A "would you rather?" question
Between our cash on hand and the sale value of our home (100% equity), we would have enough cash to build our home, with plenty of padding for overages.
Early on, I was dead-set on securing a loan to fund our build, then pay the loan back quickly once the house sold. We have young children (7, 7 and 1) and I wanted minimal disturbance for them during this process. I didn't want to move twice if I didn't have to.
However, we have an offer from a neighbor to purchase our house. The buyers are eager to get in, but they would wait if needed. We have a family member (brother) with a vacant cabin who is willing to let us move in for only minimal rent and maintenance/mowing. I have to say... now I'm tempted to skip the bank loan, sell the home so we have that cash, and move our family of 5, plus a dog, into this cabin.
Let me tell you about this cabin... it's in good structural shape. It has one bedroom, one bathroom, and one large space for the living/dining/kitchen/laundry. I think it's about 900 square feet total.
The downside is we'll have to store all of our stuff. The upside is that we would save several thousand dollars if we skipped the loan.
So what would you rather do? Sell the home and remain 100% debt free, yet live in a tiny house for anywhere between 10 and 15 months? Or just take the loan and enjoy not having to move twice? I would appreciate any thoughts you have!
Comentarios (58)
K R
hace 4 añosI love the idea of selling the house to a neighbor (I have friends who did that and it worked out great) but hate the idea of living in a tiny cabin for 1+ year. I couldn’t do it with no kids let alone little ones. Rent a house.
jmm1837
hace 4 añosÚltima modificación: hace 4 añosThere's another thread about building a house with cash, and several people have made the points that, first, right now, money is cheap because of low interest rates, and second, that taking out a construction loan can provide you with some protection against rogue contractors. So, regardless of what you decide about the offer, you might want to consider taking out that loan.
As for living in that cabin, a year is a long time in the life of young kids. I'd think twice.
chocolatebunny123
hace 4 añosI wouldn't live in the cabin.
The money you would save for the loan you're going to spend storing all your stuff. And are the kids going to be thrilled not having access to their things (toys, etc) for at least a year? Mine would not at their ages.
My first thought too was along littlebug's in what about school? My district is really strict and you would need proof of the contract to build in order to stay in the district but live elsewhere. You're talking about disturbing the kids as little as possible, but the school issue alone could be very disruptive.
I'd rent a house.functionthenlook
hace 4 añosWe did the same as you with our last house. We figured our first home would take a couple weeks to sell and a couple more weeks to close. In the meantime we could start the build. But the house sold the first day and had to move out shortly after. Between money saved and sale of our house our new build was cash. Between bank costs and interest we saved $$$. 2 adults and 2 kids. We were going to rent an apartment, but my dad wanted us to move in with him and my sister. 3 bedroom , 2 bath home. He lived across from the new elementary school that my kids would attend when the build was complete and had a nice yard in a nice neighborhood. Win/win for my kids. My 2 kids shared a bedroom and hubby and I set up a bedroom in the unfinished basement. We stored our furniture. Would we do it again. You bet. The year of living snug in my father's house outwayed the years we raised our children in the new house mortgage free.
Lynn Heins
Autor originalhace 4 añosThis is why I come to you all! You give us things to think about. Husband is ALL ABOUT living in the cabin, and our kids seem excited. Storage is free (my sweet parents). Cabin is in our school district. I could honestly go both ways. All I know is that our sweet girls just want mommy and daddy to play games and read books in bed. It's my goal to see that those things happen all the same throughout this process! I'll follow up and let you know what is decided!
cpartist
hace 4 añosÚltima modificación: hace 4 añosRight now loans are in the 3-4% range. Investing pays more. (For example, my one year rate of return on one of my safe investments was well over 6% and that's my safe returns) Take the loan, invest the dang money and have the added protection that a bank loan will afford you if things go south with your builder.
If it wasn't for our bank, we'd be in deep stuff right now because of how the builder tried to scam us and how the bank refused to pay him for not doing what he was supposed to. We too could well have afforded to not take out a loan but we made money by keeping our money in investments and then having our loan.
And yes, sell the house now while you have a live one and live in the cabin for the year or two. Win/win.
shead
hace 4 añosMy family of 6 is now looking at living in a single wide mobile home for well over a year since our home (has just started to be remodeled) was destroyed due to severe wind/storm damage. I have 4 kids ages 10-16. Will it be fun? No. Will we survive? Most likely...lol. Anyone can do anything with the right attitude.
That said, a bird in the hand is worth more than two in a bush. Sell the house now and move into the cabin. Think of it as an adventure.AnnKH
hace 4 añosI would do the cabin. Buy a big tent to put in the yard, to use as a playroom or even a bedroom for the kids (if they are old enough).
