If you had $4M, would you spend $2M of it building a house?

[Mr._Graybeard]

My neighbors built their dream house on 22.5 acres, and it's very nice. It took 2+ years and cost so much, they had to go back to work.

Conditions changed, and they decided to move on. It went on the market for $1.6 mil, then 1.4, then they broke the lot off 20 acres that went with the place so they could sell it to a nice couple for $9xxk. I think the couple's well-heeled family acquired the land separately under a land contract.

I have a relative who bought an existing house in a tony Twin Cities neighborhood for $1.6 mil. It has a home theater with nine vibrating reclining seats. (SENSURROUND!) A billiard room with table. A TV room with fireplace. A nice kitchen, four bedrooms and five baths. No workshop, but the husband has converted part of the three-car garage to that purpose Then there's the landscaped 1+ acre lot.

My point is that a high-cost custom house is a money loser almost anywhere in flyover land. The house that my relative bought might have cost $3 mil to build. My neighbors certainly spent $1.5 mil and might have expected some appreciation in their investment when they tried to sell the place, but there were no takers.

But, BTD! As Jed Clampett said, "If you've got it, spend it."

 

[rmcelwee]

Just a different perspective. Our house is worth about the same as our net worth.

That is a very good point. If you retire with $1M in investments, can live very comfortably and your house is worth $1M, should you sell it and live in a single wide trailer (like I currently do)? I wonder how many people would say yes?

 

[Trailwalker]

That is a very good point. If you retire with $1M in investments, can live very comfortably and your house is worth $1M, should you sell it and live in a single wide trailer (like I currently do)? I wonder how many people would say yes?

I was born to a single wide trailer. I could go back to one, but I would prefer it to be an Airstream with a very nice truck.

 

[rmcelwee]

My neighbors built their dream house on 22.5 acres, and it's very nice. It took 2+ years and cost so much, they had to go back to work.

I have $1M in cash in a HYSA to start the house. I'm not ever going back to work. I'll live in my single wide for a few more years if something drastic happens. Your neighbors are slightly more foolish than I am.

 

[Texas Proud]

Just another comment... you mentioned being taxed as a farm.... will it continue to be?

My old boss has over 250 acres just north of Houston... probably worth north of $20 mill right now... but is cash poor even though he makes $250K to $750K a year running his business... his is taxed as cattle and timber except for 40 acres which he split for his home...

He loses money on his cattle and has to spend money to have plans for the timber so he can keep the low taxes.. his land is surrounded by urban sprawl so it is really easy to get workers..

He lives in a double wide trailer but I have been told that it is opulent and you would not know it... he continues to wait to build his house as he has no real money as the land took so much to get to where it is... as an example, it is fenced around the whole area with internal fences so move the cattle...

I would not want to live this way... but he seems to love it... so good on him... and good on you if you love it...

 

[MC Rider]

That is a very good point. If you retire with $1M in investments, can live very comfortably and your house is worth $1M, should you sell it and live in a single wide trailer (like I currently do)? I wonder how many people would say yes?

I'd say yes. But I want a double wide and a garage, like we have now. Also the remodeled granite bitchen' kitchen. The "million dollar view" was 90% off. Land values are low. We are out of the way, few good jobs around here. We don't mind, we don't need no stinking jobs.

 

[rmcelwee]

Just another comment... you mentioned being taxed as a farm.... will it continue to be?

My old boss has over 250 acres just north of Houston... probably worth north of $20 mill right now... but is cash poor

I would not want to live this way... but he seems to love it... so good on him... and good on you if you love it...

If I love what? Being cash poor? I will probably end up with $2-$2.5M in investments (plus SS in 4 years) after the house is built. I could see our total expenses being $50K per year (2% WR). I'm not sure why some people are assuming I will be eating dog food after I build the house.

I am not an expert on any of this but I believe:
I am a farm due to the acreage. It will not go away (unless the laws change). AFAIK, you do not pay property tax in TN after you turn 65YO.

 

[Brat]

Never buy or build a house above the 75% (median + 25%) of home prices. $2M in some places in California is median so there a $2M home makes sense. If the median were $1M you would have problems selling a $2M home.

 

[Diogenes]

... We do ZERO travelling - what a complete waste of money. Every day is a vacation on our land. ...

Lots of responses saying "why are you even asking if you have made up your mind". As the very first line of my post stated "it suddenly hit me that we may be spending half our money on it". I wanted to see if anyone had any constructive guidance on this or had done something similar. I thought that was the reason for this forum.

