What options aren't we seeing?
November 8, 2016 11:39 PM Subscribe
Me and my partner are in the process of building a small house in a rapidly-gentrifying neighborhood and we're in over our heads. Is there a way out?
=== BACKGROUND AND NUMBERS ===
We can barely afford the cheapest rent in the city and we are literally displacing ourselves.
We bought our lot several years ago, went to an architect, told them our budget, and they said it was feasible (they should have sent us away laughing) so they drew up some excellent plans for a highly-technical 600 square foot house, we submitted them to the city (USA).
Eventually we found a contractor to build the shell and we are responsible for the finish work. We are handy, but novices when it comes to house construction. The contractor has been wonderful to work with and we expect them to be done by the end of this year.
Our lot has quadrupled in real market value in the few years we have owned it. We paid about $30k cash, and the land is now worth something like $130k. We pay $1000 in annual taxes and expect that to triple or quadruple when taxes are reassessed after the house is approved. Our taxes will be notably higher than surrounding (much larger) homes. I think this means it might be harder to sell after there's a house on it, at least in the near future.
We have crunched the numbers and seriously considered going homeless in order to have the funds to get the house done sooner, but reading past Ask MetaFilter questions has convinced us that's not realistic. Realistically, we're looking at the house being approved this time next year. It would be another stressful year of barely scraping by.
We've looked into it, and going further into debt is not an option. Trust us when we say that our resources are fully tapped.
Before the house is approved, we will have to prove to the city that we're low income or pay them $20k that we don't have. We can easily prove our low income, we make 3x less than the cap. We also have to agree that we will live in the house.
=== QUESTIONS (AND OTHER FACTORS) ===
1. The market value of our land has reached the point where it's around what it would take to break even including breaking the contract with the contractor. Is it realistic to think that we could sell our lot for anything like the $130k, given that it has half a house on it?
Bonus question: If so, would there be any reason to have the contractor continue to build the shell out to make it more appealing to sell to a flipper? Or would this brand-new frame of a small house with permit be considered a tear-down by developers because it's not maximizing the buildable area?
Bonus question: If we could sell it, is there any chance an affordable housing agency or similar would be able to afford it?
2. After writing all this out, I see that the other half of the question that I'm really asking here is whether it's worth it to hang onto this beautiful burden of a project. Please share your experiences, anecdotes, and words of wisdom to help us think about the emotional aspect of this decision.
I would like to move. Now. I am burnt out and I want out. This is years more project than either of us realized we were taking on. We like the city, we kind of like the idea of having a place to call home and we would never be able to afford anything comparable in this city again. The house is a symbol of stability. We have no way of knowing whether it would actually mean stability without investing several more years of our lives. On the flip side, we're not sure we're ready to settle down and we're not sure we want to do it here.
=== BACKGROUND AND NUMBERS ===
We can barely afford the cheapest rent in the city and we are literally displacing ourselves.
We bought our lot several years ago, went to an architect, told them our budget, and they said it was feasible (they should have sent us away laughing) so they drew up some excellent plans for a highly-technical 600 square foot house, we submitted them to the city (USA).
Eventually we found a contractor to build the shell and we are responsible for the finish work. We are handy, but novices when it comes to house construction. The contractor has been wonderful to work with and we expect them to be done by the end of this year.
Our lot has quadrupled in real market value in the few years we have owned it. We paid about $30k cash, and the land is now worth something like $130k. We pay $1000 in annual taxes and expect that to triple or quadruple when taxes are reassessed after the house is approved. Our taxes will be notably higher than surrounding (much larger) homes. I think this means it might be harder to sell after there's a house on it, at least in the near future.
We have crunched the numbers and seriously considered going homeless in order to have the funds to get the house done sooner, but reading past Ask MetaFilter questions has convinced us that's not realistic. Realistically, we're looking at the house being approved this time next year. It would be another stressful year of barely scraping by.
We've looked into it, and going further into debt is not an option. Trust us when we say that our resources are fully tapped.
Before the house is approved, we will have to prove to the city that we're low income or pay them $20k that we don't have. We can easily prove our low income, we make 3x less than the cap. We also have to agree that we will live in the house.
=== QUESTIONS (AND OTHER FACTORS) ===
1. The market value of our land has reached the point where it's around what it would take to break even including breaking the contract with the contractor. Is it realistic to think that we could sell our lot for anything like the $130k, given that it has half a house on it?
Bonus question: If so, would there be any reason to have the contractor continue to build the shell out to make it more appealing to sell to a flipper? Or would this brand-new frame of a small house with permit be considered a tear-down by developers because it's not maximizing the buildable area?
Bonus question: If we could sell it, is there any chance an affordable housing agency or similar would be able to afford it?
