Anyone regret their decision to custom build?

[wheels]

I bought a 5 acre lot about 5 years ago for $350k when nothing was selling. It is absolutely beautiful land and I have not seen anything else like it come up on the market since in this area so close to town. We were all set to start building 4 years ago and then a roll of events unfolded including the birth of my daughter and we never started. In hindsight this was great fortune because we were not financially ready. We made the classic mistake of paying too much for an architect who told us he could design a $600k house, when actually bids came in at 1 million. We live in a home we bought 12 years ago, great location, walking distance to work, 950 sq ft, nice neighbors, small lot, cozy, but far from fancy. Originally we were freaked out that the house would be too small with a kid, but we have found it to be a blessing. Now planning on staying here so she can walk to the elementary school one block away. Also there are loads of kids in the neighborhood for her to play with.

 

So I guess I have two questions. One philosophical and the other financial.

 

Financially I think we can swing the 1 million build. I'm 42, all debt should be paid off in less than two years. At this point I should be able to far exceed our annual spending with passive income. Annual spending should be $8500/month after debt free (includes $1000 childcare), plus another $1000 for health insurance. Passive income should be around $12,500/month after tax. If I work two more years I could save up enough to cover the one million build together with the sale of our existing home. Then I would be 46 and seriously considering pulling the plug on my career and doing something else. And yes I have done some serious thought on what I would do with my time.

 

Philosophically, will I actually be any happier in this new home? Yes it is absolutely beautiful land and the home would be amazing. I know that the thrill of a new house can wear off fairly quickly and you are back to your baseline happiness. The stress of building freaks me out. I get stressed thinking about selling it and then wanting it back in the future but it's now out of reach. There would be less kids for my daughter to play with. Financially, it makes way more sense for us to stay put and we could either pull the plug sooner or build up more passive income to do some amazing things with our future time. We doubt we would build for another 5-7 years, so we would be paying taxes/water/HOA fees on the land which amount to $6000/year. It just kills me to have this money tied up not making money for me.  We could probably sell it for $450k easy, maybe 500k. Got another letter in the mail last week from someone wanting to buy it.

 

As you can see I am pretty torn on what to do. You guys have any advice or been in a similar situation? Anyone regret their decision to build a dream home and wanted their old starter home back?

 

Thanks!

[Donnie]

950 sq ft house is pretty tiny. Not sure you need to make the jump from that to a $1.5M house given you have a three person family though. A $1.5M house will be more expensive than you expect with furniture, landscaping, maintenance, etc. even with new construction. Why not build a smaller home or sell the land and buy a smaller home? Managing a construction project is a real pain IMO, and I have only ever managed smaller renovations.

[wideopenspaces]

I'll just comment on the part about having friends for your daughter. That is priceless. I LOVE that my son can walk home from school and then has several neighbor kids to play with. I don't have to set up play dates all the time to keep him entertained. I love having a pack of kids running wild in the backyard. We would love to move up into the canyon where the air is cleaner but then we wouldn't have close neighbors and it would significantly decrease my son's happiness. So we're staying put. Doesn't mean you shouldn't move but I'd take this into account when deciding.

[KPInvestor]

I personally thing that if you can pay off your house by working two years, go for it.

I assume the passive income of 12.5k a month is separate from your income as a dentist.

If you dont mind, can you tell us how you get 12.5K of passive income?

 

 

 

[artemis]

Would you be willing to retire in the area you're currently living in?  If so, I'd suggest keeping the land but staying in your current house while your daughter is young, then when she's in high school start planning your retirement home.  You could build it to be exactly what you want, and be sure it's handicap-friendly as well so you could live in it forever. (I'd keep the cost well under a million, though.  The house doesn't need to be huge, just thoughtfully designed to make maximum use of space.)