My neighbors lived in a hotel room with their middle school-aged son and daughter for 3 months while their new home was being finished - October through December, in North Dakota. They used their RV in the parking lot as an extra room (but mostly closet). It was cozy, for sure, but they survived.
ILoveRed
hace 4 añosMove to the cabin. No brainer to me. You can do anything short term for a big reward.
We had a chance to sell our house for the asking price without a realtor and had to move into a tiny house while our three year build happened. Our stuff was in storage too. No regrets.
good luck and congratulations on the sell!ILoveRed
hace 4 añosShead...your insurance co may not tell you this but check your policy closely. You are entitled to temporary housing comparable to your own damaged home. We did not know that after our fire until our Public Adjuster told us.
mainenell
hace 4 añosWe have friends who sold there house in preparation for the wife going back to school and moving out of state. Total of 6 in a two bedroom apartment for a year. 3 girls in the larger bedroom, 1 boy in the smaller bedroom and them in the living room. Oldest (son) was a freshman in HS, youngest must have been 6-8. Very organized family and they managed very well. I’d sell while the market is hot.
PROMark Bischak, Architect
hace 4 añosI would rather sell the home and remain 100% debt free, yet live in a tiny house for anywhere between 10 and 15 months. It will give your family a chance to get to know each other better . . . whether they like it or not.
D Walker
hace 4 añosWe’re living in a 28’ foot travel trailer on our property while we rebuild our house. No kids but two dogs :-) Mind you this is not a rural property, we’re right in town. I figure we’re doing pretty good, it’s been 5 months and we still haven’t killed each other... :->. I know we aren’t done yet but at this point I’d have to say I would do the same thing over again in a heartbeat. It’s super helpful being on site (esp since my husband is doing quite a bit of the work) and not having to pay rent, etc.
You just have to maintain a sense of humor... like when you forget to factor in where the porch posts are going when you are looking for a travel trailer with a slide :-)
fissfiss
hace 4 añosWe moved a lot when the kids were little and lived in some temporary housing that was very cozy...and remodeled a few times after that...and camped in the basement of our ski house on weekends while it was being built....so I would say “take the money and camp”. It becomes part of family legend and lore and makes the end result even sweeter.
morz8 - Washington Coast
hace 4 añosMy BIL and his wife, twins age 8 moved into a tiny one room cabin (lakeside) while they had a house built on the same property. It was a really tight fit, they made it work. No washer/dryer, they had to make trips to a laundromat or - when they would visit, it would be with laundry hampers in tow. I don't think the girls suffered from the inconvenience (their 'room' was a bunkbed along a wall), and they were introduced to the same school they would be attending when the family house was finished...so just one school district move. It wasn't always easy, but they did make do.
Friends now had wanted to downsize when their two graduated from college. They sold their urban house much sooner than they had thought they might, and moved from 3,000 sq ft into a family 800 sq ft cabin for an interim period. I should add, just the double garage in that large house was immaculate and organized...most days as neat as my living spaces. ;0) They did a real empty nesters turn around, and both changed professions. They are delighted with the changes in their lives, even with many of their things either sold or in storage. That 'interim' period has now been about 18 months and they aren't actively house hunting. Dare I say honeymooning? They really are happy and content.
Denita
hace 4 añosÚltima modificación: hace 4 añosSell the house and move into the small cabin while your new one is under construction:)
Yes, money is cheap. But we enter into different life cycles and I think getting debt free is a real bonus when you are young. Many choose to add debt in your position. Be different. Don't borrow. Learn to love and live debt free. JMO.
Kim Weaver
hace 4 añosSounds like a lot agree to move to the cabin. Especially if the rest of the family agrees. Our friends with 4 children are getting ready to move into their newly remodeled home. They lived in detached 3 car garage and slept in a camper for 1/2 year. You can do it...........
PROAnglophilia
hace 4 añosI would get a 30 or 15 yr fixed rate mortgage while interest rates are low. Hang onto you cash and invest it. If interest rates soar as they did in the early 80’s, you can earn high interest while paying low on your mortgage. Get when with no pre-payment penalty so if you decide to pay it off early, you have the option.
As to where to live - you know your own family best, and their personal space needs. Some families would be fine:; others would go mad. I’m in the latter camp. Sell and rent if your family is that way.bry911
hace 4 añosI don't mean to disrespect the many people who have given their opinion, however, it is impossible to offer any meaningful advice without knowing some numbers. There are costs associated with moving and costs associated with living in a cabin while you build a house, some of these costs are non-financial but others are financial costs and neither should be ignored when considering this move.
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For example, let's look at the avoidable interest for build cost of $300,000 home which takes 12 months to build and cash draws that are fairly even over the construction period. Your avoidable interest over the 12 months would be about $6,094, or $507 per month. That seems like a lot but what is the rent that your friend is charging... Is it $100? If so, you are down to $4,800 in savings. What about moving expenses since you are now moving twice, and storage fees for the stuff that doesn't go to this house. That will easily eat up another $1,200 and now you are down to $3,600 in savings.
