Custom Home Build Cost

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Topic Author
SeeingThroughYou
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Joined: Wed Jun 16, 2021 6:48 am

Custom Home Build Cost

Post by SeeingThroughYou »

Long time lurker, 1st time poster…Thank you in advance for any feedback!

We are just starting the process of building a house, purchased a waterfront lot last year for $1,000,000 (currently owe $500K on it, paid off half with cash at close) and have hired a design-build company. In our area, custom builds range from $300-400 per square foot with high end finishes, but with the Covid supple chain issues and material increases, our builder is now estimating we will be in the $400-450 range for an early 2022 start. Our floor plans are for a 5000 sq/ft house which is going to put us around 2-2.25M for the build, with an additional 500K estimate for a pool, seawall/dock installation, and landscaping. Total project cost with land = 3.75M at the $450 sq/ft cost. 3.25M if you take into account the 500K we already paid for the land.

-We are in our mid-30’s and have a combined household income of $1.5M, which should be stable for the foreseeable future (have been at this income for 3 years, prior to that our income was substantially lower).
-Have $750K in our taxable account,
~700K in 401K/Roth IRA/cash balance/HSA plans.
-600K invested into our businesses which have been producing returns of around 10% the past couple of years.
-We have 2 young children who will be going to public school, and have around 30K each in 529 plans.
-No debt other than 450K on our current mortgage. Estimate around 300K proceeds after selling current home.

Do you think that we are in over our heads proceeding with this project at this time and with our current financial situation? The goal is to break ground in Spring of 2022. We should have an additional 500K cash prior to taking out the construction loan (putting a temporary hold on our taxable account contributions to save up), putting the loan around 2.75M and are hoping for another 250K to dump in when the mortgage gets finalized at the end of the build for a final mortgage around 2.5M.
2babogle
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Joined: Mon Nov 05, 2018 9:55 am

Re: Custom Home Build Cost

Post by 2babogle »

In over your heads for the cost? A 2.5m loan on a 1.5m income... Seems ok. No one would be asking about a 250k loan on a 150k income.
You may be in over your heads controlling costs and getting value for your money on a custom build depending on your prior experience.
I'd go for it.
rascott
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Re: Custom Home Build Cost

Post by rascott »

How is a $1.5m income stable? I think this is way to big a project for your asset level and age.

If it's really stable, wait 5 years and do it with a $5m pool of money to back it up.

Cart way before the horse here. Seems like you have a great business but all businesses die. Could be in 1 year or in 100 years. Calling it stable is crazy if you haven't survived through a recession.

Pay cash for this luxury purchase or at the least have the cash to back it up.
OldBallCoach
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Re: Custom Home Build Cost

Post by OldBallCoach »

Lots of jobs are stable at 1.5 for a couple...medical all day long..not coaching football...LOL..I would say your numbers are pretty good, we just finished a guest house that we statrted in 2019 at our summer home...one thing I might suggest is get the permits for the sea wall started yesterday if the Army Corp of enginnering is involved. We live on Lake Michigan and if you so much as break wind next to a blade of sea grasss or a grain of sand you need three permits so look into that now....I think lumber has peaked so that sounds good..also order your appliances WELL in advance...just got Sub Zeros that we ordered over a year ago...other than that go for it...as long as you BOTH can work it should be fine....any kids planned? Also having built a few places how stable is your marriage? No joking...building can be reallllllllyyyyyyy stressful..good luck.
Topic Author
SeeingThroughYou
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Re: Custom Home Build Cost

Post by SeeingThroughYou »

We are both partners in medical subspecialty groups. Made it through medical school, residency and fellowship together so like to think we are in a strong marriage 😂 Have 2 kids and not planning on anymore.
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RickBoglehead
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Re: Custom Home Build Cost

Post by RickBoglehead »

No you are not over your head although you may be spending beyond control, but that's up to you to decide.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Wannaretireearly
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Re: Custom Home Build Cost

Post by Wannaretireearly »

That's a big project. You can afford it, but I'd be concerned about the overrun costs (20-30%?) and high ongoing costs (what's maintainence gonna cost? Property tax?)

