I’ve done it quite a few times. Take out the loan, buy a car, flip the car, pay back the loan and have money from the flip to buy my toys. For me, it’s been an easy way to get a chunk of cash when I need it with minimal fuss or cost.
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Shop/garage finance
- Thread starter shopoholic
- Start date
mike93lx
ALLIANCE MEMBER
That type of usage isn't what we are talking about here.I’ve done it quite a few times. Take out the loan, buy a car, flip the car, pay back the loan and have money from the flip to buy my toys. For me, it’s been an easy way to get a chunk of cash when I need it with minimal fuss or cost.
I didn't say they were terrible in all situations. Just not a great idea, in general. And not for something like this.
Codes may not allow anything that is a living space .... have to check. Most places don't want people building something that could be rented and add to school system.We have equity but not enough for 50k yet, closer to half that, plus just refinanced last year at 2.625% from 4%. Rates are around 5% right now so yeah almost double
Current home is sitting on a little over 2 acres, we bought the empty lot next to ours.
What's the thoughts on maybe adding a small bedroom area on one end, adding heating and cooling and then financing like a mortgage? Is that a grey area? Or for that fact just a bed in it ha
mike93lx
ALLIANCE MEMBER
Huh? Where are towns/cities preventing new construction?Most places don't want people building something that could be rented and add to school system.
If you can do it with cash in 3-5 years it sounds like there is money coming in ... there is nothing wrong with borrowing for something like this. Sometimes the best thing is to get it done ..... if there is some additional cost w/ financing -- so be it. A mistake often made -- starting a project w/o a realistic budget ... the "pay as you go" project can very easily stretch out to 10 years and it's still not done. The -- we will figure it out later ... is always much later.Yeah good point. I would HOPE it would do better in the market. Every time I get a raise I do half of that towards 401k before I see the check, so I probably am in the minority that can answer yes to that.
For debt I don't mind a home loan and one vehicle at a time.. everything else is generally high interest.. we credit card and travel hack as well but its not a revolving debt.. paid every statement.
I wouldn't be opposed to this shop being a debt because I rather not wait 3-5 years to pay cash. May end up being a combo of cash and HELOC and I have to wait a year or so instead of doing it now.
He spoke of putting a small bedroom ... trying to call a living space for a mortgage. Living space is going to need a bath and kitchen. Code officials start looking hard when there is a place for a tub/shower and cooking applianceHuh? Where are towns/cities preventing new construction?
mike93lx
ALLIANCE MEMBER
No argument there. I was question the comment about restrictions due to schoolsHe spoke of putting a small bedroom ... trying to call a living space for a mortgage. Living space is going to need a bath and kitchen. Code officials start looking hard when there is a place for a tub/shower and cooking appliance
That's typically why .... the codes are designed to stop secondary rental spaces as they always produce kids in school. It's why so many towns started to watch how "mother in law" spaces got built. Try designing in anything that looks like a kitchen and watch out.No argument there. I was question the comment about restrictions due to schools
If you can do it with cash in 3-5 years it sounds like there is money coming in ... there is nothing wrong with borrowing for something like this. Sometimes the best thing is to get it done ..... if there is some additional cost w/ financing -- so be it. A mistake often made -- starting a project w/o a realistic budget ... the "pay as you go" project can very easily stretch out to 10 years and it's still not done. The -- we will figure it out later ... is always much later.
This.
When I first read the OP I imagined someone trying to add a shop build to an existing mortgage and stretch out payments over 30 years. That IMO is a terrible idea.
dcg9381
Well-known member
There is a facebook group for building barndominiums. The ability to finance them as residential into a traditional mortgage appears to vary quite a bit. I have seen mortgage appraisers decline them if they can't "comp" the building - meaning there are no comparible structure sales in the area. If you're going to try it, my suggestion is to try to finance it as a "steel framed residence" - don't mention shop or barndominium.What's the thoughts on maybe adding a small bedroom area on one end, adding heating and cooling and then financing like a mortgage? Is that a grey area? Or for that fact just a bed in it ha
mike93lx
ALLIANCE MEMBER
I can't see how what you call it will change comps. Ultimately an appraiser will decide on how to value itThere is a facebook group for building barndominiums. The ability to finance them as residential into a traditional mortgage appears to vary quite a bit. I have seen mortgage appraisers decline them if they can't "comp" the building - meaning there are no comparible structure sales in the area. If you're going to try it, my suggestion is to try to finance it as a "steel framed residence" - don't mention shop or barndominium.