Every time you move into a space you are going to buy things that are specific to that space that you can't use in other spaces. Believe me if you all live in a one room cabin you are going to spend money on some things that you would not have spent in your house just to make your life bearable and that will easily be another $100 per month. Actually I will be floored if it is less than $200 per month, but maybe you like being uncomfortable together. Now you are down to a savings of under a couple of hundred dollars a month to completely destroy all normality in your life, and it probably just isn't worth it.
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Now given the same circumstances but a $800,000 build cost your avoidable interest would be closer to $16,000 and now the marginal savings is much more significant, because even though your house is a lot more expensive to build, the costs of living in the one room cabin remained pretty constant.
Personally, unless my savings were significant I wouldn't do it. It just isn't worth upsetting everyone's normal for a little bit of savings. If you are worried that much about saving money, then see my next post.
WestCoast Hopeful
hace 4 añosI’d move to the cabin and sell the house. When we built we bought our tear down, sold our house, moved to a rental in current school district, moved to a rental near new build, moved into new build. It was all 100% worth it. The rentals were small and old but an adventure and they were cheap. Yes it was a headache at times but we culled our stuff and moved into the new build with what we needed. We have since purchased new things that fit the new house.
bry911
hace 4 añosÚltima modificación: hace 4 añosThe myth of being debt free...
As a financial professional this is something I have to deal with a lot and most of the time this is a misconception. My generation doesn't love debt, and my parents generation hated debt, but things have changed today and there is simply a new reality. Debt is a tool and like any tool can create or destroy value depending on how you use it.
Before I go too much further let me point out that too many people confuse having debt with not having wealth and the two things are far from mutually exclusive. If your choice is paying off your house or wasting your money on cars and clothes that you don't need, then pay off your house. However, if your choice is paying off your house versus responsible mid to long term investing, then responsible mid to long term investing will win every time.
So let's compare financing versus investing using $300,000. First, let's assume you have the income to make the payments but are worried how you are going to send your three kids to college. So either way you know you need to invest some money.
Let's compare borrowing money to build the house and putting that same amount into the equity market versus paying off the house and putting the entire marginal savings from having no house payment into the equity market. Using a broad market index like the VTSAX we can estimate the hypothetical growth after 10, 20 and 30 years.
10 years: borrowing = $661,482 less $101,000 in interest, no borrowing = $254,175.
20 years: borrowing = $1,468,252 less $172,202 in interest, no borrowing = $818,354.
30 years: borrowing = $3,258,992 less $200,000 in interest , no borrowing = $2,070,626.
This means that the average person will create $306,000 of wealth in 10 years just by being smart with debt and equity. Just to demonstrate that $661,482 isn't a spectacular return, had you invested in that very same fund in December 2009 at the end of 2019 you would have had $1,057,257.30 today, and you would have paid $105 K in interest. Leverage is leverage it just works that way.
functionthenlook
hace 4 añosIt will be much cheaper living in the cabin during the build. Utilities will be cheaper, no paying taxes, and less insurance cost than living in a home. Plus you wouldn't have the upkeep on your present home. Your storage is free since you are using the parents house. Not only are you paying the interest on a loan you are also paying all the fees and closing costs on the loan. What happens if the build takes longer than expected, which they do. Then you have even more interest to pay. Loans are always in a banks favor.
PROJoseph Corlett, LLC
hace 4 añosWith kids that age, you'll have very fond memories of your year or so in the cabin. Go for it.
jmm1837
hace 4 añosI agree with the idea that you might want to discuss matters with a financial advisor. Where I live, interest rates for construction loans are running around 3 to 4%. My rather unexciting investment portfolio is averaging 8%. So, taking out a loan for the house while putting my savings into investments could theoretically generate a quite significant return for me, especially over the longer term. If I were still in my 30s or 40s, with time on my side to accommodate for the shorter term ups and downs of the markets, I would be doing precisely that to improve my future financial position. This is quite a separate issue from the choice of living in a cabin for a year.
PROOtis Creek Construction
hace 4 añosWithout a doubt live in the cabin. Your kids will grow closer together and much stronger as a family. Plus the extra money saved by not financing can fund a fun vacation in the future possibly.
bry911
hace 4 añosJust out of curiosity, how many of you all have actually lived in a cabin?
Because your experiences in your cabin are very different than my experiences in our cabin. Admittedly, our cabin is 2 bedrooms so I know it is bigger but my costs for cabin living are still greater than my costs for home living and by an amount that would cost me more than a few thousand dollars in a year and I own the cabin and don't have to pay rent.
