Building a new house, financial discussion

[Darcy03231]

Do you have enough land so that you could build a separate structure for a "music room?" That would get the noise out of the main house. It wouldn't need water (they could come into the main house for that ) and you could put in some type of propane heating system.

Having just downsized from a large home to a smaller one, I wouldn't move to a larger home based on your children's ages. Mine are 30, 26, 23 & 21. The 30 y.o. left for college at 18 and never came home. The 26 y.o. left for college at 19 and never came home. The 23 y.o. stayed at home through college, but planned it out so she graduated in 3 years. Honestly, between school and work she was home to sleep. She left home within a couple of months of graduation. The 21 y.o. left a year ago. He started college and didn't like it so it pursuing a different direction. He moved in with his girlfriend.

I wouldn't count on your children staying home through or after college. Also, keep in mind that once they have driver's licenses and a car things also change. I know by the time all of mine hit that age they became really busy with work and friends and their interests changed. DS #4 still plays guitar, but no where near as much as he did when he was in middle school and beginning of high school (11 y.o. to 15 y.o. range).

 

[momz]

One music room? Two musical kids? That might not work. We faced a similar issue due to my husband the musician, who never really plays at home, but who created four musical children. We had a 1500 sf home and added on an even bigger addition. Our bedroom stayed in the old house and the kids got the new house. Our only mistake was in putting the family room in the new addition, so sometimes you can't hear the television for the racket. Three of the four are grown and gone now, but the percussionist is the one at home, so it is still pretty noisy. The last one to leave home was probably the one who played at home the most. I miss the constant piano tunes.

We tried to encourage headphone use wherever possible. In addition to the baby grand piano, my pianist son had multiple electric pianos, so that worked. My percussionist started on drum pads so he could use headphones for them.

I have nothing to offer in terms of financial advice, but enjoy the noise while you can. All too soon you may live in a quiet house.

Sheila

Awe, your post is very sweet. I can certainly see a time in the future when I will miss all this. Thanks for reminding me of it.

 

[momz]

Do you have enough land so that you could build a separate structure for a "music room?" That would get the noise out of the main house. It wouldn't need water (they could come into the main house for that ) and you could put in some type of propane heating system.

Having just downsized from a large home to a smaller one, I wouldn't move to a larger home based on your children's ages. Mine are 30, 26, 23 & 21. The 30 y.o. left for college at 18 and never came home. The 26 y.o. left for college at 19 and never came home. The 23 y.o. stayed at home through college, but planned it out so she graduated in 3 years. Honestly, between school and work she was home to sleep. She left home within a couple of months of graduation. The 21 y.o. left a year ago. He started college and didn't like it so it pursuing a different direction. He moved in with his girlfriend.

I wouldn't count on your children staying home through or after college. Also, keep in mind that once they have driver's licenses and a car things also change. I know by the time all of mine hit that age they became really busy with work and friends and their interests changed. DS #4 still plays guitar, but no where near as much as he did when he was in middle school and beginning of high school (11 y.o. to 15 y.o. range).

Very valuable advice. Certainly worth taking into account. Thank you for your insight.

I forgot to add, our home owners association does not allow unattached structures. not even a shed.

 

[momz]

Another option that my husband brought up and worth considering.

Build the new house. Keep the one we have and rent it out. Use the rental money to offset our new mortgage.

Move back to the current house once the kids are gone.

I have some reservations about this. We would have to be very careful about who we rent to.

The house is in excellent mechanical condition. New furnace and AC this year. New water heater this year. New roof last year. Fresh outside trim paint 3 years ago. insulation and drywall in the garage. insualtion upgrade in the attic.

It needs new flooring regardless of if we sell or rent (or stay for that matter)

Any landlords out there?

So much to think about. I look around my house and I see stuff everywhere and no place to put it. We have purged and will continue to do so.

It's funny, I remember moving into this house when my oldest was born and we didn't have enough furniture to fill it. Now we have more than enough stuff.

 

[supersnoop]

Another option that my husband brought up and worth considering. Build the new house. Keep the one we have and rent it out. Use the rental money to offset our new mortgage. Move back to the current house once the kids are gone. I have some reservations about this. We would have to be very careful about who we rent to. The house is in excellent mechanical condition. New furnace and AC this year. New water heater this year. New roof last year. Fresh outside trim paint 3 years ago. insulation and drywall in the garage. insualtion upgrade in the attic. It needs new flooring regardless of if we sell or rent (or stay for that matter) Any landlords out there? So much to think about. I look around my house and I see stuff everywhere and no place to put it. We have purged and will continue to do so. It's funny, I remember moving into this house when my oldest was born and we didn't have enough furniture to fill it. Now we have more than enough stuff.

