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Dream home but no liquidity of 1mil investment

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  • Dream home but no liquidity of 1mil investment

    I have a unique opportunity that I wanted to run by the helpful members of this forum. I am an EM physician currently working in a HCOL area of California and have a great job with a great group. My wife and I moved back to the area almost 3 years ago and have decided this is a stable situation where we would like to put down roots. This is where my family lives and we are loving it here. I'm establishing my practice and compensation picture is looking pretty bright for the foreseeable future. I'm 35, wife is 36 and we are just about to complete a renovation of a barn on my parents ranch property for about 50k. It will be beautiful and since it utilized an existing structure was quite cost effective. It's about 800sf 1br 1ba, has a great view with TONS of open space, is separate from family but also close which would be helpful for childcare in the near future should we decide to have children. For reference, I would estimate that a similar apartment unit (amenities and size only as the view and location are truly priceless) would go for around $500k. It's about 1.5 years of rent that we were paying before so still very cost effective if we stay here for a while, or potentially rent it out a bit if we move or go on extended vacations.

    Our current dilemma is regarding the construction of a dream home. Our family ranch property is truly unique. It's 7 minutes drive from our main hospital and <20 min from the other hospital we cover. It has >10,000 acres of county preserved open space and cattle grazing land next door and the existing property is likely valued in the 2.5-3 million range although to be honest there is nothing like it on the market and to attempt to get the proximity to work plus open space would likely take 5-10 million+ just for land. This unique family situation was one of the special niches that I had making HCOL California actually a relative "bargain" when choosing a job. We are now debating between the following 3 options:

    1) Live in the barn renovation for as long as we can. It's only 800sf but we can make do at least through a few years of a first child though would eventually run out of space if we do have multiple children. Building a bedroom off the barn could be done for another 25-100k depending on options if we just needed space. We could essentially be debt free with no mortgage, car payment, dirt cheap property tax assessment and be completely financially independent somewhere in the next 2-5 years.

    2) We have worked with an architect to design a dream home on another section of the property which could be built for around 950k-1million. With permits and delays to construction this would still take 2-3 years to complete even though the design is ready. It's 2100 sf, high end materials, amazing view etc. Expensive in terms of overall cost especially when compared to the "free" barn option above but still a relative "value" when compared to other homes in the area with anything similar costing millions more. This would be done with a joint tenancy agreement which has been worked out through our lawyer and would grant a proportion of equity in the overall ranch commensurate with our costs. However as this is a priceless family property it will not be split off and that agreement would also have a clause making it very difficult to sell until my parents would be gone and with the approval of my sister. So not impossible, but difficult. Bear in mind, I would not want to sell and can't imagine doing this so I didn't find this provision overly objectionable and I would also get veto power over the sale of the other structures on the property. While I would have difficulty selling, I could do renting/Air BnB if we got into a tight financial spot which does take a bit of the risk out of things. Relationship with the whole family is excellent and we are really close. Our combined income is currently about 525k per year, possibly moving to the 700-800k range in the coming few years with full partnership and advancement of my wife's career or else staying stable as our compensation rises but we cut back a bit at work.

    3) Live in the barn area a few years but then buy a larger home and live there when/if we run out of space with using a traditional mortgage situation. There are plenty of reasonable homes though the cheapest would still be in the 900k+ range to get a modest place we would be happy with. Quality and location not even close to above however we would have a lot of the usual flexibilities of selling when needed, turning into full time investment property. This is what I see all my peers doing so the pull here is also strong.

    Any thoughts? Building the bigger home is appealing especially after having gone through all of the creative efforts and sunk costs of design/engineering however the lack of liquidity does scare me a bit. I've also been frugal my whole life and there is a huge difference between investing in a 1 million house, especially one that  would be difficult to sell for decades and living debt free in my parent's barn with complete flexibility and the ability to retire at 40.

  • #2
    2 questions:

    1) do you have other debt?

    2) you said that an 1br 800 sq ft apt would be $500k but that you could build a high end detached house with nice finishes and a view for $1M? That doesn't really make sense.