dcg9381
Well-known member
Reasonable question and you're right, it will eventually come down to an appraisal. The word "barndominium" seems to be a blocker with some mortgage companies on entry point, but "steel framed home" they'll take a look at.I can't see how what you call it will change comps. Ultimately an appraiser will decide on how to value it
Banks are strange. I got turned down by one mortgage company as they thought my residence was a "condo" (it has a garage apartment). I asked why, they bank said that my zoning had to be compliant with condominiums. I pointed out that I lived in the county and that my zoning was unrestricted, but still no dice. I provided HUD specific guidelines on what makes something a "condo" - but the mortgage guy stopped responding completely. Same company allows single family homes with ADUs (Accessory Dwelling Units).
Some banks will not finance pole buildings w/ a long term. With one already sitting on a property it's all part of the package -- when the property is valued for a mortgage.I can't see how what you call it will change comps. Ultimately an appraiser will decide on how to value it
The OP says he has 2 acres and then mentions the second empty lot ... it's that 2A combined w/ the existing house lot? Is the new building going on the empty lot? What the long term plan?
I have bought adjacent land -- but only to stop others from building. I never combined and in both cases sold them off separately when the places were sold. Had I built a pole building on the empty lot -- the property would have dropped in value. I own a property in NJ that's two lots and a partial and I'm trying right now to see if I can add to it (my neighbor died) a bit more from a large lot next door will make my whole place more valuable.
No fast rule with this stuff
mike93lx
ALLIANCE MEMBER
I know. That doesn't change with you using a different name for it though, which is what my post was commenting on.Some banks will not finance pole buildings w/ a long term. With one already sitting on a property it's all part of the package -- when the property is valued for a mortgage.
nadogail
Well-known member
Zoning and usage approvals vary widely by location. In my area the local governments are pushing for the construction of more affordable housing. The approval of ADU, Accessory Dwelling Units has been streamlined.
They are looking at ADU’s to relieve the shortage of affordable housing.
They are looking at ADU’s to relieve the shortage of affordable housing.
That was not me -- not that it matters.I know. That doesn't change with you using a different name for it though, which is what my post was commenting on.
Personal loans -- normally they are unsecured loans and for most people they are expensive. HELOC is based on what is sitting there, not what going to be there.
This is going to end in huge fights ... there has been some talk in a town near me. Those pushing it seem to think it's all Roses and we will have all these happy people living in converted garages behind the "big house" . It ends up being smaller lots having houses knocked down and triplexes built and investors buying the "Big" houses and renting both the House and the Garage. "BIG" is in the eye of the beholder ...Zoning and usage approvals vary widely by location. In my area the local governments are pushing for the construction of more affordable housing. The approval of ADU, Accessory Dwelling Units has been streamlined.
They are looking at ADU’s to relieve the shortage of affordable housing.
svhamelly
Well-known member
You sound like you have a good head for the finances and debt/risk etc.Yeah good point. I would HOPE it would do better in the market. Every time I get a raise I do half of that towards 401k before I see the check, so I probably am in the minority that can answer yes to that.
For debt I don't mind a home loan and one vehicle at a time.. everything else is generally high interest.. we credit card and travel hack as well but its not a revolving debt.. paid every statement.
I wouldn't be opposed to this shop being a debt because I rather not wait 3-5 years to pay cash. May end up being a combo of cash and HELOC and I have to wait a year or so instead of doing it now.
I always took my raises and plowed them into 401k (until I was maxed out)... after 25 years of maxed 401k and good investment choices I'll retire by 60 and not worry about running out of money before I die.