2. After writing all this out, I see that the other half of the question that I'm really asking here is whether it's worth it to hang onto this beautiful burden of a project. Please share your experiences, anecdotes, and words of wisdom to help us think about the emotional aspect of this decision.
I would like to move. Now. I am burnt out and I want out. This is years more project than either of us realized we were taking on. We like the city, we kind of like the idea of having a place to call home and we would never be able to afford anything comparable in this city again. The house is a symbol of stability. We have no way of knowing whether it would actually mean stability without investing several more years of our lives. On the flip side, we're not sure we're ready to settle down and we're not sure we want to do it here.
You can definitely sell it as is, talk to a realtor and see how they'd price it. I did a similar thing once when I had to move cities unexpectedly mid remodel and I made out fine on it. It sold word of mouth before ever going on the market in fact and me and the buyers were very happy with the deal. Having plans and permits in hand makes a huge difference.
posted by fshgrl at 1:10 AM on November 9, 2016
posted by fshgrl at 1:10 AM on November 9, 2016
What is still not done that you expect to take another year to complete?
posted by sepviva at 6:21 AM on November 9, 2016
posted by sepviva at 6:21 AM on November 9, 2016
Now. I am burnt out and I want out. This is years more project than either of us realized we were taking on.
I would say no, definitely don't hang on to this beautiful burden of a project. I'll gently point out, you haven't even actually started on "the project" as far as the real work of finishing out the shell.
I would talk to the city and establish where you are in regard to the final permit. I wouldn't expect the city to Final just a shell. That will make selling it much harder. Maybe they have some sort of Temporary Final/ No Occupancy that they can give you.
In terms of property value, you don't say where you're getting the $130K number. If that's the assessed value with the County, the market value is usually higher. For the right buyer, the unfinished building might not matter.
posted by humboldt32 at 7:16 AM on November 9, 2016
I would say no, definitely don't hang on to this beautiful burden of a project. I'll gently point out, you haven't even actually started on "the project" as far as the real work of finishing out the shell.
I would talk to the city and establish where you are in regard to the final permit. I wouldn't expect the city to Final just a shell. That will make selling it much harder. Maybe they have some sort of Temporary Final/ No Occupancy that they can give you.
In terms of property value, you don't say where you're getting the $130K number. If that's the assessed value with the County, the market value is usually higher. For the right buyer, the unfinished building might not matter.
posted by humboldt32 at 7:16 AM on November 9, 2016
Our lot has quadrupled in real market value in the few years we have owned it. We paid about $30k cash, and the land is now worth something like $130k.
It sounds like you've won the real estate lottery -- congrats.
I understand your desire to be out of this project, but I'm not sure you've really figured out what it is that you want, long term.
Do you like the area? (sounds like yes), will you like the house you're building? (sounds like probably) You say that you can "barely afford" the cheapest rents -- what would your options be if you didn't finish this house? What would your costs be if you did? I'm sure you could probably sell the property as-is, but where would that leave you? Right now, it looks like you've got a line on an eventually affordable-for-you home in an improving area, you might see a hit on taxes, but compared to trying to rent there it's probably still a bargain.
If you fast forward a year, and you were typing this from the kitchen in your freshly finished house, would you still be in dire straits? Or would your mortgage payment (plus taxes, utilities, etc.) be something you could afford (especially compared to rents which are only going to go up)?
What's pushing you to make this decision now? Is there some deadline that you need to hit? Or is it that the reality of another year of construction (which you will primarily be doing yourselves) is hitting you with the completion of the shell? If it's the latter, what's really different about this phase of the process now from when you started?
Practically speaking, you've got approved plans with the city, but how much could you strip out of those plans and still get the house approved? Are there non-structural walls creating rooms that might not be needed for a livable home (I'm thinking an office space)? Is there an extra bathroom that you could run the plumbing for but skip the actual installation? Basically, what is the minimum that you have to do to get a livable house, as quickly as possible (preferably without screwing yourself over for future improvements)?
I think that the sooner you can get into the house the better, even if the walls aren't painted and you don't have carpet in place. It will be much less stressful to work on things at your own pace in your own home as opposed to having to commute to it from wherever you're currently renting. Plus, if you aren't paying rent you'll have more to throw into the house.
posted by sparklemotion at 9:08 AM on November 9, 2016 [1 favorite]
It sounds like you've won the real estate lottery -- congrats.
I understand your desire to be out of this project, but I'm not sure you've really figured out what it is that you want, long term.
Do you like the area? (sounds like yes), will you like the house you're building? (sounds like probably) You say that you can "barely afford" the cheapest rents -- what would your options be if you didn't finish this house? What would your costs be if you did? I'm sure you could probably sell the property as-is, but where would that leave you? Right now, it looks like you've got a line on an eventually affordable-for-you home in an improving area, you might see a hit on taxes, but compared to trying to rent there it's probably still a bargain.