My suggestion is along these same lines. Build/buy the new house (your income should qualify for the mortgage even with the old house), and then try to sell the old one. If it doesn't sell in 3 months, then offer to rent it out.

If you plan to move back in sometime in the future, you can rent it out indefinitely. If you plan to sell it eventually, you need to be aware of capital gains taxes that kick in after three years. If you live in a house for 2 of the previous 5 years, you're exempted from $250,000 of gains, $500,000 if married. But if you don't live in the house for 2 of the previous 5 years, you're cost basis is the LOWER of your original purchase price or the value on the day you convert it to a rental property.

When we moved, we rented out our old house for a few years. I hired a local property management company to handle everything. I paid them $75/month and they dealt with all tenant issues. If you're staying nearby, you might be able to manage the property yourself.

 

[momz]

My suggestion is along these same lines. Build/buy the new house (your income should qualify for the mortgage even with the old house), and then try to sell the old one. If it doesn't sell in 3 months, then offer to rent it out.

If you plan to move back in sometime in the future, you can rent it out indefinitely. If you plan to sell it eventually, you need to be aware of capital gains taxes that kick in after three years. If you live in a house for 2 of the previous 5 years, you're exempted from $250,000 of gains, $500,000 if married. But if you don't live in the house for 2 of the previous 5 years, you're cost basis is the LOWER of your original purchase price or the value on the day you convert it to a rental property.

When we moved, we rented out our old house for a few years. I hired a local property management company to handle everything. I paid them $75/month and they dealt with all tenant issues. If you're staying nearby, you might be able to manage the property yourself.

even though we would be living close, the property management company would be nice. I don't want to have to run over there to unclog toilets in the middle of the night (or in the middle of the day for that matter). $75/month would be well worth the peace of mind to not have that hassel.

I will talk to my hubby and get his opinion of looking into this.

The reason I thought we would have to refinance our current home is because I wasn't sure we could get a loan to build while having our current payment what it is. Our payment is about 1200/month. We would not have a large down payment, so our new loan would need to be about 185k.

I don't know, we clearly need to do some more research, talk to a realtor and a mortgage broker to be able to see the options clearly.

Concerning capital gains. The gain in value from when we purchased our current home is about 10k. Not a whole lot. But, taxes are taxes non the less. It is still something to include in our considerations.

 

[3DisneyBuggs]

OP please tell me where you live because the housing prices sound like someplace Id like to move to. Good luck w your decision.

 

[momz]

OP please tell me where you live because the housing prices sound like someplace Id like to move to. Good luck w your decision.

lol. Indiana. Cost of living here is very reasonable.

 

[TwoMisfits]

One thing that's missing that's always asked...
1. What are your emergency savings? How much money do you have set aside that you could afford double mortgage payments?
2. How much do you have saved for retirement?
3. How much do you have saved for your children's college fund (if you're gonna pay for that)?

Suzie Orman is all about those numbers, not just current debt and income numbers...if you are low in any of those areas, your money would be better spent buying earplugs and improving what you are low in...

PS - I would never upsize at your age to a less safe, less nice area...some things - like good neighbors, safe neighborhoods, etc are priceless...

 

[bigbabyblues]

Can you build a room or two over the garage? Sort of like a bonus room?

 

[momz]

One thing that's missing that's always asked...
1. What are your emergency savings? How much money do you have set aside that you could afford double mortgage payments?
2. How much do you have saved for retirement?
3. How much do you have saved for your children's college fund (if you're gonna pay for that)?

Suzie Orman is all about those numbers, not just current debt and income numbers...if you are low in any of those areas, your money would be better spent buying earplugs and improving what you are low in...

PS - I would never upsize at your age to a less safe, less nice area...some things - like good neighbors, safe neighborhoods, etc are priceless...

Fair questions

emergency 10K
retirement 146K and contributing at 15%
college 10K each (2 kids)

 

[momz]

Can you build a room or two over the garage? Sort of like a bonus room?

Maybe. There is space there. The roof line would need to be amended somehow. the garage ceiling is not meant to also be support for a floor above, there would need to be some load bearing supports inside the garage itself I'm sure. The garage is a 3 car, so there is considerable room up there. I wonder what that would cost. Will look into this possibility.

