Should we build a custom house?

[Bracedoc]

I'm a dental specialist age 46, wife age 43 who works in practice.  Salary from practice about 290k, but total economic benefit from practice close to 450k per year.  Fully fund 401k/ps plans/cash balance plans, back door Roth, hsa.  - about 800k in those accounts.

We have been stuck in a condo  since 2007 (bought right at peak  ).  No kids, we were hoping to stay in golf course community we are in but resales in 500-700 range and most need updating and have outdated floor plans (toll bothers)

Found custom builder who can give exactly what we want for around 750k - 3000 s f (including basement so I can bash my drums to my 80's faves)  wife prefers new and would give us room to have her parents escape cold northern winters for 2-3 months.

We have 500k cash for d p, 50 k cash emergency fund, 100k cash for wealth account to be used for r.e. Investing.

no other debt.  But just need some perspective since I feel guilty for considering this.  We were both raised very blue collar.

probably practice another 10 years.

Any perspective appreciated!

 

thanks!

 

[StarTrekDoc]

We built a semi-custom back in 2004 and expanded custom with another 1700 in 2010.

 

$250/sf sounds decent, depending on the materials credits he's giving you.  Do you have the land already?  Plans?  Permit fees included?

Custom has a lot of surprises that come up---especially if you haven't lived in a house before with all the little things that come up.

The trap of custom is resale...customize with too much uniqueness, the harder the resale because it may not appeal to a wide audience.

 

Curious about the cash flow /expenses/savings rate compared to overall savings -- did you recently get out of debt with that cashflow or higher ongoing expenses?

 

[childay]

So you are 46, making 450k yearly and have only 800k in retirement accounts? Do you have any taxable investments or real estate aside from current condo?
How much do you owe on your current condo, and how much do you think it could sell for?

[Hatton]

I agree you seem behind on savings actually.  How long have you been making 450k?  If this is a recent bump and you just paid off loans then that would explain things.  What is your savings rate?  You are essentially planning to fire so you need to watch out.

[Bracedoc]

Practice loans and student loans paid off in 2011.  So basically making that amount for 5-6 years.

 

Of course condo value is less than what we paid (298 vs. 235)  have about 100k in equity.

 

I thought are savings rate has been good last 5 years.  Fully funding retirement and stashing almost 10k a month in cash.

 

2 paid for cars.  I calculate net worth at 1.5 (meaningless at the moment). 100k in cash to be deployed into real estate shortly.  Other cash is for large down

payment and emergency fund of 50k.   Basically followed Dave Ramsey baby steps (except for investing advice).

 

 

 

 

[VagabondMD]

Yes, you can afford it. Yes, you are behind the majority here in savings rate, but this crowd is self-selected to be, likely, among the top 10% in wealth accumulation efficiency (WAE - I think I just made that term up).

I would go for it, and if you are running behind on saving and investing, you might have to work a few more years than planned.

[Bracedoc]

Thanks for the replies.

Yeah, made a few mistakes in my 30's so playing catch up.

Took a few years to get my practice rolling, but it is paid for and all debt except condo mortgage gone.  Could pay it off, but hate putting extra cash towards in since the value crashed from purchase in 2007.

Also, learned how NOT to invest a Self-Directed Roth IRA in real estate back in 2007-2009  

I feel we have made good progress but sure don't want to repeat past mistakes.

There are some impressive incomes and savings around here!  Feel like I got a smackdown (sometimes that is needed!).

[jfoxcpacfp]

He has $800k in retirement accounts plus $650k in cash plus (if i'm reading between the lines correctly) a fully paid-off dental practice and a fully paid off condo. At age 46, that doesn't sound like a bad WAE   to me. Investment accounts don't make up the whole balance sheet.

[VagabondMD]

jfoxcpacfp wrote:

He has $800k in retirement accounts plus $650k in cash plus (if i’m reading between the lines correctly) a fully paid-off dental practice and a fully paid off condo. At age 46, that doesn’t sound like a bad WAE   to me. Investment accounts don’t make up the whole balance sheet.