If you fast forward a year, and you were typing this from the kitchen in your freshly finished house, would you still be in dire straits? Or would your mortgage payment (plus taxes, utilities, etc.) be something you could afford (especially compared to rents which are only going to go up)?
What's pushing you to make this decision now? Is there some deadline that you need to hit? Or is it that the reality of another year of construction (which you will primarily be doing yourselves) is hitting you with the completion of the shell? If it's the latter, what's really different about this phase of the process now from when you started?
Practically speaking, you've got approved plans with the city, but how much could you strip out of those plans and still get the house approved? Are there non-structural walls creating rooms that might not be needed for a livable home (I'm thinking an office space)? Is there an extra bathroom that you could run the plumbing for but skip the actual installation? Basically, what is the minimum that you have to do to get a livable house, as quickly as possible (preferably without screwing yourself over for future improvements)?
I think that the sooner you can get into the house the better, even if the walls aren't painted and you don't have carpet in place. It will be much less stressful to work on things at your own pace in your own home as opposed to having to commute to it from wherever you're currently renting. Plus, if you aren't paying rent you'll have more to throw into the house.
posted by sparklemotion at 9:08 AM on November 9, 2016 [1 favorite]
You don't say where you are, other than the US. We did (are doing) a very similar project. We had an architect draw up and permit a house for us (~550 sq ft), hired a GC to make the shell, and finished most of the inside ourselves.
You can definitely sell the lot as a lot. Whether the half finished house adds value or not depends on what the plan is compared to other houses in the neighborhood and what fees you've already paid. For example, a sewer connection fee for a new residential unit is around $10k where I am. So that would be worth money to whoever buys it, whether they continue building or tear down the current structure. It's hard to say if there are special agencies without knowing your specific location.
As for personal experience: I mentioned earlier that we did/are doing a similar project. We also ran vastly over our original budget (but luckily had more funds to tap into). The reasons we ran over budget were multiple: We didn't account for all the ground work/sewer/permitting fees and only accounted for the actual build. There were a few miscommunications about the plan and what we wanted. But most importantly, there's been a housing boom in the area so all materials and work (subcontractors) have become vastly more expensive since the start of the project.
We actually moved in before the house was done. In fact, we moved in 18 months ago and still have temporary kitchen cabinets (made of construction lumber) and have no trim or baseboards. We moved in before the final inspection was passed. I actually specifically called the city and asked about the legality, and they said they can't stop me from living in my own structure, but there may be insurance implications if something goes wrong while living in a house without final inspection. It's since been finaled--even without the nice trims and baseboards.
It sounds like your house is still quite a ways away from that. But we've known people who moved in without real flooring (just plywood subfloors) and so forth. (One person didn't even have a bathroom, but that's a bit extreme for us.) So I would see how far you are from what would be livable to you to make that decision. (Alternatively, as others suggested, get a camper to put on site. We don't have enough space for that.) Some people also finish the house partially to live in and worry about the rest later, though I don't know if that's practical for such a small house.
For us, we hired someone to do the shell and acted as our own GC to get the rest of the work done. We hired subcontractors for: plumbing, electric, drywall, HVAC, sewer, and drainage. We did our own work for: insulation, painting, flooring, and finish plumbing (including installing the bathtub!). We plan to also do: trim, baseboards, kitchen cabinets, stairs, and built-ins.
While it's been years since we started on the project and years since we moved in, the actual timeline from finishing the shell to us moving in was only about 4 months. Again, this is with subcontractors, so spending a good chunk of money. And we definitely got very, very burnt out and took a break from building more of the house for quite a while after we moved in.
The reasons it works for us are: It is better for us financially, now that we are living in it and not having to spend money (though we are, to finish it). It is in a very nice location in a city that we like. And it is designed to our specs and takes into account our lifestyle.
But we didn't even really start on the project until the GC finished the shell. Hiring subs and dealing with inspections (and interpreting the building code) is its own kind of job (which is why GCs get paid). Luckily, I have a flexible work schedule. Then, we got really burnt out because we were working full time jobs, and then working every evening and weekend on the house as well to try to get it done in time for our target move-in date.
Frankly, if you're already burned out now and haven't gotten to the DIY portion yet, and you've already run out of funds, I don't really see how you're going to finish. Ignoring the emotional part--which I know is tough--what are the financial consequences if you try to keep the house? How would you be able to finish it? If you do manage to find funds, would the eventual savings justify the interest rate of those funds? Or would that cripple you, financially? Especially if you don't even really know if this is the city you want to settle down in, it's probably a better idea to take advantage of the seller's market and offload your project and reset your finances.
