeStretch
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Re: Holding Land to Build House

Post by HomeStretch »

As you are in the process of closing on the land sale, it’s hard to give any feedback on the purchase. Unless you are asking whether or not you should go forward with the closing?

Is the parcel near where you live now? Try to walk the property regularly to keep an eye on it. We had neighbors who were dumping garbage and other large items on our nearby vacant land and then making healthcare department complaints about the vermin attracted to the refuse. We had to do a couple expensive clean-ups to correct the violation. We were finally able to prove the complaining neighbor was the one doing the dumping after they dumped a car engine/parts with serial numbers that were traced back to them. Nowadays I would put cameras up on the property to monitor/record.

Also be sure to add coverage for the lot to your existing homeowner’s policy.
runninginvestor
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Re: Holding Land to Build House

Post by runninginvestor »

Are you in the process of closing for the land or for the land plus construction? In other words, have you spoken to any builders to get estimates?

I ask because at $280k, a 1,500 sqft home is roughly $187/sqft. I'm in a medium cost of living city, and when we recently spoke to builders, most came in the ballpark of $200 to $225 per square foot. Who knows what it'll be in two years, prices are generally pretty sticky downwards.
backpacker61
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Re: Holding Land to Build House

Post by backpacker61 »

I bought a residential lot a couple years before I built a house on it. Spent some time with an architect drawing up house plans, then bid the job out to a few builders. It was done exactly to my taste, and I'm still in the same house 26 years later. I would say go for it.
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4th and Inches
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Re: Holding Land to Build House

Post by 4th and Inches »

Do it.
WhyNotUs
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Re: Holding Land to Build House

Post by WhyNotUs »

Seems like the summary is that you found a lot that checks all of your boxes and will sit on it for a few years and then build. That is a common path to home ownership.

I could not tell from your comments whether you are looking for a manufactured product or stick built. If the latter, use this time to learn to be a good customer for the architect and builder. Library may have a book with floor plans that discuss the pros and cons of different approaches. There are also books on the entire process of design and build that might require an interlibrary loan.

You can use this time to think through what you really want and how to make decisions that will allow you to stay on track with time and money once you start.
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Sandtrap
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Re: Holding Land to Build House

Post by Sandtrap »

prepare for these “possibilities”….

Site prep and infrastructure: 4x current estimates and guestimates.

Build costs to completion: 2-3x current estimates and guesstimates.

. . . There is a much much higher return on your dollar to purchase a built/used home when you need it in the future.

j🌺
dis laimer: adjust the above for various experiences and opinionizations and onions.
Last edited by Sandtrap on Thu May 26, 2022 9:54 am, edited 1 time in total.
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quietseas
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Re: Holding Land to Build House

Post by quietseas »

First, you are already buying the land but make sure the county doesn't have plans to put in an adjacent highway, industrial park, sanitation truck depot, or other nuisance. This type of information will be on the county's website in a long term transportation or zoning plan (terms vary). Sometimes nuisances get shunted to unincorporated areas where it is easier to build them than in cities.

You wrote the land is mostly ready for construction so sounds like it already has a road, utilities, and maybe a pad. That takes away some of the cost uncertainty of undeveloped raw land. Even if there is a pad look very carefully at where water will flow. Water flows downhill, and rises from a river or creek.

You can always defer the start of construction by 1-2 years to save up more cash. You didn't mention your savings rate, but with $110-140K income and no dependents I'm guessing you will save faster than inflation.
alex_686
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Re: Holding Land to Build House

Post by alex_686 »

Welcome to the forum!
BluecollarKen wrote: Thu May 26, 2022 3:07 am What do you guys think of this plan? I know its a gamble holding onto the land but I'm super worried about the coming recession and crazy high mortgage rates. I'm hoping by 2024 that the mortgage rates will be in the 4-4.5% range and building prices and supply chain issues will be somewhat resolved. Or things will be 10x worse in 2 years.... who really knows.
2 thoughts.

At 32 you are still relatively young. This is a pretty big step. You are kind of locking yourself into a path for the next 10 years or so. You will be locking up your capital. If you do change your mind the real estate market may be weak. I am not discouraging your per se - just really make sure this is the path you want to go down and not a whim.