Click to expand...

He is not in a bad WAE, just below average for this community.

[Bracedoc]

Pardon my ignorance, but what is WAE??

[Raster]

The price quoted is only as meaningful as the degree to which what the builder has specified corresponds to the choices you will make.  When you walk into a home that already has been built, everything is there.  There are no decisions to be made.  The opposite is true when building a truly custom home.  There are ten thousand (at least) decisions to be made.  Everything is possible and much of the time nothing by itself seems too expensive.  Added all together, this is why a home can be built for $60/sq ft as well as $1,200/sq ft.  There are many choices where there is a 4 orders of magnitude range in cost.  It is easy to fall into the "forever home" trap and think that everything is worth it.

My advice: build a very high quality envelope (insulation, metal roof, very high quality windows, brick or siding) and don't get too caught up in the bathroom tile choice.  Whatever you do in the kitchen or bathroom, it will look outdated in 10-15 max.  These things are much easier to update over time.

I bring this up because while $750K may be reasonable for you, $1.2M isn't and just be certain that the house - as you would build it - is $750K.

 

Raster

[StarTrekDoc]

It's Vagabond's terminology: "wealth accumulation efficiency (WAE – I think I just made that term up)."     Pretty good though and it may stick here

 

You're fine if you want to do it.  Custom is nice, just be careful on the choices you make on the customization while building.

With 10k savings per month; you're looking at about $2.5M savings at your point of retirement;  you have to look at your spending rate with that is at eyeball level, your current spend appears to be pretty good clip and 2.5$ may not support that level.   Hard assets like the practice are difficult to predict and should be careful on factoring that into calculations especially with FIRE.

As the house goes -- have fun.  It's a lot of work to do, but a very fun project.

[VagabondMD]

StarTrekDoc wrote:

It’s Vagabond’s terminology: “wealth accumulation efficiency (WAE – I think I just made that term up).”     Pretty good though and it may stick here

 

You’re fine if you want to do it.  Custom is nice, just be careful on the choices you make on the customization while building.

With 10k savings per month; you’re looking at about $2.5M savings at your point of retirement;  you have to look at your spending rate with that is at eyeball level, your current spend appears to be pretty good clip and 2.5$ may not support that level.   Hard assets like the practice are difficult to predict and should be careful on factoring that into calculations especially with FIRE.

As the house goes — have fun.  It’s a lot of work to do, but a very fun project.

Click to expand...

Actually, now that I think about it, WAE is a renaming of Stanley's Millionaire Next Door concept of Prodigious Accumulator of Wealth (PAW) vs. Under Accumulator of Wealth (UAW).

This forum has a high percentage of PAWs.

[Zaphod]

Vagabond MD wrote:

StarTrekDoc wrote:

It’s Vagabond’s terminology: “wealth accumulation efficiency (WAE – I think I just made that term up).”     Pretty good though and it may stick here

 

You’re fine if you want to do it.  Custom is nice, just be careful on the choices you make on the customization while building.

With 10k savings per month; you’re looking at about $2.5M savings at your point of retirement;  you have to look at your spending rate with that is at eyeball level, your current spend appears to be pretty good clip and 2.5$ may not support that level.   Hard assets like the practice are difficult to predict and should be careful on factoring that into calculations especially with FIRE.

As the house goes — have fun.  It’s a lot of work to do, but a very fun project.

Click to expand…

Actually, now that I think about it, WAE is a renaming of Stanley’s Millionaire Next Door concept of Prodigious Accumulator of Wealth (PAW) vs. Under Accumulator of Wealth (UAW).

This forum has a high percentage of PAWs.

Click to expand...

i like yours better

[Fullhouse11]

As a 45 year old PAW, no way I would do it with your net worth.  If you are only going to practice another 10 years, you should be reducing your expenses.  New dream custom house screams lifestyle creep. Then again, you have no kids, so on that fact alone I could support it.  Go for it unless your blue collar (me too) guilt will be too much for you to enjoy it!