It's tough, emotionally, because you've spent so much energy and effort into it and probably a lot of time imagining what life will be like in this house. But if it's no longer rewarding and you just want to be done, there's no shame in that. There's a reason most people buy already-built houses rather than build their own.
Sorry I got a bit rambly there. Also, feel free to PM me.
posted by ethidda at 10:48 AM on November 9, 2016 [2 favorites]
You can definitely sell the lot as a lot. Whether the half finished house adds value or not depends on what the plan is compared to other houses in the neighborhood and what fees you've already paid. For example, a sewer connection fee for a new residential unit is around $10k where I am. So that would be worth money to whoever buys it, whether they continue building or tear down the current structure. It's hard to say if there are special agencies without knowing your specific location.
As for personal experience: I mentioned earlier that we did/are doing a similar project. We also ran vastly over our original budget (but luckily had more funds to tap into). The reasons we ran over budget were multiple: We didn't account for all the ground work/sewer/permitting fees and only accounted for the actual build. There were a few miscommunications about the plan and what we wanted. But most importantly, there's been a housing boom in the area so all materials and work (subcontractors) have become vastly more expensive since the start of the project.
We actually moved in before the house was done. In fact, we moved in 18 months ago and still have temporary kitchen cabinets (made of construction lumber) and have no trim or baseboards. We moved in before the final inspection was passed. I actually specifically called the city and asked about the legality, and they said they can't stop me from living in my own structure, but there may be insurance implications if something goes wrong while living in a house without final inspection. It's since been finaled--even without the nice trims and baseboards.
It sounds like your house is still quite a ways away from that. But we've known people who moved in without real flooring (just plywood subfloors) and so forth. (One person didn't even have a bathroom, but that's a bit extreme for us.) So I would see how far you are from what would be livable to you to make that decision. (Alternatively, as others suggested, get a camper to put on site. We don't have enough space for that.) Some people also finish the house partially to live in and worry about the rest later, though I don't know if that's practical for such a small house.
For us, we hired someone to do the shell and acted as our own GC to get the rest of the work done. We hired subcontractors for: plumbing, electric, drywall, HVAC, sewer, and drainage. We did our own work for: insulation, painting, flooring, and finish plumbing (including installing the bathtub!). We plan to also do: trim, baseboards, kitchen cabinets, stairs, and built-ins.
While it's been years since we started on the project and years since we moved in, the actual timeline from finishing the shell to us moving in was only about 4 months. Again, this is with subcontractors, so spending a good chunk of money. And we definitely got very, very burnt out and took a break from building more of the house for quite a while after we moved in.
The reasons it works for us are: It is better for us financially, now that we are living in it and not having to spend money (though we are, to finish it). It is in a very nice location in a city that we like. And it is designed to our specs and takes into account our lifestyle.
But we didn't even really start on the project until the GC finished the shell. Hiring subs and dealing with inspections (and interpreting the building code) is its own kind of job (which is why GCs get paid). Luckily, I have a flexible work schedule. Then, we got really burnt out because we were working full time jobs, and then working every evening and weekend on the house as well to try to get it done in time for our target move-in date.
Frankly, if you're already burned out now and haven't gotten to the DIY portion yet, and you've already run out of funds, I don't really see how you're going to finish. Ignoring the emotional part--which I know is tough--what are the financial consequences if you try to keep the house? How would you be able to finish it? If you do manage to find funds, would the eventual savings justify the interest rate of those funds? Or would that cripple you, financially? Especially if you don't even really know if this is the city you want to settle down in, it's probably a better idea to take advantage of the seller's market and offload your project and reset your finances.
It's tough, emotionally, because you've spent so much energy and effort into it and probably a lot of time imagining what life will be like in this house. But if it's no longer rewarding and you just want to be done, there's no shame in that. There's a reason most people buy already-built houses rather than build their own.
Sorry I got a bit rambly there. Also, feel free to PM me.
posted by ethidda at 10:48 AM on November 9, 2016 [2 favorites]
Having been through several remodels that I did mostly myself with help from family, if you are in a dire financial state now you may not be able to afford to finish it. Finish work is EXPENSIVE and it's always more expensive and time consuming than you planned it to be.
posted by Dr. Twist at 12:41 PM on November 9, 2016
posted by Dr. Twist at 12:41 PM on November 9, 2016
Not a direct answer, but is there a Habitat for Humanity affiliate doing neighborhood revitalization in your area? This might be a project they would be interested in working with you to finish, given the neighborhood and your income. They have people with home build/Reno experience and will provide training and help for the right project.
posted by dttocs at 2:31 PM on November 9, 2016 [1 favorite]
posted by dttocs at 2:31 PM on November 9, 2016 [1 favorite]
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