What's plan B from here? I guess you could sell the lot for a profit at the moment...
Death and taxes. Only one is under your control!
andypanda
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Re: Custom Home Build Cost

Post by andypanda »

"The goal is to break ground in Spring of 2022"

Do you have a builder and/or a signed contract? My wife and I have been looking at lots on North Carolina's Outer Banks and the locals are telling us that the good builders are looking - hopefully if everything stays on schedule - at sometime in 2022 if you sign a contract now. This isn't coming from just the contractors and the realtors, We know people who live here and I have been known to stop and talk to the framing crews if they look like they're taking a short break. This may change if they can somehow find some additional crews, but a lot like retail and food service it doesn't look good right now.

I'm 70 and not willing to wait, so used it is. We're on Ocracoke Island this week and just spent a few hours riding our bikes checking out the cottages/locations that are for sale.
nordsteve
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Re: Custom Home Build Cost

Post by nordsteve »

Consider waiting until next spring to set pricing. Developers now are pricing in both high material costs, and risks around delay.

I personally would like a bit more of a cash buffer, mostly because I'd want the flexibility to deal with overruns out of pocket.
Gundy
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Re: Custom Home Build Cost

Post by Gundy »

Sounds exciting OP. Congrats to you guys.

Go for it. Avoid death, disability, divorce. You can insure 2 of 3.
"I look at a hundred deals a day. I pick one." -Gordon Gekko
Topic Author
SeeingThroughYou
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Re: Custom Home Build Cost

Post by SeeingThroughYou »

andypanda wrote: Wed Jun 16, 2021 8:57 am "The goal is to break ground in Spring of 2022"

Do you have a builder and/or a signed contract? My wife and I have been looking at lots on North Carolina's Outer Banks and the locals are telling us that the good builders are looking - hopefully if everything stays on schedule - at sometime in 2022 if you sign a contract now. This isn't coming from just the contractors and the realtors, We know people who live here and I have been known to stop and talk to the framing crews if they look like they're taking a short break. This may change if they can somehow find some additional crews, but a lot like retail and food service it doesn't look good right now.

I'm 70 and not willing to wait, so used it is. We're on Ocracoke Island this week and just spent a few hours riding our bikes checking out the cottages/locations that are for sale.
We do and have signed a build contract, but the contract didn’t specify the exact timeline of the project. We are just a bit weary of the high costs and wondering if it would be best to wait given we are already being told it will be more per square foot than what we initially thought. Lumbar futures are trending down fast so fingers crossed things will start to normalize by next Spring?
rich126
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Re: Custom Home Build Cost

Post by rich126 »

nordsteve wrote: Wed Jun 16, 2021 8:57 am Consider waiting until next spring to set pricing. Developers now are pricing in both high material costs, and risks around delay.

I personally would like a bit more of a cash buffer, mostly because I'd want the flexibility to deal with overruns out of pocket.
Businesses are usually quick to increase prices which supplies cost more but often slow to lower prices when supplies start costing less. I just read last night the price of lumber has dropped 41% from its recent high (it was on a news feed when I logged into my TD account).
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Watty
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Re: Custom Home Build Cost

Post by Watty »

If you have not already seen it be sure to check out the White Coat Investor website. It is run by an emergency room doctor who is a regular poster here.

https://www.whitecoatinvestor.com/10-bi ... -mistakes/

https://www.whitecoatinvestor.com/buyin ... right-way/
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am The goal is to break ground in Spring of 2022.
One thing to plan on is that with all the remodeling and building going on subcontractors and contractors are swamped which is causing big construction delays. There is a house that is being built near me and on most days there is no one at the house working on it and when there is someone there it is usually just a couple of people. I assume that is because they are waiting for subcontractors to fit that house into their schedule.

Things could be better by next spring but if not then I would not be surprised if building a house took twice as long as expected.

Breaking ground really does not mean a lot except that you are then committed to see it through. When do you expect to be able to move in the house if you build it?

SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am We are in our mid-30’s and have a combined household income of $1.5M, which should be stable for the foreseeable future (have been at this income for 3 years, prior to that our income was substantially lower).


The problem is that you cannot foresee all that far into the future.

I would expect healthcare will look a lot different 10 or more from now.

There is no telling what that might look like but for comparison you might take a look at what doctors that do what you do get paid in other developed countries and keep that in mind when you are thinking about what your future income might be at some point in the future.