I just built my garage using combo of cash/heloc. Only difference is I've had my heloc for 20 years and have used it over the years to finance cars/home improvements/etc. Not that I couldn't afford to pay out in cash, just rather use the lower interest option the heloc offered (rates are higher now) and maintain my cash cushion.
metlmunchr
Well-known member
- Joined
- Sep 10, 2011
- Messages
- 1,280
I'd doubt anyone can count on equity increasing in a house in the near future like it has over the last few years. As interest rates have jumped from around 3% to about 5% over the last couple months, that rate change alone added $500/mo to the P&I payment on a $400K 30 yr loan.
This affects house appreciation in 3 ways. The number of buyers who can qualify for a loan on a particular house decreases. The number of above asking price bids decreases, or even evaporates as it already has according to several news sources. And the number of investors who might buy a house as an investment decreases. Net effect is less demand which leads to more stable prices. Current prices may not go down, but they won't continue to skyrocket like they have over the last few years.
This affects house appreciation in 3 ways. The number of buyers who can qualify for a loan on a particular house decreases. The number of above asking price bids decreases, or even evaporates as it already has according to several news sources. And the number of investors who might buy a house as an investment decreases. Net effect is less demand which leads to more stable prices. Current prices may not go down, but they won't continue to skyrocket like they have over the last few years.
dcg9381
Well-known member
Hopefully it will slow down. If not, many of us will be priced out of our own neighborhoods (eventually) - our taxes are tied to our property values.
I agree that the increase in interest rates is really going to impact the affordability of homes. But here, the percentage of "all cash" sales is still really high, so as long as we've got "California money" coming in, I'm not sure that interest rates will play a huge factor.
I agree that the increase in interest rates is really going to impact the affordability of homes. But here, the percentage of "all cash" sales is still really high, so as long as we've got "California money" coming in, I'm not sure that interest rates will play a huge factor.
OP
shopoholic
Member
Never got notified there were more comments...
Clarification.. we bought a home sitting on a one acre lot. when purchasing we asked about the 1 acre lot beside it that had not been built.. bought that too so 2 lots @ 1 acre each.
We are just barely in the city limits, small town, 1500 ish people. We would still need to get the ok to build one from the city if we move forward.
Thanks for sharing the cost of yours so far.. It is all flat here so should be minimum excavating work. rather have them just truck in some material and build the area up 6" or so then build on top of that. What building did you go with that was 40k ish? got a quote around 32k for the building then have to add concrete and site work to that.
I didn't really clarify because I didn't think it mattered.. but we are not in an expensive house (LCOL area) which matters for HELOC. This is why a full HELOC does not work for us. I have no problem doing a 50k HELOC we just don't have the equity.
Plan moving forward will just be getting a new appraisal and see where we stand LTV and continue getting quotes and go from there.
As for 401k loan.. that's not for me but thanks for the suggestion. I am 26 and trying to squeeze every dime out of the market for compounding interest as early as I can
The OP says he has 2 acres and then mentions the second empty lot... it's that 2A combined w/ the existing house lot? Is the new building going on the empty lot? What the long term plan?
Clarification.. we bought a home sitting on a one acre lot. when purchasing we asked about the 1 acre lot beside it that had not been built.. bought that too so 2 lots @ 1 acre each.
We are just barely in the city limits, small town, 1500 ish people. We would still need to get the ok to build one from the city if we move forward.
Thanks for sharing the cost of yours so far.. It is all flat here so should be minimum excavating work. rather have them just truck in some material and build the area up 6" or so then build on top of that. What building did you go with that was 40k ish? got a quote around 32k for the building then have to add concrete and site work to that.
I didn't really clarify because I didn't think it mattered.. but we are not in an expensive house (LCOL area) which matters for HELOC. This is why a full HELOC does not work for us. I have no problem doing a 50k HELOC we just don't have the equity.
Plan moving forward will just be getting a new appraisal and see where we stand LTV and continue getting quotes and go from there.