 

[TwoMisfits]

Fair questions

emergency 10K
retirement 146K and contributing at 15%
college 10K each (2 kids)

Yeah, outside of the emergency fund, those numbers are probably not what you want them to be if you're gonna take on this endeavor...in fact, you'd probably want at least double/triple in your retirement account right now to do this - you're only 20 years from retirement (give or take) and that account is just not high enough to give you any kind of lifestyle in retirement that you may be used to now...

I hate to be the bearer of the bad news...but Suzie would say no way...

 

[StitchesGr8Fan]

Fair questions emergency 10K retirement 146K and contributing at 15% college 10K each (2 kids)

Your retirement is not high enough. I have that much by myself and I'm 10 years younger than you. You should be putting more in to retirement and less toward your house every month. You are paying more on your house to save 4-5% interest, and you could be making 8-10% by investing that money into your retirement.

 

[PlutoPony]

Not to pile on but the $10k college fund will maybe get a semester at a state school (w room + board) or 3-4 semesters at CC living at home. That leaves a LOT of potential debt for your kids to amass if getting a 4 year degree is their objective.

 

[PlutoPony]

Another option that my husband brought up and worth considering.

Build the new house. Keep the one we have and rent it out. Use the rental money to offset our new mortgage.

Your current house payment is ~$1200 right? How much do you think you could rent it for? Add in 10% for a management company and does that really leave you much/any excess to apply to the new home mortgage?

 

[StephMK]

Had not thought about adding onto our current home. We have only one direction we could possibly go with a addition considering neighbor's property and a drainage easement. I don't know if that would work, but I will talk to hubby about the idea.

By moving to a lower cost neighborhood, we can get more house for less money. Same school system and tax area.

If you can find a way to add on to your current home, you would increase the value and offset some of the construction costs in the long run. Plus it sounds like your desired neighborhood would support a higher valued home. Do you really want to more than double your current mortgage at this point for a less desirable neighborhood?

I would be a little reluctant to move to a less desirable neighborhood or carry 2homes. You are so close to paying off the house and would then have $1000 more or less to help cash flow college expenses or funnel more into retirement.

 

[disykat]

I had many thoughts and questions, but most were already addressed as I continued to read.

I am pretty fiscally conservative and think you sound like you've thought it out pretty well and you'll make good decisions either way. However, from where I sit as a parent with two kids in college who is now sitting in our smallish (we have 1700 sq ft) paid off house with the mortgage money covering living expenses for both kids.... I'd encourage you to stay put.

My boys both play brass instruments. We also had a barking dog. The boy's instruments would set off the doorbell sensor, which would then set off the dog, etc..... The piano is also in the middle of the house.

Think about how you could build so the sound wouldn't be an issue in a new house. It's probably not practical.

I grew up in a home where the garage was converted to a family room. (That added 600 sq ft and made the house 2400 sq ft.) That's where mom had two pianos and an old church organ. She taught piano there. It was better than when the piano was in the center of the house, but we still heard the noise. For some reason, my bedroom, which was on the exact opposite side of the house, got lots of the sound.

My point is, you're not getting away from the noise unless you build a palace or a fortress. My kids are out of the house most of the year now. Our paid off mortage will keep them debt free going into their adult lives. I know it's easy for me to say at this point, but the noise was worth it.

If you like your neighborhood and property, finding a way to make it work while staying makes sense. Can the 3rd stall of the garage be sort of temporarily walled off and insulated? Where we live isn't as cold as you, but my boys played their instruments in the garage sometimes if we were watching tv.

 

[momz]

Awe. talk about raining on my parade. lol.

You all have given very sound advice and have pointed out some things to consider. That is exactly why I posted here. For that I thank you very much!

I don't know what decision we will make. But certainly the next week of conversations around this topic will include all of the concerns you have pointed out.

Again, I appreciate what you have shared.

 

[momz]

Your retirement is not high enough. I have that much by myself and I'm 10 years younger than you. You should be putting more in to retirement and less toward your house every month. You are paying more on your house to save 4-5% interest, and you could be making 8-10% by investing that money into your retirement.

we are contributing 15% of our income to retirement. This will not change regardless of whether or not we move. We got a late start on it but are gaining ground quickly. While we have far to go, we still have 20 years of contributions (God willing).