[ITEngineer]

wideopenspaces wrote:

I’ll just comment on the part about having friends for your daughter. That is priceless. I LOVE that my son can walk home from school and then has several neighbor kids to play with. I don’t have to set up play dates all the time to keep him entertained. I love having a pack of kids running wild in the backyard. We would love to move up into the canyon where the air is cleaner but then we wouldn’t have close neighbors and it would significantly decrease my son’s happiness. So we’re staying put. Doesn’t mean you shouldn’t move but I’d take this into account when deciding.

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We lost power for 30 hours this weekend due to the storm in PA. Saturday there were 5 10-13 year olds playing in our house (in the dark basement) keeping themselves entertained without any electronics.

Even when we do have power (it's been 5 years since we lost it) I agree - it's great to have all the kids running around playing together. Due to the kids, I would only move now if I lost my job and had to. Even then I would try to stay in the same neighborhood for the kids.

[wheels]

Thanks for the responses guys. There are some assumptions in that 12,500/month, mostly to keep my post short so people would read it. Most of the income is from commercial real estate and the building my practice is in. It also assumes a 2.5% withdrawl rate starting with a 457 account and who knows what the account balance will be at that time but I am planning with the current balance. It also assumes the money I get for selling my practice is invested back into commercial real estate with a return less than all my other real estate investments. I can keep working and/or my wife can keep working until that money is working for us.

 

Hard to predict the future but I would guess we will have a home base here for a long time. I dream about spending winters somewhere with better skiing.

[LizOB]

I recently built, but it was through a builder (Toll) who handled everything- there were a couple floor plans to choose from, a bunch of things we could customize, but we weren't starting from scratch with an architect.

My in-laws built their house over 30 years ago with an architect- and it turns out since it was a new design there were a bunch of problems that were only discovered later. I would recommend going with a tried-and-true floorplan that someone else has had the chance to work the kinks out of already.

[AnesPain]

We are in the process of finishing up the custom building of "our dream home."  I wouldn't say regret is the right word.  I definitely did not enjoy the process as much as I thought I would, but it wasn't as bad as people made it out to be.  I think part of it was that my wife and I are both physicians (plus we have one small child), so scheduling meetings with the builder, etc is difficult to coordinate. Someone told me you need to build 3 times to really know what you are doing.  I would tend to agree with that sentiment.  It is hard to think of what you want and how to fit it all in, even though you spend time researching it.  I definitely feel there are things I would do differently now having seen what we put on paper and how it turned out.

When we embarked on the journey of building (about 18 months ago), I wasn't into personal finance as much as I am today.  From a financial standpoint, we probably would have been really close to FI right now if we didn't build.  I think the flexibility we have lost with the decision, may have pushed us to staying where we are now, which is plenty big enough for our family.

[wolverine41]

AnesPain -

I'd greatly like to hear any tips or pearls you have as we are a 2 doc household with a young kid and another on the way. We just purchased some land and are getting ready to start this whole process (that everyone says is terrible).    Paid cash for the land and plan on using that for our 20% down payment.

Working with a builder but wondering if we should competitively bid the whole process after the design phase. Some argues this helps with cost, others argue that if you can have the architect work together with the builder, this will prevent the over-design problem that many talk about.

 

 

[SValleyMD]

We just built

Wasn’t that stressful for us but the saying of adding 75k to whatever your bid was correct for us

We didn’t change or added much (or so it seemed) but it still was 100k over (was surprised how quickly things added up)

Plus consider an addition 100-300k for landscaping a home/lot like that and u can see how quickly things can get out of control

[wheels]

Wolverine41-

 

Definitely have the plans reviewed by a builder early if you are using an architect. We failed to do this mostly out of ignorance and found out architects routinely design way beyond what is your target budget. Live and learn. I'm not making that mistake again. He did design a beautiful home though!

 

The bids for one million included some landscaping, I think it was around $25000 to 50,000.

[AnesPain]

wolverine41 wrote:

AnesPain –

I’d greatly like to hear any tips or pearls you have as we are a 2 doc household with a young kid and another on the way. We just purchased some land and are getting ready to start this whole process (that everyone says is terrible).    Paid cash for the land and plan on using that for our 20% down payment.