As for 401k loan.. that's not for me but thanks for the suggestion. I am 26 and trying to squeeze every dime out of the market for compounding interest as early as I can
Similar here... but it's adding to the sewer and water system that's a problem.Codes may not allow anything that is a living space .... have to check. Most places don't want people building something that could be rented and add to school system.
Juiced06GTO
Well-known member
I took out a HELOC on my house to help with financing the initial part of my barn build so I didn't deplete my savings and to cover unexpected over runs. We had about 150K in equity on the house and I took a 90k line out. Interest rate was variable but had a 3.49% floor. I pulled about 70k from it to cover the contractors portion of the build, everything that I have done has been paid cash out of savings to complete it, although it isn't done yet.
When rates were still super low last fall I decided to roll the 70k on the HELOC into a cash out refinance on the house for a 10 year mortgage at 2.25% because I had a feeling the HELOC rate would beincreasing substantially. We had the house appraised and we had more than enough equity in the house at that point to also keep the 90k HELOC open, but with no balance on it. My payment to the mortgage is less than what I was paying for the mortgage and the payment to the HELOC prior, but I decided to keep sending that extra to the principle on the mortgage, so I'll have my 10 year paid off in about 7 years and will own the house and barn free and clear aside from taxes.
As far as the appraisals go, when I had the house assessed for the refi, the barn added $9k to the value of the property, I have over 100K into it as it sits and will probably be around 120k when it is done, granted it was not complete at the time of appraisal. Lack of comparable properties in the area didn't help, and the fact that I called it a "barn" didn't help either, although because it is a "barn" and not a "detached garage", it also only hit my taxes at a value of $2500.
With rates flying up, any type of financing needs to be scrutinized really well as the long term implications mean a lot more money out of pocket in the long run. I got lucky that I built just before things went crazy price wise and I also was able to take advantage of the low rates.
When rates were still super low last fall I decided to roll the 70k on the HELOC into a cash out refinance on the house for a 10 year mortgage at 2.25% because I had a feeling the HELOC rate would beincreasing substantially. We had the house appraised and we had more than enough equity in the house at that point to also keep the 90k HELOC open, but with no balance on it. My payment to the mortgage is less than what I was paying for the mortgage and the payment to the HELOC prior, but I decided to keep sending that extra to the principle on the mortgage, so I'll have my 10 year paid off in about 7 years and will own the house and barn free and clear aside from taxes.
As far as the appraisals go, when I had the house assessed for the refi, the barn added $9k to the value of the property, I have over 100K into it as it sits and will probably be around 120k when it is done, granted it was not complete at the time of appraisal. Lack of comparable properties in the area didn't help, and the fact that I called it a "barn" didn't help either, although because it is a "barn" and not a "detached garage", it also only hit my taxes at a value of $2500.
With rates flying up, any type of financing needs to be scrutinized really well as the long term implications mean a lot more money out of pocket in the long run. I got lucky that I built just before things went crazy price wise and I also was able to take advantage of the low rates.
As far as the appraisals go, when I had the house assessed for the refi, the barn added $9k to the value of the property, I have over 100K into it as it sits and will probably be around 120k when it is done, granted it was not complete at the time of appraisal.
Similar spent here. Technically not done yet. It bumped my 2013 appraisal by $108k on buildings (not land).
OP
shopoholic
Member
Well decided to just get the appraisal and see where I stand. I could take up to 50k line of credit. So I could come up with enough to build the shop.
Due to the shape I think the country is heading I will wait a bit more and see how this plays out though. HELOC rates are 4-5% currently and variable and with the federal rates are going up steadily just feel like its worth waiting it out. Plus I can stash back until then and have a nice downpayment.
Due to the shape I think the country is heading I will wait a bit more and see how this plays out though. HELOC rates are 4-5% currently and variable and with the federal rates are going up steadily just feel like its worth waiting it out. Plus I can stash back until then and have a nice downpayment.
reader2580
Well-known member
A straight fixed rate home equity loan from a credit union in my area is still under 5% so long as your total loans on the house are under 80%.