This is especially a risk for the business. I know a couple that had a speech and audiology clinic that was doing OK. I don't remember the details(if I ever heard them) but there were changes in the insurance or Medicare rules that ruined their business model. They closed the clinic after about three years of struggling with the new rules.
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am Total project cost with land = 3.75M at the $450 sq/ft cost. 3.25M if you take into account the 500K we already paid for the land.
Compared to buying an existing house you also need to budget for some place to live while the home is being build. There will also be cost overruns and the only question is how big they will be. You will also have expenses during construction and property taxes. Instead of $3.75 million I would not be surprised if the all in cost is not more like $4.5 million.

You also mentioned a dock so you should also budget for boat if you are going to buy that too. :D
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am Do you think that we are in over our heads proceeding with this project at this time and with our current financial situation?
Other than finances a bigger question is if you are "over year heads" with all the construction that needs to be done. Building near water gets real complicated real fast so I would expect more than normal delays and cost overruns.

You already have a lot going on between your day jobs, two kids, and some sort of business. Just with the time commitments having a custom house built will suck up a lot of your time for probably the next three years.

You may not be leaving a lot of time to actually enjoy your lives and your young kids. The years when the kids are below 10 or so are real special with kids since in a lot of ways their lives are centered around their parents and they really want to spend time with you even if it is just doing stuff like going to a hardware store. These years are special so be cautious about giving up a lot of time now. When they are older there will still be good times but their lives will be more centered around their friends and activities so it is a lot different then.

If you all in cost is in the ballpark of $4.5 million I would sure take a hard look at existing homes that you could buy in that price range. It would be hectic but it would not be that hard to buy an existing house and be moved in by Halloween.

With as crazy as the real estate market is you might even be able to sell the land you bought at a profit.
mkc
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Re: Custom Home Build Cost

Post by mkc »

Watty wrote: Wed Jun 16, 2021 10:14 am
You already have a lot going on between your day jobs, two kids, and some sort of business. Just with the time commitments having a custom house built will suck up a lot of your time for probably the next three years.
Having built 2 custom homes, and neither on the scale of what OP is considering, each of ours required time on site each day contractors were present, in order to meet with the project manager, answer questions, etc. One can be less interactive, but better to catch things while they can still be addressed affordably (and in some cases, even be addressed, like an incorrect slab dimension or wall location).
Topic Author
SeeingThroughYou
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Re: Custom Home Build Cost

Post by SeeingThroughYou »

Watty wrote: Wed Jun 16, 2021 10:14 am If you have not already seen it be sure to check out the White Coat Investor website. It is run by an emergency room doctor who is a regular poster here.

https://www.whitecoatinvestor.com/10-bi ... -mistakes/

https://www.whitecoatinvestor.com/buyin ... right-way/
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am The goal is to break ground in Spring of 2022.
One thing to plan on is that with all the remodeling and building going on subcontractors and contractors are swamped which is causing big construction delays. There is a house that is being built near me and on most days there is no one at the house working on it and when there is someone there it is usually just a couple of people. I assume that is because they are waiting for subcontractors to fit that house into their schedule.

Things could be better by next spring but if not then I would not be surprised if building a house took twice as long as expected.

Breaking ground really does not mean a lot except that you are then committed to see it through. When do you expect to be able to move in the house if you build it?

SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am We are in our mid-30’s and have a combined household income of $1.5M, which should be stable for the foreseeable future (have been at this income for 3 years, prior to that our income was substantially lower).


The problem is that you cannot foresee all that far into the future.

I would expect healthcare will look a lot different 10 or more from now.

There is no telling what that might look like but for comparison you might take a look at what doctors that do what you do get paid in other developed countries and keep that in mind when you are thinking about what your future income might be at some point in the future.

This is especially a risk for the business. I know a couple that had a speech and audiology clinic that was doing OK. I don't remember the details(if I ever heard them) but there were changes in the insurance or Medicare rules that ruined their business model. They closed the clinic after about three years of struggling with the new rules.
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am Total project cost with land = 3.75M at the $450 sq/ft cost. 3.25M if you take into account the 500K we already paid for the land.
Compared to buying an existing house you also need to budget for some place to live while the home is being build. There will also be cost overruns and the only question is how big they will be. You will also have expenses during construction and property taxes. Instead of $3.75 million I would not be surprised if the all in cost is not more like $4.5 million.