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    • #3
      Live in barn for a couple years, save a lot of money, then build dream home on farm

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      • #4
        I would live in the barn for as long as possible. The whole point of having that much space is to be outside utilizing the space.

        I don't like the idea of selling being contingent on a number of things out of your control.

        You'll probably find yourselves happier being financially independent in the barn than "having" to go to work while in the dream house.

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        • #5




          2 questions:

          1) do you have other debt?

          2) you said that an 1br 800 sq ft apt would be $500k but that you could build a high end detached house with nice finishes and a view for $1M? That doesn’t really make sense.
          Click to expand...


          1) No other debt. Net worth about 550k 2+ years out of residency. About 750k including my wife.

          2) I mentioned that if I were to try and buy a similar apartment close to the amenities of our barn renovation it would cost 500k on the open market. A high end detached home would be 1M on this property but that is because there is no cost to purchase land which leads to significant savings.

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          • #6
            Just eyeballing the situation, I'd go for it.

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            • #7
              For clarity, is the value of the renovated barn included or excluded from the net worth? Are you going to have to liquidate any of that for a partnership buy in?

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              • #8
                Stay in barn as-is until you plan to have kids. Then go from there. At that point I would build your place on the family property assuming all is well. Having cinciemient childcare is priceless

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                • #9




                  For clarity, is the value of the renovated barn included or excluded from the net worth? Are you going to have to liquidate any of that for a partnership buy in?
                  Click to expand...


                  Not included in my net worth. Partnership buy in is sweat equity which I am paying for in spades right now.

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                  • #10
                    You guys are 35-36 and worth 750k. You can do whatever you want within reason.

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                    • #11
                      They are young, and have money...uh, who in the heck is saying "stay in the barn". They will be in the barn for years. 800 sq ft! Good lord, do it.

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                      • #12
                        I guess my concern is that we have been super careful to amass a good nest egg and net worth (I found WCI in 2012 during med school years ago, thank you!) but that we would have to put in 250-500k into this building up front and would set us back from what I would consider being ahead of the game. We could still make up for it but would take another 5-10 years of hard work.

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                        • #13




                          I guess my concern is that we have been super careful to amass a good nest egg and net worth (I found WCI in 2012 during med school years ago, thank you!) but that we would have to put in 250-500k into this building up front and would set us back from what I would consider being ahead of the game. We could still make up for it but would take another 5-10 years of hard work.
                          Click to expand...


                          Everything is a trade off. I would honestly be more worried about cramping myself in a situation that wasnt absolutely necessary for what amounts to no good reason and it leading to marital stress or resentment. Its not worth it. Otoh, building is a stressful experience and many threads here attest to that.

                          What is the point of being FI to you? Keeping score on a spreadsheet or do you have some goals, desire to totally quit working? If you iron that stuff out you will be able to see where this fits or doesnt in the greater theme of your life. If you have no desire to simply drop out of the world altogether in the next 5 years then does it really matter? If you do, then thats different.

                          Figure out what you want in life as far as career longevity, why are you amassing money (score vs. enjoyment, (house is enjoyable)), etc...and see what path best fits your lives.

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                          • #14




                            I guess my concern is that we have been super careful to amass a good nest egg and net worth (I found WCI in 2012 during med school years ago, thank you!) but that we would have to put in 250-500k into this building up front and would set us back from what I would consider being ahead of the game. We could still make up for it but would take another 5-10 years of hard work.
                            Click to expand...


                            you gotta live somewhere.

                            lots of us don't want to do it as cheaply as possible. our next house will be in that range as well.

                            buying a nice house never makes financial sense on paper. the correct answer financially is always to live in a shack w/o running water and bathe in the creek.

                            you are talking about a home that is 2X your salary and next to parents. you could save tens of thousands a year on childcare.

                            the money you spend on a house doesn't disappear you just move it on your balance sheet. your NW shoudn't change much when you buy a house, it really shouldn't change at all right?

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                            • #15
                              "Living in a barn"---- Never.  No amount of white wash could eliminate the wafts of manure from those timbers. And neither the corn crib, the milk house, the machine shed, nor the chicken coop.  Build a HOUSE.

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