On the possibility of a recession consider 2 things. First what will your personal situation be like? Is your job fairly recession proof? It would be harsh if you were unemployed/underemployed and you had to maintain a vacant piece of land. On the other hand it might make labor costs lower. I would not be that worried about inflation - assuming your wages adjust accordingly. I would not worry too much about mortgage rates. Historically mortgage rates tend to be relatively low compared to inflation. You can always refinance if rates fall. Do not compare to today's rate which are at a crazy low rates that we have not seen in 100 years.
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Serie1926
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Re: Holding Land to Build House

Post by Serie1926 »

BluecollarKen, you've done well for your age! Keep going!

My wife and I just finished a home a year ago. The painters are here today doing some final punch work.

Echoing others comments, whatever you plan, it will probably be more....
tunafish
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Re: Holding Land to Build House

Post by tunafish »

HomeStretch wrote: Thu May 26, 2022 6:54 am As you are in the process of closing on the land sale, it’s hard to give any feedback on the purchase. Unless you are asking whether or not you should go forward with the closing?

Is the parcel near where you live now? Try to walk the property regularly to keep an eye on it. We had neighbors who were dumping garbage and other large items on our nearby vacant land and then making healthcare department complaints about the vermin attracted to the refuse. We had to do a couple expensive clean-ups to correct the violation. We were finally able to prove the complaining neighbor was the one doing the dumping after they dumped a car engine/parts with serial numbers that were traced back to them. Nowadays I would put cameras up on the property to monitor/record.

Also be sure to add coverage for the lot to your existing homeowner’s policy.
I have Amica homeowner and liability. They automatically cover vacant land. I don't know what happens if construction starts, presumably this needs to be revisited.

I also had to "police" two vacant lots I own for several years. People were throwing food wrappers, bottles, etc. on them and I had to clean this stuff up. Getting the town to make a No Parking area out of the front solved that.
sureshoe
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Re: Holding Land to Build House

Post by sureshoe »

This can be a way to do things cheaper or dramatically more expensive. If you lean in, educate yourself, and manage the process, you can actually do better being a bit more ala carte and acting as your own contractor. However, those individuals make money for a reason - they have expertise.
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BluecollarKen
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Re: Holding Land to Build House

Post by BluecollarKen »

Thanks for all the replies!

The land is in a well-established rural neighborhood, its a long rectangle of 1.3 acres that slopes down to a nice sized creek. It has a flat spot up near the road that's around 200 feet in length before it begins to slope so it has the space for a nice 1600-1700sqft rambler. Just had a construction company do a feasibility study and they said its going to be super easy and cheap to finish it out for the house. It even has a utility pole with power and fiber optic right at the road on the corner of the property. A pre dug well at 12gpm and a gravity septic system that needs to be inspected... might need to replace the tank since its been sitting exposed for years.

I will be using a builder (stick-built rambler) that has their own plans, not a true custom-built home.
alex_686 wrote: Thu May 26, 2022 9:35 am Historically mortgage rates tend to be relatively low compared to inflation. You can always refinance if rates fall. Do not compare to today's rate which are at a crazy low rates that we have not seen in 100 years.


Are you saying that the mortgage rates can go 8-10% in 2 years easy? I doubt home builders would price their builds according to interest rates like how pre-owned homes are..... or would they? This is what I'm truly scared about.
exodusNH
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Re: Holding Land to Build House

Post by exodusNH »

BluecollarKen wrote: Thu May 26, 2022 9:56 pm Thanks for all the replies!

The land is in a well-established rural neighborhood, its a long rectangle of 1.3 acres that slopes down to a nice sized creek. It has a flat spot up near the road that's around 200 feet in length before it begins to slope so it has the space for a nice 1600-1700sqft rambler. Just had a construction company do a feasibility study and they said its going to be super easy and cheap to finish it out for the house. It even has a utility pole with power and fiber optic right at the road on the corner of the property. A pre dug well at 12gpm and a gravity septic system that needs to be inspected... might need to replace the tank since its been sitting exposed for years.

I will be using a builder (stick-built rambler) that has their own plans, not a true custom-built home.
alex_686 wrote: Thu May 26, 2022 9:35 am Historically mortgage rates tend to be relatively low compared to inflation. You can always refinance if rates fall. Do not compare to today's rate which are at a crazy low rates that we have not seen in 100 years.


Are you saying that the mortgage rates can go 8-10% in 2 years easy? I doubt home builders would price their builds according to interest rates like how pre-owned homes are..... or would they? This is what I'm truly scared about.
Not sure about 8%, but I had a 6.5% or 6.725% in 2005.