We all have our respective indulgences, on which we gladly (if sometimes sheepishly) spend, while for others, these indulgences look like frippery and waste... and vice versa. Some people collect fancy woven baskets, filling their house with said baskets. Others would think that this is... stupid. Neither is necessarily right.

The grander our ambition, the more we have to be absolutely sure, that we're right... that our appetite won't be disappointed once the delicious morsel hits our palate... that the long-anticipated thing wont be an anti-climax. If we're sure, then we have nothing to account, either to others, or to ourselves. But... are we sure?

One supposes that there being much consonance between frugal living and early retirement, that this Forum would lean against spending 50% of one's net-worth on any item of personal consumption, unless that item were also a promising investment. This indeed would have been the case for owner-occupied housing in HCOL areas around the country, over the past 5 or 10 years.

Thus towards the second portion of your post, which I quoted above, I'm actually surprised not to have seen in this thread any particular success stories, where so-and-so stretched to afford a costly house, taking the hit in stock market opportunity cost, but now, 5-10 years later, coming out very much ahead, due to housing price appreciation.

 

[Dtail]

Sounds like you already have your decision, but unfortunately you didn't get a majority of folks in agreement.
So big deal, you move on.

 

[pb4uski]

.... AFAIK, you do not pay property tax in TN after you turn 65YO.

You may want to rethink that. While I'm aware of jurisdictions that freeze or limit school taxes for seniors, I'm not aware of any where you do not pay proper taxes. Propensity gave me this answer and any relief is income sensitive so someone with $2m of assets beyond their $2m home is unlikely to get any relief.

In Tennessee, individuals over 65 years old are still required to pay property taxes; however, there are programs available to provide financial relief:

1. Property Tax Relief Program: This program offers financial assistance to seniors over 65, as well as people with disabilities and veterans. Eligible participants may receive full or partial reimbursement for property taxes paid, but they must still pay their property taxes initially. Eligibility is based on income limits and the property being the applicant's primary residence.
2. Property Tax Freeze Program: Seniors aged 65 or older can apply to have their property taxes frozen at the amount owed in the year they first qualify. This means that even if property tax rates increase, the amount they pay will remain the same, provided they continue to qualify. This program is available in participating counties and municipalities, and applicants must meet certain income requirements.

These programs require annual applications and proof of eligibility, such as age and income verification. Seniors interested in these programs should contact their local county trustee or city tax collector for more information.

There is also this:

Owning a farm in Tennessee offers several tax benefits, primarily through property tax reductions and sales tax exemptions:

1. Greenbelt Program: The Greenbelt Act allows farmland to be assessed based on its current use rather than its market value, significantly reducing property taxes. Recently, legislation increased the maximum acreage eligible for the greenbelt classification from 1,500 to 3,000 acres, allowing larger farms to benefit from an 80-90% reduction in property taxes.
2. Sales Tax Exemption: Qualified farmers and nursery operators can purchase certain items tax-free. This includes tangible personal property used primarily in agricultural operations, such as equipment, seeds, fertilizer, and livestock feed. To benefit from this exemption, farmers must obtain an Agricultural Sales and Use Tax Certificate of Exemption.

These tax benefits are designed to support Tennessee's agricultural industry by reducing the financial burden on farmers and encouraging investment in rural areas.

 

[momoney]

I know someone that tried renting a small cabin on their rural lot to see if they could make some extra money. Now they rent 5 places on their lot for most of the year. It might be an option to make some extra cash if you ever needed it.

 

[Gremlin]

You asked, so I’ll answer. No, I most definitely would not.
Not the least of which because I had that large of a house once ( my dream house, that we built ourselves) but that’s a lot of square footage that either a) you have to maintain yourself (which we did) or b) pay someone else to. After 7 years I couldn’t wait to downsize. But that’s me, not you. I’m much, much happier in the 1800 sq foot house we built - we have a gorgeous view as well.

I think you should at least do more research before moving forward. But good luck, no matter what you decide.

 

[RetiredHappy]

I used one of the on-line property tax calculators for Tennessee, it looks like if the home is assessed at $1.5M, the property tax is about $9K a year. The income qualifier for freezing property tax is $60K.

 

[Texas Proud]

If I love what? Being cash poor? I will probably end up with $2-$2.5M in investments (plus SS in 4 years) after the house is built. I could see our total expenses being $50K per year (2% WR). I'm not sure why some people are assuming I will be eating dog food after I build the house.

