Economic Majors, Financially Minded ?

[BradleyS]

I have never had a grasp on financial planning, so I am seeking help.
Here is my situation, I wish to purchase a small parcel of land, on which to build a "tiny Home". Would it be more economically sound to withdraw $30K from my rather modest retirement account or to remove $10 and borrow the remaining $20K ?
The monies in the account are subject to federal tax and the loan figures are based on the presumption that a lending institution would approve the loan.
Your thoughts are appreciated.

[fazool]

Its usually a bad idea to remove money from your retirement funds, however if your mortgage interest is higher than your retirement interest then that's the place to go.

Make a simple spreadsheet and calculate how much each payment would be and what the total will be at the end


For example, if you borrow money at 10% interest for 10 years versus losing savings-interest of 5% for 10 years, then it's a wise choice.

Your retirement earns interest per year. You will lose that when you withdraw it. If you take out a loan, you will pay interest and lose that money as you pay it back.

You need to calculate which is cheaper for you.

Be aware, however, there are some penalties if your money is in a 401K type retirement fund, if you withdraw early.

[Mandobart]

Assuming there is a place available where you can actually buy the land, permit and build a house, run and connect utilities for only $30 k.....
Do you have a clear picture of what your retirement expenses and income will be and therefore how much you need to save?

How long until you retire? How much does it cost to live where you currently do? Why is this a better alternative than buying an existing small home or living in an RV on your own land?

Google present value and future value of money. Figure out how long it will take you to replace that money in your retirement account and how much in compound interest you're giving up. Then figure out how much it will cost to finance your tiny house. IMO its better to get and stay out of debt before retirement.

[guitar george]

For most people it is easier to pay back a loan than it is to save. You are forced to make loan payments. You should only borrow if it is cheaper than using your savings as explained in the posts above.
Having said that however, for many people, it is not a good idea to borrow money to get further into debt and have increased monthly payments.

[Earl49]

If you take money out of your retirement and are younger than 59½ years, you pay the income tax plus a 10% penalty. Everything I've read or heard about tiny homes is that they do not appreciate like regular homes so are not a great long term investment, and are a trendy niche market when you go to sell.

I recently toured a facility where they did rather nice conversions of surplus cargo containers into homes. www.indiedwell.com/

[BradleyS]

I am 66 and retired, earlier than what I would have liked, about 6 years ago.
We moved to the dregs of Texas, by the Mexico border, in order to take care of my father in law.
My wife is still employed, at a huge loss in salary, compared to the position she held prior to moving.
The build plan in a stick built, one bedroom, 600 square foot home with an improved basement.
The $30K is the cost of the land only. The build was estimated at $118K.

[Murphy Slaw]

Originally Posted by BradleyS

We moved to the dregs of Texas, by the Mexico border, …….
The build plan in a stick built, one bedroom, 600 square foot home with an improved basement.
The $30K is the cost of the land only. The build was estimated at $118K.

I'm shocked that a 600 foot stick built house in the dregs is worth $150,000.

[RP]

Originally Posted by Murphy Slaw

I'm shocked that a 600 foot stick built house in the dregs is worth $150,000.

I seriously doubt that it will be when the time comes to sell.

I can't speak to the financial side of things but would like to address other aspects of this decision. I know that tiny house-oriented television shows have appeared and extolled a certain romanticism about tiny house living. My question is what those same people thought about tiny house living a year later. For that matter, what's the resale market like for tiny houses?

Since yours will be built on a basement-type foundation, that's a pretty permanent set-up. It seems that one of the seeming advantages of tiny house ownership is portability. It doesn't sound like you're crazy about the location; do you really want to be stuck there with your tiny house "investment" after your father-in-law no longer needs your assistance, to put it delicately. I could be wrong, but think that this investment will turn out to be more of a depreciating asset which will drain your savings and force you to live somewhere you don't want to be.

The tiny homes that I've seen on television depend on lofts for sleeping quarters, and I question whether you and your spouse will really want to climb up into a tiny loft sleeping space with minimal headroom. I'm pushing 70 and live in a 900 square foot one-story cabin. I'm a veteran camper and I'm accustomed to sleeping/living in small spaces. My ladyfriend lived with me for the past year; and believe me, it got very tight at times. I couldn't imagine living either by myself or with someone else in 2/3 the space and have to climb a ladder to get into sleeping space.

I'm not sure why you feel the need to come up with a pretty permanant solution for what may very well be a temporary situation. However, if you really feel the need to purchase something, I'd be looking at an RV, park model RV, modular home or mobile home to put on your plot of land or in an established park. Good luck with your decision...

[rokdog49]

You never said what type of retirement account you own. Is it a 401k? Savings Account? I.R.A.?
You also did not state your age, your income, your financial goals, marital status, your current indebtedness and a whole lot of other stuff.
These things matter.
There is no way anyone can give you sound advice based on the lack of detail here. You should consult with a professional anyway.

[TBman]

You can borrow from a 401(k) to help finance the purchase of a main residence. I borrowed a relatively small amount and paid it back through a payroll deduction over the years.

[BradleyS]

Originally Posted by Murphy Slaw

I'm shocked that a 600 foot stick built house in the dregs is worth $150,000.

I agree, but the build would be in Pennsylvania in a small town where I grew up.I am 66 and don't require much and the re-sale value is not a major concern.
When I retired the money was converted from a 401K to an IRA and the option to borrow from the funds no longer exists.

[KevWind]

Originally Posted by BradleyS

I agree, but the build would be in Pennsylvania in a small town where I grew up.I am 66 and don't require much and the re-sale value is not a major concern.
When I retired the money was converted from a 401K to an IRA and the option to borrow from the funds no longer exists.

OK I am confused, how did the land purchase and build move from Texas to Penn. ?
In either case $118 k for 600 sq ft. ($196 per square ft.) is pretty high, ?

[RP]

Originally Posted by KevWind

OK I am confused, how did the land purchase and build move from Texas to Penn. ?

Yeh, he lost me as well....

[JonWint]

Buy an existing house, get an FHA mortgage at current very low rates, and get maximum seller assist. If you "build" you'll need a construction mortgage.


Splurge and get 1000+ sq ft. What zipcode in PA?

[BradleyS]

Originally Posted by RP

Yeh, he lost me as well....

Ok, I am currently located, temporarily, in Texas assisting with the care of my father in law. No mention was made of building here in my current location.
Sorry for any misleading inference.