They can rise quickly: https://fred.stlouisfed.org/series/MORTGAGE30US
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Watty
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Re: Holding Land to Build House

Post by Watty »

BluecollarKen wrote: Thu May 26, 2022 3:07 am I'm hoping by 2024 that the mortgage rates will be in the 4-4.5% range and building prices and supply chain issues will be somewhat resolved.
If you get a mortgage now and rates go down then you can refinance in the future.

I don't have a clue what your finances look like but if you delay building for two years(24 months) then your other costs will really add up since you will need to rent someplace else to live and you will have costs associated with the empty land. If that is $2,100 a month then that quickly adds up to $50K. Inflation is running around 8% so the cost of everything is likely to go up in two years too.

I don't have a clue what the rest of your refinances look like but I suspect delaying the construction for two years will not save you a lot.

The longer you delay then there is more risk that there might be something like a moratorium on new utility hookups.

If possible then it might be better to start building sooner than later.
BluecollarKen wrote: Thu May 26, 2022 3:07 am ....single.....

..... a nice 1600-1700sqft rambler.
Since you are single you likely do not need a lot of space right now. You could start out by putting in a small cabin type place on the land and then expand it in a few years when when you can afford to.

Often when a house is added onto the end result may look a bit odd or it may have an odd layout that does not work well but that can be avoided by designing everything ahead of time. You would of course want to have things like the plumbing and electric system sized correctly for the eventual size of the house.

I would also guess that with your BluecollarKen user name that you might be able to do some of the work on the house if it is done in phases and that can not only save you some money, but you can also end up with a better house since you will care more about it when you are working on it.
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cchrissyy
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Re: Holding Land to Build House

Post by cchrissyy »

on one hand, congrats!

on the other hand, i hope you know the following it an extreme statement and to whatever degree it has informed your decision i think you're overreacting.
"I'm super worried about the coming recession and crazy high mortgage rates."
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unclescrooge
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Re: Holding Land to Build House

Post by unclescrooge »

Who are you using for land loans and construction loans?

What are current rates?
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FrugalInvestor
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Re: Holding Land to Build House

Post by FrugalInvestor »

I agree with Sandtrap. My personal experience with custom buids tells me that the cost will end up being much higher and timeline much longer than your initial estimates. Accept and be prepared for that or don't do it.
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alex_686
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Re: Holding Land to Build House

Post by alex_686 »

BluecollarKen wrote: Thu May 26, 2022 9:56 pm Are you saying that the mortgage rates can go 8-10% in 2 years easy? I doubt home builders would price their builds according to interest rates like how pre-owned homes are..... or would they? This is what I'm truly scared about.
It is a complex question. It would be more fair to say that prices would be based on local costs (current inflation) and interest rates. During times of high real rates only the most profitable projects are undertaken.

And inflation is never the root cause but rather the symptom. For example, inflation and real interest rates were high because the economy was expanding faster then inputs could grow. This is kind of like today where it is hard to get critical goods and labor.
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invest4
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Re: Holding Land to Build House

Post by invest4 »

While the current environment is not quite the same, your post reminds me of the years leading up to the Great Financial Crisis (GFC).

In particular, many people were concerned about future prices (they can only go up!) and made purchase decisions based upon their assessment of the fuzzy future. Your own reasoning is similar…which may or may not happen.

For myself, we overpaid for the lot a few year prior to the GFC, but thankfully decided not to build until much later. The lot is still not worth what we paid, but thus is life and we are happy.

Nonetheless, you have already bought the land which you believe to be ideal, so appears the only decision is if / when to build.

In my own experience, I did not really understand the needs of our family and how we liked to live until we had spent many years in our first home. This was vital when we custom built our second home to help ensure a good fit for us for a long while.

Of course, you don’t know what you don’t know, but I would strongly encourage you to spend time thinking about it….big and small. There are some threads around here where people have asked about what was important to them and why.

Positively, you are still young and as long as you don’t over build for the area, you can hopefully sell later in case the house no longer meets your needs.

Best wishes.
rickylearning
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Re: Holding Land to Build House

Post by rickylearning »

backpacker61 wrote: Thu May 26, 2022 7:38 am I bought a residential lot a couple years before I built a house on it. Spent some time with an architect drawing up house plans, then bid the job out to a few builders. It was done exactly to my taste, and I'm still in the same house 26 years later. I would say go for it.
Reading this was inspirational. Thank you for sharing!
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Metsfan91
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Re: Holding Land to Build House

Post by Metsfan91 »

Reads like a great plan! Do it!!!
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