Hello and thank you for reading and helping!
- The quick version - It was recommended to me to look into having a new SF home built in the small town in CA where my wife and I plan on moving back to in a few years. We are considering having an 1800 sf home built new on a 3/4 acre lot, renting it for 3 years, then making it our primary residence when we move back to CA. Neither of us have any experience with having a home built, we are completely lost on where to start and what we need to know. Any terms, suggestions and advice will be very much appreciated.
- The long version - So we own a rental property in CA right now. It was your typical primary residence that turned into a rental when work sent us to NM for the next 3 years. We were very lucky first time buyers when we got the house at the bottom of the market. We paid $155K for it zero down on a USDA loan. The market is doing really well in that area of CA and comps are selling between $215K to $230K right now (we would pocket about $50K on the low end, pre-taxes after closing). The house only cash flows around $150 a month and in the long term it is probably a wash once I have to start getting into maintenance issues (it was built in 1989). Our lease with our tenant ends in Aug and we are planning on selling it, putting $10K in our pockets to pay off our remaining debt we owe on cars and cards, and putting the rest down on another SF home in the same area.
I called and was speaking to the gentleman who sold me my first loan. He was invaluable to us doing so well on our first home. He has 30 years experience in that community and help steer us in the right direction. I have spoke to him a few times in the last couple years with investment ideas and he has always provided very sound financial advice to us. I was asking about options and he told me we could qualify for two homes (purchasing a second investment property) but suggested we sell the first property, then re-invest in a better investment. I had the similar idea, but it was good to hear from him. I was talking to him about the different communities around town and what I was looking for when he asked me what I thought about building a home. He was explaining to me that he had financed many deals that year for people building homes and was telling me I could have an 1800 sf home built on 3/4 of an acre for aprox $200K and up depending on upgrades we may want. I found this very appealing because the 1600 sf homes I was looking at buying in the similar communities that were built in the 90's were selling for $180K. So needless to say my curiosity was peaked.
With the assumptions above we would have $40K to put down which puts us right at 20% for an investment type property. We would be willing to put less towards debt if needed to close this property. With that said, that would put a mortgage with tax/insurance around $1100 a month on the high side. Comparable rentals for an 1800 sf home in this area are renting for $1600 a month which means even after property management we would be in a much better place than our current home and have a great new home. In the long term we do want to move into this house when we move back to CA in 3 years, so this is more than an investment, it will be our home down the road, but needs to make sense as a rental first.
So all of that said, besides a little number crunching we don't know anything about having a home built. My contact with the mortgage company told me he had a few builders to recommend, and that it was a very straight forward processes, and wasn't very risky as far as getting the home built. I am not sure of the structure of the contract with the builder, or how all of this works. I am hoping that you guys can provide me with some insight into some of the different ways this can happen, what I need to know, what I need to look out for, or if I am just an idiot and I need to go another route, haha. Thanks again for reading and thank you so much for the help!