Joe is correct, you and your family will certainly remember this fondly given enough time, but then again you and your family will probably remember sitting on a cactus fondly given enough time...
whaas_5a
hace 4 añosÚltima modificación: hace 4 añosIt all depends on your family dynamics and how likely you are to sell your house given your market.
If you decide on the cabin I’ll tell you one thing you better be sure there isn’t an axe anywhere on that property!
We just stayed in a one bedroom cabin with a loft for a few nights at the end it was time to get the hell out of there
lafdr
hace 4 añosBy living in such a small space you will be able to build a smaller home and it will feel huge! It is not an irreversible decision. Try the cabin, if too stressful, rent a larger place while you sort it out. Building is very stressful and time consuming...........have you looked at prebuilt homes? I might look into financing and see the options. This is also not an all or non decision and it really depends on your overall financial picture.
Lynn Heins
hace 4 añosI've actually been needing to schedule our annual meeting with our financial advisor. Yes, investments have been going gang busters the last several years, and truth be told, this year I was thinking we should skip the annual contributions to our investment portfolio. Now I see that might not be the best.
localeater
hace 4 añosA 900 sq ft cabin isn’t small, lots of families live in apartments that size or smaller. You’ll be fine. Your 7 year olds will love it, I might put a tent in the yard for them as a play house.
lookintomyeyes83
hace 4 añosI'd go for the cabin. But admittedly my hubby and I lived in a tent, without running water, for 4 months from Jun-Oct in friggin Manitoba, Canada! After sleeping in a sleeping bag while wearing a parka....alot of things seem doable!
PROMDLN
hace 4 años@ lookintomyeyes83, very impressive! Have you written about the experience? Sounds like it would make an interesting read.
Kate E
hace 4 añosI haven’t read all the comments but want to speak to the “storing all your stuff” comment. We lived with family for 11 mo while our new home was built. (Was supposed to be 6 mo, haha.)
Anyway - we hired a company to move our stuff out of the old house, stored it for 11 mo, then moved into the new house.
In hindsight, we should have just sold / donated 80% of our stuff, furniture, etc- and bought new for the new house. No matter how well you pack - stuff breaks. The stuff that doesn’t break is just never quite the same after storage. I’d pack and carry with you the irreplaceable items. Sell off most of your furniture - only store things you truly don’t want to part with or replace. Like kitchen stuff maybe.
Just an idea. We look back at what we spent on moving & storage costs... we could have furnished our house with new stuff instead!
whaas_5a
hace 4 añosÚltima modificación: hace 4 añosFor all the folks voting to stay in a 1 bedroom cabin with two 7 year olds and a 1 year old for a year make me want to trade my kids in!
Hopefully you can pass off the kids every once in awhile or budget for at least a few hotel nights!kriii
hace 4 añosÚltima modificación: hace 4 añosLynn, I have been in the position of living in smaller quarters between moves twice. Only you can decide if saving the money renting the cabin is worth it to you but it can be done. It was actually nice having less to clean and maintain.
new-beginning
hace 4 añosI live in 900 sq ft. There is NO WAY I would do it with a spouse AND three young kids. Wishing you luck though.
bry911
hace 4 añosStaying in a one bedroom cabin with three small kids is old fashioned birth control
functionthenlook
hace 4 añosYou'll have a guest house too. Cool. Our build was a little different since we were our own GC. Subbed out the shell and did the inside ourselves. But our kids enjoyed the process and learned valuable lessons along the way. My 3 year old son just loved rides in the backhoe and peeing in the (private) backyard. He was quite upset when the bathrooms were functioning and he couldn't anymore. Lol. My 8 year old daughter thought she was so grown up helping with whatever she could. They are both grown now but very handy. My son just himself finished his basment with a bathroom, game room, laundry, and kitchenette. My daughter 2 weeks ago drained her hot water tank and replaced the leaking valve. Just as with any project there comes a point where you think it will never end, but hang in there. It will be worth it in the end. Good luck and enjoy.
D Walker
hace 4 añosA fifth wheel and a cabin - you’ll have plenty of room! :-) Just think of all the fun family stories you’ll have....
G D
hace 4 añosIf it were me I would get a loan for new build/land and put away the cash from the home I sold. If you used all the money from the selling your home to build a new one and some accident or emergency happened you could end up broke. I definitely would not get and exotic loan and would go see a reputable financial person.
lookintomyeyes83
hace 4 años@ mdln - if you search for some of my posts, you'll see the hell the builder put us through with his incompetence. But I love my house, and the sweat equity hubby and I put into it was totally worth it. I just never want to see the builder ever again! (Though I still want the 20+ deficiencies, including building envelope problem FIXED on his dime!)
- PRO
MDLN
hace 4 años@ lookintomyeyes, meant the living in a tent.
Also had a "builder from hell" experience, that makes me hope for karma.
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Lynn Heins