Refinancing to build?

Question

Hello,

Wife and I are needing some advice. We own a plot of land outside the city limits. We have building approval but I am still not pulling the trigger to start building. We have a home that's worth $375k and we owe 12 years/ $145k. We have $150k in savings. Should we refi the home and pull out the $125k In equity to build our dream home or should I consider purchasing another investment property with our savings (no refinancing)?

Any feedback or advice would be greatly appreciated.

Noah Corwick · Answer

Hi Armando!

Sorry that I'm late to the party.

A huge part that I feel is missing in your project description is what is your end goal? Are you ultimately trying to build your dream home for you and your wife to live in and then stop all real estate activity? Or would you like to keep your real estate ventures rocking and rolling for years to come?

Another consideration for any custom home is build cost. Obviously I'm not sure on how large or high end of a house you intend to possibly build, but a lot of new construction custom homes could range from $250k-$350k (and possibly more). So this project will deplete all of your savings plus some, which I never recommend. I'd recommend using hard/private money so your savings stays in tact if you go this route.

Overall I'd recommend reflecting on what you are trying to achieve and what you want to prioritize. This will be the foundational piece that will lay out a good plan of attack. Let me know if you'd like to brainstorm sometime!

Jason Wray · Answer

When you own a piece of land the lender can provide a construction to permanent loan or a one time close.  Depending on the value or equity in your land it can be credited towards loan.  Kind of like a refinance when you refinance your home you do not bring money to closing you include the closing costs into the new loan by using the existing equity.

Taking cash out of your primary is a solid choice to reserve your liquid assets and stay cash fluid.

Jason Wray · Answer

Armando,

I have seen a lot of success in investors pulling cash out of their homes to turn around and build on a vacant lot they own.  The great thing is you get to use the equity of the lot as partial collateral so it saves you some money.  One thing to keep in mind which most people never even think to do is have a Modular or Manufactured home put on the property.  Manufactured and Modulars now a days are a gold mind because there is no labor or material costs.

You can pick up a Double or Triple wide 4/5 bedroom model and they are beautiful on the inside.  A lot has changed in the Manufactured/Modular world and it beats paying a builder to charge you far way too much money and always take longer o complete the build.