A lot has been going on with the progress of our Usonian dreams over the past two weeks.
We found the area we likely want to purchase in and found several properties that are basically lakefront on a bluff and extremely affordable. It is approximately 40 miles from our current location but suitable in the future. However, once we began to research this, the more possible expenses, risks and considerations came up.
1) Conservation Authority.
Because the bluff erodes away at apparently about 1.5 feet per year average (sometimes more, sometimes less) the setback for the house must maintained a safe distance for at least 100 years and more likely 180 years. The current regulation is around 180 to 300 feet depending on the location. Not a problem unless someone builds closer to the bluff and sort of blocks our potential view.
I have been speaking with both the local building authorities and a reader of this blog regarding the unknown expenses that may arise from building in this general location. One is the soil. It is considered “fox gravelly loam” which drains very well but you may run into soft spots or high water tables that will add expenses. The other is that in the area, an engineered foundation is required adding yet another expense. We are still considering about 3 foundation methods, piering/suspension foundations, Frank Lloyd Wrights slab on grade method (which I suspect would work well in this situation but apparently is harder to get approved in that area) or standard footer/4 to 5 feet foundation walls. The building authorities told me to consider up to twice the normal footer specs depending on the soil conditions…which add another expense…the soil report. My rough estimates after calling around a bit would be around $50K for a solid foundation which is about double or higher my original estimates. However, the soil is more suitable for a septic bed which can save some of that added cost. This is a significant consideration because we can literally be paying more for those two items than 4 acres of land!
3) Real Estate.
After some preliminary research, not many properties are selling in that area which changes our purchasing strategy. I’ll describe this more in a moment. For now we realized…we can wait a seller out. Not much is moving in the price range we have looked at. In some cases, if the seller does not sell within the next few years, the authorities won’t let them sell it as a building lot…period. So eventually we may be looking at a reverse bidding (more selling) war where the people purchasing the properties and building will begin to be courted by the land owners at the last minute. That my friend is a good bargaining position!
I spoke to a friend that manages a mortgage department for a major Canadian bank about our financing options again. He basically told me what we heard before…banks do not want to take the risk of financing land because of the lack of potential equity in the land versus a fully built home. In other words, a piece of land is likely harder to sell in the case of a default than a built home.
This falls in line with Frank Lloyd Wright’s comments on the subject which was paraphrased as “Banks don’t finance homes to live in they finance homes to sell”. We have certainly found that in our own lives and were stuck in that thinking before we realized we may build a house we can spend forever in. A very romantic and real notion.
However, my friend had a fantastic idea. Because we are not likely ready to build for about 2 to 3 years time he said take what you would have put into that property in interest and taxes for 3 years and put that amount into an interest baring account each month instead. That way at the end of the 3 years we have a significant down-payment and a private mortgage lender will likely finance that…no problem because they are protected with our 35% down. This allows a better bargaining position all the way around, better rates and lets us wait to see if someone else is building in that area to predict the risks we are going to encounter with the soil and foundation situation (which we found out happened a few miles away). Also, we will have more equity in our current home which we can then refinance to use for building costs on the new property. Made a lot of sense to me because instead of losing money each month, we are gaining in the long run on interest and taxes saved. It is entirely possible to have the entire property paid for in that 3 years which puts us in an amazing situation because then we can build with the equity in land and not touch the equity in our current home. I was stunned at my friend’s thinking because it is a totally Usonian way to do things because at the end of the day, we will be carrying very little debt throughout the process of achieving our Usonian dream!