You also mentioned a dock so you should also budget for boat if you are going to buy that too. :D
SeeingThroughYou wrote: Wed Jun 16, 2021 7:24 am Do you think that we are in over our heads proceeding with this project at this time and with our current financial situation?
Other than finances a bigger question is if you are "over year heads" with all the construction that needs to be done. Building near water gets real complicated real fast so I would expect more than normal delays and cost overruns.

You already have a lot going on between your day jobs, two kids, and some sort of business. Just with the time commitments having a custom house built will suck up a lot of your time for probably the next three years.

You may not be leaving a lot of time to actually enjoy your lives and your young kids. The years when the kids are below 10 or so are real special with kids since in a lot of ways their lives are centered around their parents and they really want to spend time with you even if it is just doing stuff like going to a hardware store. These years are special so be cautious about giving up a lot of time now. When they are older there will still be good times but their lives will be more centered around their friends and activities so it is a lot different then.

If you all in cost is in the ballpark of $4.5 million I would sure take a hard look at existing homes that you could buy in that price range. It would be hectic but it would not be that hard to buy an existing house and be moved in by Halloween.

With as crazy as the real estate market is you might even be able to sell the land you bought at a profit.

Thank you Watty for such a thorough reply! All of these are valid points, most of which have crossed my mind. We are aiming to be into the house in summer of 2023 with the construction start in spring 2022. I do follow WCI already….one of the main reasons I am hesitant about the project. Our kids are young enough that they are happy to just run around the property and swim in the lake so I imagine during the construction process we can still have make the construction site trips into a “family trip”. We also would like our kids to have the experience of living on the lake which is why we don’t really want to wait a few years to save up and pay mostly cash. So many things to think about…
Flashes1
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Re: Custom Home Build Cost

Post by Flashes1 »

With that level of steady, predictable income, I say go for it. You can't re-create vacation/weekend memories of your kids at those ages. Enjoy the fruits of your labor.
Outer Marker
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Re: Custom Home Build Cost

Post by Outer Marker »

Congrats. You've got it made.

You might want to wait a few months before finalizing the biding and contracting process. Even if it means pushing back breaking ground from spring to fall next year. Lumber prices are tumbling fast after a 400% run-up during covid. Likewise, Subzero and other high end manufacturers are on backorder. I was looking at building a custom home, and a good friend who is an experienced contractor advised to wait.
andypanda
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Re: Custom Home Build Cost

Post by andypanda »

"Building near water gets real complicated real fast so I would expect more than normal delays and cost overruns."

I've been trying to explain the details of this to my wife. We have been looking at lots this week on our favorite island, but the island is served by ferries and a single air strip. No bridges. Luckily, we have friends who extensively remodeled a fishing shack into a beautiful cottage years ago and know the ropes. We're staying in their cottage and have it booked for a week in September too. For instance, there is an HVAC guy on the island.

Saturday we talked to the next door neighbor who lives here year round and her best suggestion for building in the next 2 or 3 years is to find a mainland crew familiar with building on sand and rent a bunch of rooms at one of the three or four motels for them to live in every week for as many months as it takes. The problem is the good crews are booked for the next year or two.

:moneybag :moneybag
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Re: Custom Home Build Cost

Post by goodenyou »

I'll respond by giving our thought process as a 25 year-practicing subspecialty surgeon and a wife who is a subspecialty NP. Our goals were different than most of our colleagues. Not better, or right, but different. We lived a very, very comfortable life in a big house (>5000 sq.ft.) and a pool and with lots of help in and around the house. We had several very expensive cars. We traveled and our kids were privileged. They all had merit-based full-ride scholarships funded by their parents. We didn't live in a VCOL area and spent a fraction of our income. Our custom home cost was much less than our income. Our motivation was to be FI from the changing healthcare dynamics as soon as feasibly possible. We no longer have to work and have many-fold times funded contentment. I am relaxed at work while many of my fellow colleagues are bemoaning the reduction in reimbursements, the annoyance of regulations, EMR etc. I would keep this in mind as you have extraordinary lifestyle creep. Avoid taking risk in your investments to make up for the lack of performance on the savings side. The greatest gift you can give to yourself and your family is financial freedom. The rest is fleeting consumption. Best of luck in your (Radiology) career.
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