I am not an expert on any of this but I believe:
I am a farm due to the acreage. It will not go away (unless the laws change). AFAIK, you do not pay property tax in TN after you turn 65YO.

No, building what you want...

All states are different when it comes to property taxes... if TN is zero over 65 that is a good thing...

As for farm, here it has to actually be used for that purpose... just having a lot of land does not make it so..

 

[Texas Proud]

/snip/

Thus towards the second portion of your post, which I quoted above, I'm actually surprised not to have seen in this thread any particular success stories, where so-and-so stretched to afford a costly house, taking the hit in stock market opportunity cost, but now, 5-10 years later, coming out very much ahead, due to housing price appreciation.

I have asked a couple of times how much he could sell it for if he needed too... but no answer... if he could sell for $4 mill then it is a good thing to do... if nobody is willing to buy a $2 mill house with the land and all other buildings for even $1 mill then not so much...

I have no idea what has happened to it but many many years ago some Arab sheik built an outrageous house in Houston... it was in a high cost area but was many times more than surrounding homes... well, tried to sell and nobody wanted it...

I could be way off but I think it cost $40 mill back in the 80s... was listed for $20 mill back in 2017 but looks like a price reduction...

https://houston.culturemap.com/news/real-estate/06-11-21-1000-kirby-drive-for-sale-18-million-compass-mile-mahlstedt-prince-abdul-faisal/

 

[luckydude]

If I love what? Being cash poor? I will probably end up with $2-$2.5M in investments (plus SS in 4 years) after the house is built. I could see our total expenses being $50K per year (2% WR). I'm not sure why some people are assuming I will be eating dog food after I build the house.

I am not an expert on any of this but I believe:
I am a farm due to the acreage. It will not go away (unless the laws change). AFAIK, you do not pay property tax in TN after you turn 65YO.

Sorry I have to chuckle at the word "believe" (no offense intended). Part of your planning should include determining for a fact whether your property will qualify for ag exemption because it has huge financial implications in terms of how much property tax you will have to pay.

FWIW, having a large acreage doesn't make a property a farm---the property needs to be engaged in farming activities for a property to qualify for ag (agricultural) exemption. And then you have to remember to file ag exemption with the county assessor.

And here's the kicker: even if the land itself is engaged in farming activities and thus qualifies for ag exemption, the house itself won't qualify for ag exemption because it is not used for ag production. So, the house will be assessed separately as residential property and will be taxed as such.

I know because DW and I own several thousand acres of farmland/ranchland, and we've had a couple of farmhouses on our farms torn down partly to save on property tax (and also to avoid dealing with unpleasant tenants---but that's another story).

 

[Koolau]

I helped with one and I am doing our build starting next month. I have a thread somewhere about it that I will update when something starts happening.
ICF are just big lightweight Lego Blocks. 16" tall and 48" long so a great deal of gratification for each one set, and they typically weigh 5 pounds I will have all my sibling's grandkids out one day helping.

I can't draw a straight line with a ruler. I'd be scared to try setting ICFs but YMMV.

 

[Mr._Graybeard]

No, building what you want...

All states are different when it comes to property taxes... if TN is zero over 65 that is a good thing...

As for farm, here it has to actually be used for that purpose... just having a lot of land does not make it so..

That's the way it is here too. About 30 of the 45 acres of our property is cultivated, and that qualifies for the ag property assessment. Nothing else.

 

[rmcelwee]

I have asked a couple of times how much he could sell it for if he needed too... but no answer...

I didn't answer either time because how could I possibly know. Which year? What is the current INT rate? How is the housing market? Did someone build a large neighborhood or trash dump across the street? I don't even know how much the house is going to cost me. How could I know what it will bring to in some theoretical future. Other than that, I really don't care what it would sell for. I'm not doing this as a monetary investment.
Anyway, I'll throw a number out of $3M. If I need to sell it for some reason I will make $1M on it.

 

[Texas Proud]

I didn't answer either time because how could I possibly know. Which year? What is the current INT rate? How is the housing market? Did someone build a large neighborhood or trash dump across the street? I don't even know how much the house is going to cost me. How could I know what it will bring to in some theoretical future. Other than that, I really don't care what it would sell for. I'm not doing this as a monetary investment.
Anyway, I'll throw a number out of $3M. If I need to sell it for some reason I will make $1M on it.

Well, the reason is that it make a difference in a decision for most people...