Working with a builder but wondering if we should competitively bid the whole process after the design phase. Some argues this helps with cost, others argue that if you can have the architect work together with the builder, this will prevent the over-design problem that many talk about.

 

 

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I can't speak much to your second question.  The neighborhood we built in only has 3 builders there.  We interviewed two and settled on one (who built most of the houses in our subdivision) .  He did the design and had his engineer look at it.  I think the over-design happens and we got caught up in the emotion and agreed to it.  We kind of told him our budget and he designed a house that was 5% more expensive (partially our fault since we didn't know part of it was unfinished, and we ended up finishing it on the front end).  We also had a closed contract, which made some aspects of it challenging.

 

A few tips/pearls:

1. Make sure you and your spouse are always on the same page.  We had to remind ourselves that we shouldn't fight with each other over the project.  Make sure you agree on the plan (how many beds, baths, etc) and budget.  Also, make sure you present a united front to the builder, making decisions jointly.  Most of the horror stories I heard (couples almost getting divorced over building) came down to disagreements on budget, including the post-building expenses (furniture and decorating).

2. However, plan on overages.  We built a big house, and the allowances for some things (plumbing fixtures, lighting, etc) were not enough to cover things that you would put in said house.  For example, when we went to pick out plumbing fixtures, the baseline that the builder budgeted for were chrome fixtures.  We wanted oil rubbed bronze some places, something fancy for the main level powder room, a couple of handheld showers for bathing the little ones, etc so of course we were over budget.  The builder said plan on 3-5% overage cost, which I think is on the low end unless you are really diligent about it.  We have maybe one or two things left to do, but we are around 3.25%.  Our soon to be neighbor across the street said they went over by 20%+.  Their house is super nice and everything is primo, so I can see how they went so far over.  One of my wife's partners, who built on the same street a few years ago, made a comment to me that I thought was very appropriate.  The builder is going to price a house that you will buy, and make you responsible for any overages, i.e. they aren't going to price in all the things you think should/expect to go in there, b/c once you get the bottom line number, you will probably decide it's too expensive.  If the house costs x and your overages are y, you don't really notice it as much as if your house cost was x+y.

3. If you want something, make sure to specify it exactly in the contract.  For example, someone in our neighborhood built an in-house safe.  The safe door it not what I would have expected, so I would specify exactly what you want, otherwise you will get the cheapest steel safe door that meets the criteria, but likely charged the price of what you "thought" you were getting.

4. Plan on it taking longer than you think. We closed in Jan 2017.  We were told our house would be completed in October 2017.  In late September, we were told by the end of the year for sure.  It's March 2018, and we are still 2-4 weeks from moving in.  Thankfully, we were in no rush to move, and we didn't want to rush the builders either.  We have our current house and just put it on the market to coincide with our move.

5. Try to plan for the future, for things that matter to you.  In our culture, it is very common for parents to live with us in their older years instead of NH, assisted living, etc.  We have the ability of have either sets of parents live with us and have accommodations for other things they may need.

6. Be flexible.  Like I posted earlier, it's hard to see something on paper and understand what it looks like in person.  There was some interior design hours included in our contract, but the girl was not too helpful.  Even though we took our selections to each vendor meeting, when some things came out, some of it clashed. We literally picked everything in our house - carpet color, wall color, tile, lighting, plumbing fixtures, back splash, appliances, wood color, counter tops, etc.  In our basement, I had to change the paint color after 2 coats of paint because once everything else was installed, I did not like the look.  It was helpful that we planned on the overage amount in our budget and still under built relative to what we could afford.

7. Check on your work at regular intervals.   Once our framing was up, we were at the house site every week walking through.  Thankfully our little one cooperated through most of it.  The builders are usually working on multiple projects, so things are going to get messed up, and ultimately it is up to you to point it out.  We found errors, and pointed them out.  The more work that is completed, the longer it takes to re-do it, extending your project completion time.