# Build and rent retirement home



## gardner (Feb 13, 2014)

My wife wants to retire in Victoria. We have had an empty lot there for a while. I have been considering borrowing to build, and then renting the home out for a few years before, eventually, moving in ourselves -- maybe 8-10 years out. Some things that I think favour this plan are:


building sooner may be potentially cheaper than using future inflated dollars
If I build now and rent the home out, I can use pre-tax dollars to pay the interest on the loan
I can earn some income off the property rather than just letting it sit and paying property taxes

There likely negatives. I am not 100% keen to borrow, but plowing most of our savings into a single real-estate asset instead would leave us pretty house-poor and heavily weighted on real-estate, at least until we sell up in Ontario.

What do I need to think about here? Is it a crazy idea?

I've started thinking about information I need to do some actual calculations. Some items that I guess I need to figure out would be:


what is the likely cost of building
what will be the cost of borrowing
what is the likely rental income we could earn
what is the increase in property taxes once there's a home on our lot
can a construction loan's interest be deducted right away, or do I have to wait for a rental income to come in

Any other things I should be researching?


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## nobleea (Oct 11, 2013)

gardner said:


> [*]can a construction loan's interest be deducted right away, or do I have to wait for a rental income to come in
> 
> 
> Any other things I should be researching?


no, you would need rental income as its only deductible from that income.

you should be researching whether you really want to live in victoria, have you lived there before?
personally, I wouldn't want to build my dream retirement house, have some renter live in it and potentially treat it well or poorly, and then move in when the house is 10 years old.
How is the market in victoria? i know a lot of people want to retire there, but that generally means there's a lot of um...turnover.


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## gardner (Feb 13, 2014)

nobleea said:


> have you lived there before?


Yes, for many many years. Family, friends.



> whether you really want to live in victoria


That is a question. I'm not 100% sure, but my wife is.



> I wouldn't want to build my dream retirement house


That's a thought. I wouldn't be thinking of building some sort of fancy palace, though. A basic quality home. When it's time to move in, we could upgrade things then. If we bought any pre-owned home, it would be, well, pre-owned. So in my view that aspect would be a wash.


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## Four Pillars (Apr 5, 2009)

I just don't see how you are going to 'save' anything building in advance of when you need it. Unless the land price goes up a lot, I see more of a losing situation, especially if you end up house-poor.

I would sell the land and just buy something when needed. You can build the house then if you want.

8-10 years is a long way off.


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## marina628 (Dec 14, 2010)

We bought land six years ago and built the big family home on one piece of land and the other lot is just around the corner where we will build a more practical 1400 sq ft bungalow for when the kids have moved on to their own lives.I would not buy land and build a home for investment knowing I will never live there.When we built our existing home we knew we had at least 12-13 years here and maybe as many as 20 years.No doubt we made a wise decision to buy the other lot in 2008 as it has increased about 60% since then


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## Pluto (Sep 12, 2013)

Living in Ontario, and building, then renting in Victoria sounds like very high potential for major headaches. Implicitly, you might be relying on friends and family in Victoria to address issues with building and tenant issues. If so, are they really up for that? On the face of it, it looks really complicated and not a good investment idea. Rents in Victoria are pretty low relative to cost of land and buildings. I'm guessing that maybe you are considering this to please your wife. I suspect there maybe more practical ways to please her.


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## gerogesin (Jan 3, 2014)

It is very difficult to borrow money to have a home built privately. The lenders will require you to fork up quite a bit of cash to get started before they release any funds. Have you looked into modular homes? They are a lot cheaper and can be quite luxurious. My colleague who is retiring this spring has a cottage property of which she is having a modular home being built. I have seen picture of the unit and it actually looks very impressive. This may be a route you may want to explore.


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## gardner (Feb 13, 2014)

Pluto said:


> ...very high potential for major headaches...


Yes. This is the main reason it remains a mere thought exercise.

Really, the money is not a problem -- I don't relish being house-poor, so if I could put up $100K and borrow another $200K or something -- just random figures, mind -- I would be happier. It's the hassle of doing it, and the question whether it's a greater financial advantage to get going, wait, or possibly just flog off the lot and take the money. The city values the lot above $250K and I've had it for yonks -- jointly with my dad, most of the time. The capital gains will be a substantial whollop if I sell.


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## Eclectic12 (Oct 20, 2010)

Four Pillars said:


> I just don't see how you are going to 'save' anything building in advance of when you need it ...


Plus as I understand it, usually the property taxes go up when the house is built compared to the empty lot.


Cheers


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