And throwing out a number just to throw one out is a bit lame..... there are comps that you can look at... are there places for sell similar to yours that would go for $3 mill? You said you were in a LCOL areas so I would assume that people are expecting a low cost home/land...

As an example... say you want a pool... it can be $60K to build what you want (or more if you look at TV).... but most buyers are not going to value that pool at $60K when it comes time to sell... heck, might only get $10K in some locations... the owner might not give a flip as they want the pool, but they need to know that they are taking a $50K hit on their net worth...

Another example... there are people who restore an old car to pristine condition... can spend $100k, even $200K but that car would never sell for the amount of money they are putting into it... they have another reason to do what they are doing... and also might not give a flip about the loss of net worth s they drive around in their restored car...

So... IF you really think that it would sell for $3 million the day after it is completed then IMO it is a no brainer... build it... you would increase your net worth by $1 mill... but if the highest it could sell for is $1 mill then you lowered your net worth by $1 mill... again, that is great if you really want the house but you should have it in your mind what you are doing...

 

[Diogenes]

As an example... say you want a pool... it can be $60K to build what you want (or more if you look at TV).... but most buyers are not going to value that pool at $60K when it comes time to sell... heck, might only get $10K in some locations... the owner might not give a flip as they want the pool, but they need to know that they are taking a $50K hit on their net worth...

Another example... there are people who restore an old car to pristine condition... can spend $100k, even $200K but that car would never sell for the amount of money they are putting into it... they have another reason to do what they are doing... and also might not give a flip about the loss of net worth s they drive around in their restored car...

These are wise words, sir/ma'am! Any such custom-project is foremost a vanity project. We can't count on good remuneration. It's a treat for ourselves, a reward for decades of saving. Some treats are expensive, some are not. And yes, sometimes, we do actually get financially rewarded. But we can't count on it!

To your second example, I've long wrestled with the idea of a custom hobby-car. Financially it would be hard to justify. Emotionally - not hard at all, save for one minor nuance (or nuisance?), that circles back to the OP: one can hardly have a "nice" car, without having a suitable house, to store it. No house --> cascade of self-denials and necessarily imposed frugality. When I was a homeowner, I didn't appreciate this. Now, as an itinerant renter, with a tool-chest literally sitting in the living/dining/bedroom (yup, that kind of apartment), I've learned to appreciate a garage.

Perhaps if the OP does eventually build his house, the chorus of nay-sayers notwithstanding, some of us could indulge in... living vicariously?

 

[CaliKid]

Well, the reason is that it make a difference in a decision for most people...

And throwing out a number just to throw one out is a bit lame..... there are comps that you can look at... are there places for sell similar to yours that would go for $3 mill? You said you were in a LCOL areas so I would assume that people are expecting a low cost home/land...

As an example... say you want a pool... it can be $60K to build what you want (or more if you look at TV).... but most buyers are not going to value that pool at $60K when it comes time to sell... heck, might only get $10K in some locations... the owner might not give a flip as they want the pool, but they need to know that they are taking a $50K hit on their net worth...

Another example... there are people who restore an old car to pristine condition... can spend $100k, even $200K but that car would never sell for the amount of money they are putting into it... they have another reason to do what they are doing... and also might not give a flip about the loss of net worth s they drive around in their restored car...

So... IF you really think that it would sell for $3 million the day after it is completed then IMO it is a no brainer... build it... you would increase your net worth by $1 mill... but if the highest it could sell for is $1 mill then you lowered your net worth by $1 mill... again, that is great if you really want the house but you should have it in your mind what you are doing...

I agree with what you are saying 99.9% except this is not a monetary decision for the OP... and that's ok. Wouldn't be my choice but we each make our choices. Life is too short and all about choices!

In terms of the guess of $3m that is highly unlikely unless it is many years in the future. In many areas of the country existing luxury houses can be bought cheaper than they can be built... but of course there are exceptions. Plus, the guess of $3m might be 20 years from now in which case I would hope so. It won't be worth $3m anytime soon though in my opinion.

 

[Andre1969]

I think my biggest hang-up, with spending half of my net worth on a $2M house, is that I just wouldn't want all that money tied up in a house. I'd rather have some of it still invested, and working for me in the stock market.

But, with the way mortgage rates are these days, it does make the argument for paying cash! I guess, if you find out that the remaining $2M isn't enough to live on, you could always pull out some equity, do a reverse mortgage, or something along those lines?

 

[ncbill]

Kudos to OP for planning for a ground (instead of roof) mounted solar system.