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Updated over 5 years ago,

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1
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1
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D K.
1
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1
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Build rental on my property, or buy a lot and build?

D K.
Posted

Hi,

I am new to the bigger pockets forum and have a question for you all. I have a 14 acre property where my wife and I built a home a few years ago. We would like to invest into real estate but are trying to decide between two different options to get started:

1.) Build a 3/2 rental home on our property.

2.) Buy a lot in town and build a 3/2 rental home on it.

We are in the Bozeman Mt. area which is in the midst of a major boom, which makes buying any kind of rental home in town very expensive. The average 1500 SF 3/2 house in town sells for 350-400k and rents are $1,500 - $2,000 per month. Lots are 120k-150k for a 1/4 acre lot in town. I work for a construction manager and my background/degree is in architecture so I am able to design and build a home myself for alot cheaper than what it would cost me to buy, or pay a contractor to build. 

Option one has us building a 1500 SF 3/2 home on our existing property for about 200k (180k for the house and another 20k for new driveway/septic/power). Option two would require us buy a lot in town for at least 120k and then spend another 180k (for a total of 300k) to build the same 1500 SF 3/2 house in town. 

Option one allows us to get a rental up and running for much cheaper than what we can find anywhere in our area but we would not be able to sell it because our zoning does not allow our property to be subdivided, so we would end up with 14 acres with two houses on it. An upside to option one is that our property is in a beautiful area so we could air-bnb it for about $150 per night during the summer months. Option one would cashflow by $500-$600 per month assuming $1,750 per month rent. (more if we list it on air-bnb in the summer)

Option two is more expensive up front but it gives us the opportunity to sell the house for as much as 400k in the current market. Option two would also cashflow at $200-$300 per month asuming a higher $1850 per month rent due to being in town.

We have about 30k cash and another 200k in home equity to finance the work, so tell me, what would you do if you were in our shoes? 

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