Posted: 12/8/2025 8:02:47 PM EDT
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I'm looking at buying a property to build a shop/garage(barndo) on and finish out a portion as a living area. It will ultimately be my primary residence. I've figured cash to purchase the property, but am at a crossroads on how to pay for the construction of the building. I have more than enough to cover everything...but it's in taxable brokerage accounts and would presumably lead to some adverse tax ramifications as well as lost potential gains that I believe the market will continue to yield under Trump if I were to liquidate positions to cover it. Construction loan seems the most practical but I'm averse to being in debt at all, the other catch is I technically don't know what the total will be when everything is done. I figured this would allow me to cover construction and once complete I could either roll it into a traditional mortgage, or, sell off enough positions to be free and clear. So I need some tactical financial advice on this scenario. Look forward to reading anyone's input. Thanks! |
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Originally Posted By Morgan321: Mortgage your current house and pay for the build with that cash. You’ll get a lower rate than a construction loan, avoid the bank hassle of inspections and looking over your shoulder, and be able to do it on whatever timeline you want. No current house to mortgage. I travel for work and am gone 3 weeks of the month. Trying to set things up to semi-retire by 45...6 years from now. |
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Then it depends on your income and tax situation along with when you want to buy/build. Without knowing any details of your situation the basic issue you’re deciding on is where to put your money to minimize the cost of buying land and building a house. A construction loan is probably around 8% and a 30 year mortgage is in the 6% range. No guarantee of any particular market returns over just 6 years. I would not hesitate to take a mortgage in your situation. I would pay it on schedule while working and pay it off over the course of a couple years after retirement when you will be able to take long term capital gains at 0%. If you’re renting now I would also consider buying an inexpensive house via mortgage asap. It will give you more options and flexibility when you retire. |
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Not exactly what you asked and I'm pretty sure not what you want to hear. But, I'd save up between now and when you actually plan to land there and buy then. We have basically built four times. Three were where the contractor owned the property and carried the note. Those were "relatively" stress free. The fourth was more like what you are laying out. We secured a construction loan and hired a contractor. It was a horrible experience despite our doing significant due diligence. You are paying a note and have zero recourse if/when the contractor can't/won't keep the project moving along. In 2020 my sister was looking to build her "Dream House" at the lake. Bought the lot, secured the construction loan and hired a contractor. Finally finished it in 2024. Over budget and on her second contractor because she couldn't even get the first one started as he was way overextended. I commended her on her restraint from killing the second contractor as he was a total tool. For example, near the end, he decides to use the garage at her home to finish out and paint the cabinets for his personal residence that he was also building at that time. It's easy enough to secure a construction loan and then roll it into a traditional mortgage. Your biggest exposure there is that interest rates can move against you while the home is being constructed and I don't think there's a good way to protect against that. I'd love to buy my dream piece of land and build my dream home. There's just no freaking way I'm signing up for that process again. No realistic way to control things and protect your financial exposure. |
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I am seeing 15 year fixed owner occupied construction loans in the 5-5.5% rate. 80% LTV Obstacles to consider are building code. Is Barndo allowed? And How long do you have to have it completed. Will the bank work with you on a Barndo or are they only loaning on traditional houses? Also need to consider that it is a construction to occupancy loan, so you need to get living space finished, which I actually recommend doing anyway. It jus makes it so much easier when you property is finished. Wife and I built our own house....like swinging the hammers ourselves, ...had to get a small construction loan toward the end because I ran out of money. It will give you headaches while it is being built, but once done, I am sure you will love it. |